RPP is our code for the weekly blog post, op-ed by the School’s celebrity economist / pundit / opinionista, but he will probably only start writing in August, so in the meantime we are filling in with some guest posts.
This week: Waldo Krugell on The return of industrial policy:
Earlier this year The Economist ran a special report on State capitalism, entitled The visible hand and it has been argued that South Africa should follow the Chinese model. 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.
In the US, there is a significant debate about whether manufacturing matters and deserves special treatment. These links tell the story:
- Christina Romer said: Manufacturers don’t deserve special treatment.
- Laura Tyson argued: Why manufacturing still matters.
- The Brooking Institution agreed: Why does manufacturing matter? and hosted a whole event about it.
- Then Ryan Avent provided the rebuttal: Manufacturing concerns.
In a recent post on a World Bank blog, Christopher Colford writes that industrial policy (as an old taboo) has been replaced by a new consensus about competitive industries. He writes:
“This analytical approach aims to maximize the impact of each country’s or region’s limited investment capital by targeting the industries that have the best chance of commercial success”.
Competitive Industries takes an industry-level perspective to long-term competitiveness, analyzing economies from the bottom up rather than from the top down”.
“When a Bank team recently recognized that Special Economic Zones – a staple of traditional Industrial Policy – were not working as planned in India due to local circumstances, they readily revised their approach“.
All this makes for interesting reading, but what does it mean for South Africa? This year the Department of Trade and Industry tabled new legislation for Special Economic Zones and the provinces are unpacking the IPAP-2. For more about these, stay tuned for next week’s guest post!