Targeted industrial policy and government failures: insights from the South Korean experience

Purpose: The purpose of this paper is to reflect on the efficiency and effectiveness of industrial policies by focusing on the peculiar experience of South Korea. It analyzes Korean structural change from a historical and empirical standpoint, highlighting industrial policy interventions involved in this process. The analysis presented offers important insights to inform the debate on the contemporary industrial policy, identifying specific elements and circumstances that can contribute to mitigate government failures and to improve the effectiveness of public action. Design/methodology/approach: The paper adopts a historical and empirical perspective. Concerning the empirical analysis, a composite indicator to assess the process of structural change of economies is presented. This methodology provides annual rankings based on the different economic relevance of the manufacturing sectors over the period 1963–2012. Findings: The paper shows that industrial policy has been extensively involved in South Korean structural development but public intervention interacted with several other factors, including gradual markets liberalization, education, societal and cultural characteristics and low level of income inequalities. As a result, economic development is conceived as systemic process, namely as the outcome of a balance in the roles played by government, markets and civil society. In this framework, government failures, as inability of the government to respond effectively and efficiently to the general interest of the society, are intimately inherent to the mechanisms that rule the relevant relationships within the system. Originality/value: In the post-crisis debate, very little attention has been devoted in academic and political debate to the ways to mitigate government failures. By analyzing the historical and recent Korean experience with industrial policy, the paper addresses an issue insufficiently analyzed offering an innovative contribution