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Or consider wind turbines. China's biggest windmill makers, Sinovel Wind Group Co. and Xinjiang Goldwind Science & Technology Co., have received more than $15.5 billion in credits from state-owned banks. As a result, despite many concerns about quality, they won their first major foreign orders in the past year. They plan to establish plants abroad, including China's first in the U.S. Over time, they will gain experience, improve quality and further reduce costs. In industry after industry, the same pattern emerges.
In theory, I am deeply skeptical of government industrial policy. Government doesn't know how to pick winners and losers, it will make mistakes, and the process will get politicized. All this is true. And yet when I look at China and South Korea and also Germany and Japan, I see governments playing a crucial role. They do make mistakes--their versions of Solyndra--but they seem to view them the way venture capitalists would. Their role is to seed many companies, only a few of which will succeed. Once these companies are identified, government helps them compete against big U.S. multinationals. There used to be a joke about Marxist economists who would say of a deviation from pure communist economics: "It might work in practice, comrade, but it doesn't work in theory." That's what industrial policy looks like these days. The theory doesn't make sense, but it's hard to argue with the result.