To the entrepreneur decisions are displaced revenue. These are his opportunity costs. Subsidies of any kind will change his decisions and their direction, and hence his demand for resources, by changing his opportunity costs. Alternative actions that are economically rational in that they result in a more efficient allocation of resources will be abandoned in favour of an irrational allocation of resoures made profitable by government intervention. Industry lobbying will be substituted for entrepreneural activity, as has already happened in Australia to a considerable extent.
Industry policy is guaranteed to make a bad situation considerably worse.
It follows from this analysis that the greater the intervention the greater the misallocation of resources and hence the lower productivity will be. However, massive savings can conceal, though not compensate, for the damaging effects of irrationally allocating resources. This is precisely what has happened in Asia. Interventionist Singapore and free-market Hong Kong provide a striking contrast of the results of this process. Both started on a similar footing and both grew at about the same annual rate.