student speaker series - iadb 2014 - rethinking productive development
TRANSCRIPT
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Founding Fathers
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What? Why? Who cares?
In GROWTH, we believe that private agents in the market drive value creation and economic growth. We seek to raise awareness of the importance of public policies for wealth creation, private sector development, productivity and competitiveness. We also study ways to make public policy better support these outcomes.
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We are not about:
Macroeconomics
…nor about the theories and models on Economic Growth.
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Student Speaker Series
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Latin America and the Caribbean
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8.5%
USD13,000
of global GDP& of planet’s population
GDPPC
Productive Development Policies(PDPs)
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Methodology (1/2)
What is the market failure that has been diagnosed to justify the policy?
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1Why does the market not act
upon presumably desirable opportunities?
Methodology (1/2)
What instrument is a good match for the diagnosis and could be used to solve the market failure?
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2Policies need to be an
effective solution to the problem.
Methodology (1/2)
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3Ask first: What type of institutions and with what characteristics are needed to be able to develop the
policy successfully?
Are institutional capabilities sufficiently strong to design and carry out policy as intended?
Methodology (2/2)
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? ???
Main Lessons
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1 Not having available a good, service, or critical factor for development, is not a necessary condition to intervene. What makes PDPs necessary is the existence of a market failure.
Main Lessons
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2 Provided there is a market failure, the solution to that failure should be the best policy in terms of efficiency, cost, risk and simplicity.
Main Lessons
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3 Given (1) and (2) –market failure and best policy–, in absence of the adequate institutions to carry out the policy, it is best to first invest in the creation of that institutions rather than strive to apply the correct policy with inadequate institutions.
Main Lessons
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4 Policies that directly intervene markets are exposed to more risks than those limited to the provision of public goods. Vertical policies also pose more complex scenarios than horizontal policies that do not exclude any sector or agent.
Main Lessons
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5 Given each economy’s specificities and the proved absence of unique recipes, it is better to choose the policies that effectively fit with the institutional capacities of each economy, rather than look for best practices.
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Import Substitution Industrialization
• Market size• Political economy of protectionism• We give benefits. What do we get in return?• Appreciation of the exchange rate
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The 70s
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Debt crisisThe 80s
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Liberal (“Neoliberal”) Paradigm & The Washington Consensus
The 90s
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International trade disciplines economies
Let’s recap
• Industrial Policy: failure in LATAM.
• “The best industrial policy is to have no industrial policy at all…”
• Not really; macroeconomic stabilization and market-friendly structural reforms are not enough.
• New PDPs are needed.
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Are PDPs relevant?
? Do policies that reduce the costs of starting a business attract the right kind of companies?
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Are PDPs relevant?
? Should countries rely more on grants or on tributary incentives to stimulate business innovation?
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Are PDPs relevant?
? How can you reward pioneers in an industry in order to maximize productivity increases?
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Are PDPs relevant?
? Does it make sense to subsidize investment in new technology?
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Are PDPs relevant?
? How should the private sector participate in human capital policies?
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Are PDPs relevant?
? Do immigration policies play a role in a PDP?
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Are PDPs relevant?
? How can countries encourage the emergence of new exporting activities?
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Are PDPs relevant?
? What must be sought to attract foreign direct investment and connection to global value chains?
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Are PDPs relevant?
? Is it worth to have special programs for new or small businesses?
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Are PDPs relevant?
? Should credit promotion policies be based on credit guarantees, loans or subsidies?
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Are PDPs relevant?
? Should beneficiaries share the cost of public goods for clusters?
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Are PDPs relevant?
? How should you change a PDP as countries develop?
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Are PDPs relevant?
? What is the role of government experimentation in a PDP?
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Are PDPs relevant?
? Do program evaluation actually measure the effectiveness of PDP?
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Are PDPs relevant?
? How can we revitalize development banks to be more effective and safer?
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Are PDPs relevant?
? How can you organize the public sector in order to ensure the necessary cooperation and coordination between agencies for PDP?
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Are PDPs relevant?
? What kind of public-private interaction is more effective to design and implement PDPs?
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Are PDPs relevant?
? What mechanisms can be established to encourage greater collaboration and less capture by the private sector?
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Are PDPs relevant?
? How can countries establish a process to identify sectors that are worth supporting?
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Features of 2nd generation PDPs
2.0 Comparative advantages (real and potential) are in the center of the discussion.
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Features of 2nd generation PDPs
2.0 Export transformation strategies and export promotion agencies play an increasingly important role.
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Features of 2nd generation PDPs
2.0 International competitiveness is the best efficiency test (supporting tradable goods that fail to be competitive, reduces welfare).
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Features of 2nd generation PDPs
2.0 Emphasis on manufactures has vastly disappeared (e.g. services and agriculture, now included).
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Features of 2nd generation PDPs
2.0 Policies oriented on market failures.
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Features of 2nd generation PDPs
2.0 Increasing disposition on horizontal interventions, but recognizing the power of vertical interventions to solve bottlenecks of specific sectors.
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Features of 2nd generation PDPs
2.0 Cluster development as predominant vertical approach.
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Features of 2nd generation PDPs
2.0 Increasing emphasis on innovation. More and more countries have programs and institutions dedicated exclusively for innovation and technology diffusion.
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Features of 2nd generation PDPs
2.0 Paradigm change: from development policies managed and implemented by the government in isolation, to the recognition of the private sector’s central role in value creation.
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Features of 2nd generation PDPs
2.0 The process of policy construction tends to be bottom-up instead of being up-down.
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Features of 2nd generation PDPs
2.0 The government is considered a facilitator of production decisions to be executed by private agents, which gives priority to public-private partnerships.
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What the book is NOT about
• Social policies.
• Informal economy.
• Macroeconomic policies (exchange rate).
• Ideology.
• Recommendations.
• Recipes.
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PDPs conceptual framework
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PDPs conceptual framework
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PDPs conceptual framework
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PDPs conceptual framework
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PDPs conceptual framework
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PDPs conceptual framework
Mariana Mazzucato shows that some crucial high-risk investments are being made by the state before the private sector gets involved.
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Let’s recap, again
What is the market failure that has been diagnosed to justify the policy?1
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What instrument is a good match for the diagnosis and could be used to solve the market failure?
Are institutional capabilities sufficiently strong to design and carry out policy as intended?
“A Tale of Two Interventions”
Costa Rica
High import tariff (35%), and high price subsidy (45%).
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Argentina
Tax on producers and use of resources for R&D.
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Picking winners
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Technical capabilities
Organizational
Political
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Institutions for PDPs
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Institutions for PDPs
Darker red, greater institutional capabilities required.
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The book in one slide
What is the market failure that has been diagnosed to justify the policy?1
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What instrument is a good match for the diagnosis and could be used to solve the market failure?
Are institutional capabilities sufficiently strong to design and carry out policy as intended?
Darker red, greater institutional capabilities required.
