State Intervention for Growth Promotion in Market Economies

The purpose of the project was to analyze how state intervention, or, more precisely industrial policy, influences market economies. The countries selected for case studies were: Austria, Chile, the European Union, Germany, Japan, New Zealand, South Korea and Taiwan. At the end of the project there is a brief review of the present industrial policy in Croatia. The research indicated the following conclusions as policy recommendations for Croatia: * All the countries under consideration have conducted industrial policies over a long period of time so it seems that an industrial policy is a unavoidable building block of every market economy; * Industrial policy has undergone a transformation from a targeted policy to one relying on horizontal measures; * Targeted industrial policies are aimed at directly supporting selected industrial sectors (either "national champions" or "lame ducks"). Generally this policy has not proved successful. The state administration has not shown itself to be capable of successfully choosing and effectively supporting chosen sectors; * An increasing number of economists agree that industrial policy should rely on horizontal policies, i.e. those aimed at supporting key inputs (e.g. invest in infrastructure, finance labour re-qualification schemes, develop information networks for financial markets, support research and development, support environmental protection, etc.). Such interventions benefit all market agents and lead to least relative price distortions; * Even horizontal state intervention must be limited in time, must consider all costs and benefits, must be as transparent as possible and must distort relative prices as little as possible.