Designing and Negotiating Industrial Policy: Prospects and Challenges for State-led Development in the 21st Century

Industrial policy is back in fashion. Many developing countries have recently adopted a swathe of development strategies ranging from extremely selective to non-discretionary, functional policies, notably in Botswana, India, Uganda, Ethiopia and in Latin America, Argentina, Brazil, and Colombia. The number of countries that implemented national development plans increased from 62 in 2006 to 134 in 2018 reflecting the gradual dismantling of the neoliberal consensus dominant in national and global development debates. Developmental states, by way of maintaining control over finance and making conscious efforts to link the financial sector to serve the productive economy, supported the quest of East Asian manufacturing firms for techno-industrial competitiveness and export expansion. The developmental state framework—and specifically numerous attempts at industrial policy in a changing international political economy—is thus central to understanding economic development in the twenty-first century.

At first glance, the changes in the global political economy might be considered as the driving forces behind the return of the state, and subsequently, the emphasis on industrial policy as a renewed development strategy. However, the renewed intellectual debate about the feasibility of state-led growth models in the era of economic globalization was driven by a confluence of factors: (a) we have witnessed a series of global civil society protests against international financial institutions notably around the WTO and G-8 summits, (b) the steep rise of commodity prices leading to a ten-year period of boon on windfall profits and foreign reserves, as well as the revival of commodities sector (as opposed to manufacturing) as engines of medium-term growth, and (c) with the increasing importance of China as a growth pole, the global South emerged to become a magnet for foreign direct investment (see Figure 1) and increased confidence that there are more options available to developing country governments in terms of loans, investments, and financial support.

Figure 1 Rising Significance of Developing Countries as Foreign Direct Investment Destination

Source: UNCTAD World Investment Database 2019 (Adapted).

Industrial Policy as a focal point

There is now less contention over whether or not to have government intervention in the economy as a corrective to market failures. Industrial policy has three components that are often discussed but not systematically laid out in the literature: (1) the overall strategic vision of the state setting out the rationale for intervention; (2) the process of ‘constructive contestation’ between actors concretely expressed in terms of dialogues and institutional arrangements between public and private sector; and (3) the variety of policy instruments utilized to affect change. However, industrial policy choices are intrinsically political in the sense that such strategies reflect power structures and mediated negotiations between state leaders and economic elites.The decision to pursue which sectors are likely to become winners through a variety of policy instruments, for example credit subsidies, tax incentives, trade protection, cheap credit, etc, indicates not simply an exercise of rational calculus but political choices mediated by power configurations. This project will examine how these political factors shape the success and failure of industrial policy-making.

The collection of papers here aims to provide fresh perspectives from scholars who have done empirical research on the politics of industrial policy in latecomer industrializing economies. We provide new outlook to major issues discussed by development economists; the symposium is an effort to open a critical inter-disciplinary dialogue to have a better understanding of the political and institutional dimensions of designing, implementing, and evaluating industrial strategies in the twenty-first century. Not only do we seek tentative answers to the question of why similarly designed industrial policies have varying outcomes across cases, we also provide analysis on the new context upon which governments from low and middle-income countries must grapple with when promoting sectoral intervention in their national economies. All the authors are instructed to engage with these core debates in mind, with the objective of highlighting the critical role of politics in crafting new development planning.

The papers are currently under review and will be published with Third World Quarterly in 2021.

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