Beyond Industrial PolicyIvan Rossignol

Plenary: Beyond Industrial Policy

13 November 2014

BEYOND INDUSTRIAL POLICYIvan Rossignol, Chief Technical Specialist

17th TCI Global Conference, 13th November 2014, Monterrey, NL, Mexico

Industrial Policy is back (again)

• European Commission adopted a new

communication on Industrial policy “For a

European Industrial Renaissance”

• France has “La Nouvelle France Industrielle”

an industrial strategy outlining 34 sector

based initiatives

• UK has developed a strategy to develop and

prioritise 28 technology clusters

• Italy, through its “Destinazione Italia” has

identified a number of specific measures to

attract FDI to Italy in targeted sectors

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And not just in high-income countries

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India

The Make In India program is a major new program encompassing 25 sectors from

Automobiles to “Wellness” designed to facilitate investment, foster innovation, enhance

skill development, protect intellectual property and build best in class manufacturing

infrastructure*.

China

China continues to manage its economic growth through carefully crafted industrial

policies. The Catalogue of Industries for Guiding Foreign Investment classifies

industries as being ‘encouraged’, ‘restricted’ or ‘to be eliminated’. The most recent (Dec

‘11) reveals the following 3 priorities (amongst others);**

- Upgrading of manufacturing capabilities

- Promotion of new strategic industries

- Development of a modern service industry

Brazil

EMBRAPA (Brazilian Agricultural Research Corporation) is a state-owned enterprise/

research center that focuses on activities for which international demand is increasing

and technologies can be adapted and developed to make Brazil more competitive

*Make In India website, makeinindia.com *Jones Day Publications, jonesday.com

We strive to “replicate” what successful countries did to achieve

sustained economic growth

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1 Period in which GDP growth was 7 percent per year or more, according to Growth Report

Source: “The Growth Report”, Commission on Growth and Development, 2008; literature search; team analysis

Economies identified by the Growth Report as development success stories

Success storyGrowth, 1960s to 2005

% change p.a. in income per capita High growth period1

1960 - 2005

1950 - 1980

1961 - 2005

1960 - 1997

1966 - 1997

1950 - 1983

1960 - 2001

1967 - 2007

1963 - 1994

1960 - 1999

1967 - 2002

1965 - 2002

1960 - 1997

Used industry

approach

Did not

Results

• 8X per capita

incomes

• 700m people

out of poverty

• 90% focused

on specific

industrial

sectors and

explicit actions

to boost

innovation and

technological

upgrade

Used industrial approach

Did not use industrial approach

However…

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….The global context has changed

As Dani Rodrik writes in this recent paper “Unconditional Convergence in

Manufacturing”, it may be very difficult to duplicate successes of South Korea, Taiwan,

Botswana and Chile because;

1. Global environment is no longer development-friendly

- rich countries use to provide direct access to markets / capital / technology

- rich countries use to exhibit “benign neglect” towards industrial policies that were

being employed

2. A handful of countries have consolidated capability and have become manufacturing

centers of the world. New entrants will find it very difficult to compete in even basic

manufacturing

3. Success story growth was based on manufacturing, demand for which is declining

(in favour of services)

4. Employment absorption capacity of manufacturing has significantly reduced due to

technological advance

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…We are not seeing results

• Projects are too complex

• Projects are too ambitious

• The timeframe for results is unrealistic

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Typical length for

WBG Projects

(5yrs)

The Competitive Industries & Innovation Results Framework

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…in Ethiopia

…in Sierra Leone

…in Macedonia

And still we must exercise caution…

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Becoming ‘buzzword’ for many very different concepts. How can we have dialogue if we’re not all talking about the same thing?

Only 50% success rate and failures are catastrophic

Well understood, but very difficult to replicate

Powerful but incredibly complex

Usually has most transformational potential in multi-sectorial context for which political economy is a crucial factor of success or failure and is yet weak…

Even with respect to SME lending and support:

Innovation and jobs are equally created by large firms. So why support SMEs?

We need to shift the development paradigm

How can we identify

• Instruments and interventions that actually work…

• …that are within the field of play available to us.

How can we target and leverage public support such that we

• Move away from ineffective broad public investments programs

• Identify entrepreneurs and young/small firms that could/would be

empowered by seed money?

• Create pockets of growth where public investments will be directed to

growth platforms to help private sector growth and job creation

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Are we nimble? Are we flexible? Are we listening?

• Course-correction and flexibility at the government is not possible without a

private sector / industry stakeholders who are equally flexible and equally

nimble

• Can we avoid the promotion of approaches that we know how to do (in this

case regional cluster development) just because we know how to do them

and rather – where necessary - identify new innovative solutions that we can

become part of.

• Let’s pit our approaches and against other measures, let’s prepare to fall short

and adjust so that we remain relevant in the current context

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