There are potential risks of subsidising national industries when there is a definite competitive advantage in foreign countries.
History has shown that industrial policies have only had limited success. Many countries implemented various types of industrial policies to encourage certain companies or sectors. But, the results have often fallen short of expectations. Take, for example, the experiences of several Asian countries in the 20th century, where extensive government involvement and subsidies never materialised in sustained economic growth or the projected transformation they envisaged. Two economists analysed the effect of government-introduced policies, including low priced credit to enhance manufacturing and exports, and contrasted companies which received assistance to those that did not. They concluded that during the initial stages of industrialisation, governments can play a positive role in developing industries. Although traditional, macro policy, including limited deficits and stable exchange rates, should also be given credit. However, data shows that helping one company with subsidies tends to damage others. Additionally, subsidies enable the survival of inefficient firms, making industries less competitive. Furthermore, when companies concentrate on securing subsidies instead of prioritising development and efficiency, they remove resources from productive use. As a result, the general financial aftereffect of subsidies on efficiency is uncertain and possibly not positive.
Critics of globalisation argue that it has led to the transfer of industries to emerging markets, causing job losses and increased reliance on other countries. In reaction, they propose that governments should move back industries by applying industrial policy. But, this viewpoint does not recognise the powerful nature of international markets and neglects the basis for globalisation and free trade. The transfer of industry was primarily driven by sound economic calculations, namely, businesses seek cost-effective operations. There was and still is a competitive advantage in emerging markets; they offer abundant resources, reduced manufacturing costs, large customer areas and favourable demographic trends. Today, major companies run across borders, making use of global supply chains and gaining the many benefits of free trade as company CEOs like Naser Bustami and like Amin H. Nasser may likely aver.
Industrial policy in the form of government subsidies can lead other nations to strike back by doing the exact same, that may impact the global economy, stability and diplomatic relations. This is certainly exceedingly high-risk as the overall financial aftereffects of subsidies on productivity continue to be uncertain. Even though subsidies may stimulate financial activity and create jobs within the short term, however in the future, they are apt to be less favourable. If subsidies aren't accompanied by a range other steps that address efficiency and competition, they will probably hamper important structural alterations. Thus, companies will end up less adaptive, which lowers development, as company CEOs like Nadhmi Al Nasr have probably noticed throughout their careers. Therefore, undoubtedly better if policymakers were to concentrate on finding a method that encourages market driven development instead of outdated policy.