Comments on: Industrial Policy Showdown at World Bank: the policy that may not exist also may not work

By: Nwabu

Nwabu — Fri, 25 Sep 2009 16:30:20 +0000

I think that trade comparative advantage boils down to whether entrepreneurs have the skills, the knowhow and the capital not just to discover opportunities but to seize advantage of them at the global level and whether they have the goodwill of their governments to have incentives framed in their favor to facilitate that trade. Where both factors are in place you get the East Asian growth story.

BUT where only one is present then you get:

a) an India, Egypt or Mexico where entrepreneurial dynamism is constantly hindered and sabotaged by lazy, incompetent and often corrupt govt officials.

b) scores of developing countries whose govt ministries are packed with Oxford, Harvard, NYU, MIT, and Sorbonne-trained economists who have all the policies down while their country lacks entrepreneurs willing to seek new global opportunities outside of the needs of the domestic economy or government contracting.

By: Jim

Jim — Mon, 21 Sep 2009 12:27:59 +0000

I’m glad to see that the debate has moved on from ‘can industrial policy work?’ (answer, yes it can) to ‘what are the conditions in which industrial policy can work?’. And yes, the incentives governments face are an important part of the answer to that one. But I’m surprised that nobody has mentioned the fact that most rich countries and every major international economic agency with teeth (that’s the IMF, World Bank and WTO) have been deliberately and strenuously trying to prevent poor countries from implementing any industrial policy for decades now. It’s really no surprise there aren’t many success stories.

If rich countries and the international agencies actually cared enough about long-term development they could provide the sorts of institutional support and incentives that would greatly improve the prospects of successful industrial policy in poor countries. But they don’t.

By: Stephen Jones

Stephen Jones — Fri, 18 Sep 2009 22:44:44 +0000

What I find absurd is the idea that there is some kind of ‘technological ladder’; we had that idea in the fifties but I thought it had been truly dead and buried.

By: Jeff Barnes

Jeff Barnes — Fri, 18 Sep 2009 19:25:43 +0000

I find the question odd. Neither governments nor entrepreneurs find comparative advantage. Government sometimes try to pick winners by selective investment and if this is what is meant by “industrial policy” then I agree with Easterly. However, I think industrial policy is more than that and there is a lot governments can do by investing in education of its people, investing in infrastructure, etc that will help its entrepreneurs find whatever advantage they may have in the world economy.

By: Iyinoluwa Aboyeji

Iyinoluwa Aboyeji — Fri, 18 Sep 2009 12:24:16 +0000

Bill might have lost this one-not because his reasoning is unclear but because of the clear cut realities. In an ideal world, Bill would be right. As it is with a politicized trade and development regime, governments are far more likely to do a better job with industrial policy as entrepreneurs in poor countries can hardly identify with the markets they wish to serve (which are sadly rich countries). Unfortunately, until we change the market for the goods of poor countries by regionalizing trade especially for African countries, there will be no other huge successes for us to speak of. The traditional target market (the rich western countries) within which the discussion has been framed is already saturated.

To put it very succintly:

In an ideal world, Bill would have won

In “this” world (under its present circumstances) were the ideal , the World Bank would have won.

Neither is true. No one win.

By: Pierre-Louis

Pierre-Louis — Fri, 18 Sep 2009 08:38:06 +0000

yeah for sure governments have a role, especially for international trade (as shown by James Rauch’s research). But this role is not about making decisions for entrepreneurs, it’s about helping them (ease of doing business, export promotion agency, court protection, access to credit) no matter what THEY decide.

By: Joe

Joe — Fri, 18 Sep 2009 07:16:58 +0000

The reality is that poor countries’ entrepreneurs can be more knowledge-poor than governments. Governments have access to greater resources for research as well as the ability to call on international technical expertise. Local entrepreneurs generally do not have knowledge of industries in which they could potentially compete beyond those already established in (at best) neighbouring countries. Many successful examples of industrial ‘clusters’ such as in Bangalore, flourish because their local entrepreneurs have worked in the industries where they innovate for some time abroad – silicon valley in this case.

In the absence of international mobility of labour for skilled professionals, poor country governments are likely to have some comparative advantage, however small, over local entrepreneurs.

Furthermore by attempting the exercise (Industrial Policy), governments can encourage financial institutions to think a bit more laterally about the way they allocate credit. In the absence of this push, banks are likely to stick with safe bets in established industries – some might call this a market failure – something for Government to address.

By: Pierre-Louis

Pierre-Louis — Fri, 18 Sep 2009 06:49:34 +0000

You don’t “discover” a comparative advantage…you “create” it…it’s not like it’s lying around somewhere waiting to be discoovered and exploited.

Fiji may export cotton suits but it could have been anything else…It’s just an organized and efficient business.

but the question remains the same…

Does a poor country government have a comparative advantage in creating a poor country’s comparative advantage?

no…but I would say it’s more an incentive problem than a lack of information.