Evaluation of Industrial Policy: The Case of the Swedish Textile and Clothing Industry

Journal article, 1994

This paper evaluates the Swedish industrial policy for the textile and clothing industry and provides an interview-based method for assessing the rational for and the effects of state intervention. The rational for government intervention was analyzed based on the existence of possible sources of market failure, such as the function of the capital market; high risk aversion in firms; shortcomings in available information or in business/entrepreneurial competence; and finally, also positive external effects such as demonstration effects were considered. It was found that the Swedish industrial policy, in the period 1970-1990, was general and defensive in character. In the majority of firms interviewed, government policy had either no effect at all on firm behaviour or where effects were found there were no underlying market imperfections. Only in a minority of firms was it found that the policy alleviated market imperfections and changed firms' investment behaviour in a way which was judged to be beneficial for the firms' competitiveness. Therefore, the Swedish industrial policy for the textile and clothing industry was associated with very substantial inefficiencies in the use of sizeable resources.