Industrial Policy Capture in Taiwan and South Korea

Whatever the theoretical merits of an industrial policy, in practice state incentives in support of infant industry are difficult to withdraw once they have been granted. Infant maturation is thereby delayed, resulting in ‘policy capture’ which confers rents on the assisted firms at the expense of consumers and/or taxpayers. The process is well‐documented in poorly managed economies pursuing autarkic industrial policies (Auty, 1994a). This article examines evidence of policy capture in well‐managed economies pursuing competitive industrial policies. Examples are drawn from the heavy (and chemical) industry drives of South Korea (hereafter Korea) and Taiwan, but the research is first set in the context of the industrial policy debate.