Much of the debate on the economy focuses on national trends, such as GDP, the balance of payments, inflation, etc. The macro economy, however, only exists in the minds of politicians, economists and statisticians because it is nothing more than the weighted average of all the individual activities that take place within the geographic boundaries that define ‘the economy’.

The UK economy, for example, is made up contributions from each of the 12 regions as defined by the government and it is apparent that the North West is very different from the South East.

Similarly, GDP can be broken down by industrial sector and recent experience highlights the differing fortunes of financial services, agriculture and manufacturing.

These industrial and regional variations, however, get lost when the numbers are added up to produce the national picture and it is the national picture which attracts public comment.

If macroeconomic policy missed regional and sector variations, this raises the question of whether macro economic policy alone can improve the performance of the economy, of whether one size (in terms of interest rates and taxation) can fit all.

Recognition of the limitations to the unrestrained competitive process and to the broad thrust of macroeconomic management has led successive governments into the area of micro economic policy.

In the UK, attempts have been made over a very long period to change the way specific industries or regions operate.

The rationale for these policies has varied over time, from the overtly political (ie. the need to preserve jobs in sensitive parliamentary constituencies) to economic considerations such as helping sectors adjust to changes in market conditions, to encourage rationalisation or to improve international competitiveness.

The methods that have been tried in the past include such instruments as public ownership, soft loans, grants, tax breaks and subsidies. The ‘credit crunch’ has brought these policies into sharper focus.

A number of ailing financial institutions have been given public support, but not in the form of subsidies. The government has in effect become the largest shareholder in several banks, a measure that stops short of nationalisation. The hope is that once they have been restored to financial health, they can be returned to the private sector by selling the shares and making a ‘profit’ for the taxpayer.

In many ways, separating macro and micro policies is to make an artificial distinction. The obvious long-term intention of any intervention at industry or regional level is to raise economic performance (in terms of growth or employment) which, in turn, will help the economy at a macro level.

In addition, there are the short-term opportunity costs associated with spending taxpayers’ money in areas that are under-performing (in market terms) when a better national return might have been earned if the money had been spent differently or not at all.

There are difficulties in defining and categorising all the government policies that might be considered ‘microeconomic’.

Much legislation is passed that will have an impact on an industry or a region although the primary objective has nothing to do with economics (eg, measures to protect the environment or regulations on food to protect consumers).

For the purposes of this discussion, microeconomic policy is defined in the limited sense to cover those activities of government aimed explicitly at economic performance, ie. industrial policy (but with competition policy and productivity treated separately) and regional policy.