Industrial Policy and Development

Abstract In the 1990s, development policy advocated by international financial institutions was influenced by the so-called Washington Consensus thinking. This strategy, based largely on liberalization, privatization, and price-flexibility, downplayed, if not disregarded, the role of government in steering the processes of technological learning and economic growth. With the exception of the Far East, many developing countries adopted the view that industrial policy resulted in inefficiency and poor economic growth. However, industrial policies have been successfully employed in the past in the countries that are now developed industrial leaders, including the USA, Germany, and Japan, and more recently by in what are now some of the most vibrant emerging markets. India, China, Brazil, and many NIE Asian countries nurtured technology intensive industries to jumpstart their production and (later) exports. They have had remarkable success not only in boosting economic growth, but also in diffusing the benefits of technological learning to the rest of the economy. The book analyzes the impact of an ensemble of industrial policies, including those affecting the accumulation of technological knowledge, institutions supporting scientific and technological learning, the profitability of different lines of business, the protection of “infant industries”, competition and intellectual property rights, and trade policies. Ample historical evidence, which the book explores, shows that industrial policies do work when appropriate combinations of measures are adopted. Well beyond a “market failure” perspective — whereby “perfect” markets are the purest benchmarks — institutions and policies embed both learning and non-learning behaviors, the construction of domestic learning organizations, national systems of production, imitation, and innovation. Together, the book discusses the opportunities and constraints facing the implementation of industrial policies associated with the current regime of international economic relations (WTO, TRIPs).