Governments are resource-and bandwidth-constrained, and hence need to prioritize productivity-enhancing policies. To do so requires information on the nature and magnitude of market failures on the one hand, and government's capacity to redress them successfully on the other. This article reviews perspectives on vertical (sectoral) and horizontal (factor markets, cluster) policies with a view to both criteria. We first argue that the case for either vertical or horizontal policies cannot be made on the basis of the likelihood of successful implementation: for instance, educational policies and "picking the winner" types of policies both run the risks of capture and incompetent execution. However, the economics profession has been able to establish more convincing market failures for horizontal policies than for vertical policies. Most of the recent approaches to identifying failures around particular goods are of limited help. Hence, for a given difficulty of execution, the former are generally preferred. A second critical message is that improving the quality of governance in terms of collecting information, coordination ability, and defending against capture is critical to the successful implementation of productivity policies and should be central on the policy agenda. JEL codes: O10, O25 Governments routinely intervene in the economy in the pursuit of higher growth rates. Conceptually, such interventions are justified by market failures that can be found in many aspects of the economy: the production of particular goods, the accumulation of human capital, the provision of infrastructure, and in the interactions among firms. As a group, these policies are sometimes termed "Productivity Policies," although the narrower focus on particular sectoral support has traditionally been termed "Industrial Policy." Standard welfare theory suggests in all cases that there is a role for policy to redress these failures, ideally as close to the distortion as possible. 1 Historically, some state interventions, for instance, in education and infrastructure,