- Developing countries can build competitive industrial capabilities in the
current global setting, but building these capabilities needs extensive policy
support because of pervasive market and institutional failures.
- A natural starting point in formulating national strategies and policies
is to benchmark the industrial performance and drivers of that performance
by looking at the key structural variables to position country’s technological
capabilities—to identify what global value chains to latch onto and what
services to support for innovation and learning.
- Formulating national strategy cannot be left to detached policymakers alone.
Also needed are broad coalitions of public, private, civil and academic players,
committed to and agreeing on a vision that can give direction to their industrial
strategy.
- A country’s industrial policies have to be couched in the broader developmental
perspective of creating wealth and enhancing welfare in accord with the general
developmental goal of promoting efficiency throughout the economy—to
sustain productivity growth and to ensure that the benefits are distributed
equitably.
- Each country has to start with a list of framework imperatives required
for dynamic industrial development, when designing the policies best suited
to its conditions and aspirations. Political, social and macroeconomic stability
are the most fundamental. But equally important are clarity and predictability
of the policy environment, with flexible poli-cymaking resulting from the
ongoing process of learning by major stakeholders. Being competitive entails
greater exposure to and contacts with different markets, openness to technology
and information flows, an efficient business environment based on simple and
universal rules that are easy to understand and comply with, and good governance.
- Framework conditions are not sufficient to enable sustained industrial
capability building and continued industrial development. For resource allocation
in accordance with dynamic comparative advantage, a coherently framed strategy,
aggressively pursued, is needed.
- Good policy framework is a form of social capital, a web of attitudes and
personal or group relationships that allow coherent strategies to be devised
and implemented in the national interest.
- Traditional policies must be changed, reoriented to focus squarely on domestic
innovation and learning, on the building of industrial capabilities by linking
to global markets and leveraging foreign resources.
- The objectives of policy reform must be stated in precise, operational terms,
terms sufficient to permit meaningful monitoring of their achievement.
- Governments across the world have to mount strategies to enhance the competitiveness
and support the productivity growth of their firms. If economies with the
most advanced markets and institutions feel the need to undertake competitiveness
strategies, the needs of poor countries, with much weaker markets and institutions,
must be correspondingly greater.
- Public efforts require direction, but without vision there can be no focused
direction. Nor can the direction be fixed—it demands constant monitoring
and revision, as every success story details. Vision is not only about the
broad dimensions of strategy, it is also very importantly about the technologies
and industries to be promoted.
- The basis of any industrial strategy is a national vision of industrial
development. Vision is needed to coordinate and direct policies because it
is possible to adopt a range of different development paths.
- The government has to decide on the broad national objectives—economic
and non-economic—that cannot be thrown up by markets. The strategy may
be explicit or implicit, but it provides the parameters for making all other
allocation decisions.
- Alternatively, policies may be selective, aiming to promote particular
activities or clusters to tap dynamic learning possibilities, capture exceptional
spillover benefits or attract the most promising global value chain activities.
Both approaches are theoretically justifiable in the presence of market failures,
and they are entirely complementary. The choice of appropriate instruments
depends on the nature of the failures and the capabilities of the government
to undertake policies effectively.
- The more selective the policies chosen, the greater the competence, information,
objectivity and flexibility required of the bureaucracy. The choice of appropriate
measures involves creating the mechanisms to implement policies.
- Implementation may need new institutions (in the public or private sector)
to support, interact with and link market agents. In the public sector, the
government has to provide the technological public goods needed by industry,
such as basic research, extension services, standards and metrology. In the
private sector, institutions may include business associations, consortia
or large private conglomerates that can overcome deficient markets for capital,
skills, information and entrepreneurship.
- The actual industrial policy must be crafted to suit the specific country
context and its level of development. It must be systemic, and correspond
to the phase of learning.
- Technology foresight exercises are particularly useful as a means to comprehend
emerging global trends, enabling both firms and the government to formulate
detailed strategies in areas that seem sensible.
- “Foresight exercises” offer a disciplined means for determining
targets and the ways to achieve them in the context of formulating industrial
development strategies at the national and subnational levels.
- The desired, appropriate level of openness may not entail completely free
markets for trade and investment or the removal of all such policies as local
content rules and performance requirements, as envisioned in negotiations
for trade-related investment measures (TRIMS). Careful analysis is needed
of whether existing rules are flexible enough to allow the losers to prolong
their grace periods or whether the rules need to be changed.
- A new international agenda on industrial development is required for a new
vision of how developed countries and international agencies can best assist
industrial development.
- Countries should make collective efforts to build a favorable environment
for industrial capability building and the necessary structural actors and
institutions. But such local efforts should also be helped from outside.
- There appears to be a vacuum at the international level in strategic thinking
on industrial development in the developing countries.
- At the level of international community a vision must also be articulated
and a strategy formulated to narrow the widening gap in industrial capabilities
between nations. It must be supported by financial and other resources—and
by appropriate changes to the rules of economic life. Aid donors, development
bodies, corporations, institutions and rule-makers must all be involved.
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