Economic Development by Giugale Marcelo M

Economic Development by Giugale Marcelo M

Author:Giugale, Marcelo M. [Giugale, Marcelo M.]
Language: eng
Format: epub, azw3, mobi
Publisher: Oxford University Press, USA
Published: 2014-01-14T00:00:00+00:00


5

SECTORS

WHAT MINISTERS WILL WORRY ABOUT—OR SHOULD

Can Governments Create Industries?

It is an old debate. Back in the 1950s and 1960s, from Asia to Latin America, an idea caught fire among development economists: governments should try to create industries. Typically, civil servants would pick industries that could employ lots of people or substitute imports, required huge upfront investments, were considered strategic, or just smacked of modernity. Those industries were then treated like “infants”—in need of all kinds of support until they could survive on their own. They were given tax breaks, protection from foreign competitors, cheap credit, subsidized energy, public contracts, even capital injections courtesy of the taxpayers. Think of toys, trucks, refrigerators, cement, steel, and petrochemicals—they were all going to be produced locally, whatever it took. (If you are over 50 and grew up in a developing country, fond memories of your family’s car or TV set are surely coming to your mind: it carried a national brand, cost a fortune, and broke down all the time.)

The experiment ended in tears. Yes, there were a few successes in East Asia that astonished naysayers. (Legend has it that one of the world’s leading banks told Japan in the 1960s that it would never be competitive at making cars.) But in most cases, the infants failed to grow and dragged the economy down with them. Consumers were saddled with lower-quality products at higher prices, banks with unpaid loans, and governments with covering the losses of uncompetitive companies, year after year. Corruption added an ugly veneer to the whole thing—after all, you were giving away benefits to a chosen few. By the late 1980s, countries were busy selling off their public enterprises, opening their economies, and letting markets decide what was produced where. That, we thought, would be the last we would hear about “industrial policy.”

Well, you’d be surprised. Today, developing countries rich in oil, gas, or minerals are desperately looking for policies to diversify their economies, not just because the price of natural resources could unexpectedly tank, but because the business of extraction does not create enough jobs. They have money to invest—think Africa. Even in countries that are doing well, governments are searching for ways to make their industries more high-tech and avoid being trapped halfway up the technological ladder—think Brazil.1 But everyone wants a new—read, smarter—industrial policy, one that avoids the mistakes of the past. They just might be onto something.

To start with, new industrial policy is not about bureaucrats picking products to manufacture domestically. If anything, it is about the private sector pointing out to policymakers the obstacles that make it unable to sell abroad—from a flickering electricity supply to corrupt customs officials. Far from closing the economy, the goal is to join the global market. Enterprises remain private. Everyone in the industry can compete for public support; it is not a privilege given to a favored firm or businessman. When public money is involved, it is mainly to improve logistics, infrastructure, or technology. Obviously, regulations that restrict trade are done away with first.



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