Today, I gave a lecture on Industrial Policy as a focal point of analysis when we study state-led development. This is by no means a one man show. I simply introduced some of the ideas that our special issue participants have been debating for months. However, the project builds upon a very successful special issue in 2018 with Third World Quarterly, which really sets out an intellectual agenda persuading other scholars on the analytical purchase of ‘developmental state’ beyond the East Asian historical context. Some very interesting discussions we had today:
(1) What is industrial policy – can we analytically distinguish its political, institutional, and policy instrument facets?
(2) Should states still pursue manufacturing, or should the pursuit of ‘discovering new comparative advantages’ be less ambitious and instead, we should look for sectoral promotion only?
(3) What are the real world examples of recent successful industrial policies? How do we qualify the recent experience of countries like Brazil, India and China as well as low income African countries -can we talk about a generic industrial policy or should we start developing new analytical categories that fit the varying experiences of different countries?
We had some productive debate on how to analytically approach the ‘what’ question of industrial policy — here I suggest that we need to think of the concept in a continuum, where we clearly identify a minimalist and maximalist definition. From a minimalist viewpoint, industrial policy can simply defined as ‘a set of policies aimed at supporting firms as they undertake the process of discovering new forms of comparative advantage’. By contrast, a maximalist concept would have to use a higher threshold of economic change, that is, industrial policies are a wide range of policy instruments aimed at pursuing structural transformation of an economy. In the latter conceptualisation, the state is expected to implement policies akin to the big push approach in the 1950s. Significantly, structural transformation often requires heavy capital goods formation, whereby state-financed investments are conceived as the predominant mode of securing the financial sustainability of such economic undertaking. It is important to note that this is yet to be examined more closely, and the debate is wide open among scholars.
The next critical discussion rests on whether economic activities supported by the state ought to remain in the manufacturing sector. Traditional economics suggests that an expanding manufacturing industry generates the multiplier effects on labour productivity and technological innovation. Yet, commodities, finance and energy are promising new areas of transformative change. I noted the example of Brazil’s oil based industrial policy, which emphasised building human capital, developing a supply chain with Brazilian engineering equipment and services, and the role of regulatory frameworks in creating further competitive advantage to Petrobras.
Overall, the state-led development is now a new agenda. But a political economy perspective is a necessary correction to the industrial policy question. We need more critical discussions on the politics and institutions, which will aid further understanding of the complexity of state led growth as a globalization strategy.