Comparative Advantage: The Silver Bullet of Industrial Policy

Throughout human history, people have held their political leaders responsible for the general social and economic conditions of their nations. Fairly or unfairly, some leaders have been hailed as national heroes while others have been thrown out of power or even punished more harshly depending on the level of collective happiness or anger. But never in modern history has the leader of an industrialized country been convicted by courts for his stewardship of the national economy. Yet, that is what happened recently when former Iceland Prime Minister Geir Haarde was prosecuted and found guilty of failing to manage his country’s economy appropriately prior to and during the 2008 global crisis. While he was cleared for the most serious charges and barely escaped jail sentence, his reputation and political legacy were forever tarnished. The irony of the story is that he had long been viewed as instrumental in transforming Iceland from a fishing and whaling backwater into an international financial powerhouse before the global crisis.1