Economics, industrial policy

Industrial policy on my mind

For the last few weeks I have thought about writing a blog post on industrial policy. I am working a report that that interprets the Industrial Policy Action Plan (IPAP-2) for the North West Province, and it seems that we are in fashion. As a preface to the North West Province posts, here is a short primer on the ideas and things I have been reading.
Recently The Economist ran a special report on State Capitalism, entitled The visible hand, The Mail & Guardian argued that South Africa should follow the Chinese model and Johan Fourie commented on both of these. President Zuma’s State of the Nation address focussed on infrastructure investment with specific sectoral and spatial implications (and Johan and I also commented on SONA).

Internationally, Dani Rodrik has written that industrial policy is back, in fact, it never really went away. He writes that

“…industrial policy never went out of fashion. Economists enamored of the neo-liberal Washington Consensus may have written it off, but successful economies have always relied on government policies that promote growth by accelerating structural transformation”.

Rodrik argues that it is not a question of whether one should have industrial policy, but how it should be practiced. He goes on to outline three principles:
  • Industrial policy is a state of mind, built on collaboration between government and the private sector.
  • Incentives should be temporary and based on performance.
  • Policies need to be transparent and open to new entrants – policymakers should be accountable.
He concludes that the argument should not be about government’s ability to pick winners, but about whether they are trying different approaches and letting the losers go.

An example of success comes from the latest edition of The Economist and an article about manufacturers in the British Midlands. Different factors have allowed them to survive and some to thrive, but from a policy point of view:

“…local firms credit two helpful outfits. One is Made in the Midlands, a business network that supports its 250 member firms by putting them in touch, largely online, to help solve mutual problems and share market intelligence. Another prop is the Manufacturing Advisory Service, run through regional development agencies, which provides expert help to small and medium-sized enterprises”.

The manufacturers described in the article link to a recent NBER paper by Richard Baldwin. The title is Trade And Industrialisation After Globalisation’s 2nd Unbundling: How Building And Joining
A Supply Chain Are Different And Why It Matters
. He aruges that multinationals and global supply chains have killed import substitution and this requires a rethink of 20th century industrial policies.

All together it makes for interesting reading. More details on SA policies to follow.

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