by Dani Rodrik
Hmmm. I think you misconstrue the nature of the debate and the argument. If my priors were that no Moslems are terrorists (“industrial policy never works”) and then I found that some are, I would think the evidence pretty compelling and alter my priors. (With apologies for the nature of the analogy, but I am following Bill’s line of thought…)
My point is to get people beyond their refusal to accept that industrial
policy could ever work, so we can actually debate the conditions under which it can or does. Now that would be a healthy debate!
8 Comments
@ Easterly/Rodrik
We had asked Dr. Easterly in an earlier exchange on development policy why the World Bank wouldn’t finance industrial size waste to fertilizer conversion plants, addressing two major developing country problems human waste disposal and public health and the need for plant nutrients being returned to the soil. Many third world cities have been growing apace, reaching 1 to 5 million inhabitants and often more. The quantity of untreated waste is enormous. Such plants with their proximity to agricultural hinterland seem to offer a very effective solution to these two key development problems with sound business fundamentals.
If Dr. Easterly is not willing to reply to specific issues of development and industrial policy, even to say he doesn’t know, I can not understand his general postings on thought problems except, as an exercise in personal vanity and more elitism. Perhaps Dr. Rodrik has some notion of the answer to this question, it would after all be discussing industrial policy! The only answer I could come up with after 28 years as an international development economist would be that such financing would undercut Western fertilizer exports.
SS
Anonymous:
@ Easterly/Rodrik
We had asked Dr. Easterly in an earlier exchange on development policy why the World Bank wouldn’t finance industrial size waste to fertilizer conversion plants, addressing two major developing country problems human waste disposal and public health and the need for plant nutrients being returned to the soil. Many third world cities have been growing apace, reaching 1 to 5 million inhabitants and often more. The quantity of untreated waste is enormous. Such plants with their proximity to agricultural hinterland seem to offer a very effective solution to these two key development problems with sound business fundamentals.
If Dr. Easterly is not willing to reply to specific issues of development and industrial policy, even to say he doesn’t know, I can not understand his general postings on thought problems except, as an exercise in personal vanity and more elitism. Perhaps Dr. Rodrik has some notion of the answer to this question, it would after all be discussing industrial policy! The only answer I could come up with after 28 years as an international development economist would be that such financing would undercut Western fertilizer exports.
SS
This from Dr. Easterly -
That USAID could be more like its British cousin DFID, that instead of us spending weeks in getting a simple question still not answered, we could get an answer in 5 minutes
As always, a timely response from USAID on these questions would be welcome.
Posted by William Easterly on April 30, 2009 6:44 AM
| Permalink
Would he was so good at answering valid inquiries himself!!
SS
Dr. Rodrik,
The woeful record of industrial policy (1 success for every 10,000 failures) suggests that the conditions under which it works are nothing short of a miracle.
I do not believe you can study or debate how miracles happen, nor can you plan for them. But most importantly, you should not count on them.
All the Industrial Policy stuff about development planning, for me, sounds like giving this piece of advice: “buy the winning lottery ticket.”
All that development economists tell us is about “getting institutions right” and “getting interventions right” and “picking winners” and so on. This is all Monday morning quarter-backing. It’s of course very easy for anyone to tell you what works AFTER it has worked. And to tell you what didn’t work AFTER it didn’t work. They can never tell you anything useful to do BEFORE you do it.
And here’s the key to the continued success of industrial policy scholars: they never give specific advice beyond choosing the “right” thing. So all their ex ante theorizing is never specific, falsifiable (or even verifiable) or accurate enough to be assessed fairly in retrospect.
“Buy the winning lottery ticket” is excellent advice–if it works. But there is no way of following through with that advice except through a miracle. Which is precisely the problem with this advice. Industrial policy seems very similar to me.
S not = SS
I do not subscribe to the anti-industrial posting above. The state must make investments and elaborate tax policy. There is no such thing as perfectly market neutral tax policy or private sector oriented state investment policy. In all mixed economies it is a question of degrees and I personally lean toward a modicum of industrial promotion where there are foreseen opportunities.
That said I would still like an answer to my question above on waste to fertilizer conversion plants. It seems that our “experts” are too busy debating their abstract constructs to touch down and consider a real problem that affects people.
SS
SS,
I hope you don’t mind me wading in on your question. But unfortunately, I’m going to stick to the theoretical part as I know nothing about the practical question you propose.
The problem I see with having the state have a “modicum of industrial promotion” appears once you consider the concept of opportunity cost.
Simply put, government interventions cost money, and have costs. The money and resources used by the government do not come from thin air, they are real resources and they must be paid for either through taxation or debasing the currency with inflation. Other interventions like tariffs also carry hidden costs.
These costs will simply come from the people of the country. What you are proposing then is simply a transfer of wealth from all of society to some “industrial group” somewhere with a “foreseen opportunity”.
When you look at it this way, it stops being so appealing. Why should all of society (students, unemployed, teachers, etc…) subsidize some industrial group. This is purely a transfer of wealth to some industrial group, which, as you can imagine, are usually affluent groups.
I simply cannot see that ever being a good idea. I don’t think that the government can do a better job at picking winners than people with their own money. This to me is simply an invitation to having rich groups bribe the government to subsidize them generously.
Behind pretty much every corruption problem in the world is some form of “industrial policy”: the government using its power and wealth to support some.
Ever hear of externalities, not captured by private investment?
SS
The other SS,
Everything has a million externalities, or can be said to have them if you can think hard enough. But, this is not really an excuse for handing money from the poorest to the richest people in society.
Simply put, whatever the externalities you believe exist, I do not think they justify taking my money and handing it over to rich industries.
You have to remember that if I had gotten to keep my money and spent it freely, whatever I spend it on would also have externalities.
Ironically, economists only see positive externalities in handing money from the poor to the rich.