I had mentioned about these 2 papers on Industrial Policy in my previous post. I finished reading them and are a must read for anybody interested in Growth economics.
The paper by Ha-Joon Chang is a reminder that industrial policy is not just about East Asian and South East Asian economies. It has been followed and implemented by other developed economies as well. And yes, there are both failures and successes with industrial policy. Instead of fighting over whether it works or not, we need to have a more constructive discussion on the same.
The other paper by James Robinson says :
I make five main arguments. First, from a theoretical point of view there are good grounds for believing that industrial policy can play an important role in promoting development. Second, there certainly are examples where industrial policy has played this role. Third, for every such example there are others where industrial policy has been a failure and may even have impeded development (though the counter-factual is complicated). Fourth, the difference between these second and third cases rests in the politics of policy. Industrial policy has been successful when those with political power who have implemented the policy have either themselves directly wished for industrialization to succeed, or been forced to act in this way by the incentives generated by political institutions.
My fifth point, which is derivative from the first four, is that economists and international institutions have to change the way they think about “industrial policy”. To really promote industrialization in a society we need a positive theory of the political equilibrium of that society which leads to particular policy choices. To give policy advice that would foster industry, one has to understand this political equilibrium and either attempt to change it or work within the environment it generates. This is a very different way of thinking about what industrial policy means.
Unfortunately, as things stand, while we have a good normative theory of industrial policy we have a woefully inadequate positive theory which can help explain why industrial policy was adopted and apparently so successful in Taiwan, for example, and such a disaster in Ghana. It is towards building such a theory that research should focus and without it I argue that advocating industrial policy in the traditional sense as a solution to poor countries’ problems involves a quite large leap of faith.
Both papers are excellent, rich with country examples. Makes you rethink about industrial policy.
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