332 deep freedomcome to be marked by a similar combination of prospective fecundity
and retrospective selectivity.
Th e production of goods and ser vices is the domain of social life
most readily exemplifying the practical implications of this princi-
ple. Th e state should encourage a fervor of entrepreneurial activity
and innovation. It should also, however, work to ensure that the re-
sults of this fervor are subject to draconian competitive selection in
the market. Th e more the state is engaged in encouraging productive
activity, the greater the reason to sharpen the subsequent competi-
tive selection.
Consider the example of industrial policy, understood as a term of
art denoting any form of coordinated action between governments and
private fi rms in any sector of the economy. Production normally devel-
ops by analogical extension: new lines emerge from established lines.
When the circumstance is one of relative backwardness— of a sector of
production or of the entire national economy— or the new line runs
well in advance of existing lines, the chain of analogies may be thin.
Government can then compensate by facilitating access to the missing
inputs of credit, technology, capabilities, and staff. Its actions are more
likely to be benefi cial if they ally agnosticism about the choice of par tic-
u lar sectors or lines (it is the future that chooses which lines and prod-
ucts are future- bearing) with initiatives designed to counterbalance the
thinning out of the chain of analogies.
Such initiatives, undertaken in a broad range of contemporary econ-
omies, richer and poorer, may be most likely to remain faithful to the
spirit of such a marriage of agnosticism, encouragement, and fervor if
they resist the choice between the two models of government- business
relations that are now available in the world: the American model of
arm’s-length regulation of business by government and the Northeast
Asian model of formulation of unitary trade and industrial policy, im-
posed top down by a governmental bureaucracy. Th e form of strategic
coordination between governments and fi rms should be decentralized,
pluralistic, participatory, and experimental. Firms that are medium-
sized or small but nevertheless vanguard businesses may have the best
chance to develop a culture of permanent innovation if they build
among themselves practices of cooperative competition: pooling re-
sources, people, and ideas while competing against one another.