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Aid, Debt & Development

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What Would a Global Campaign on Industrial Policy Look Like?
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As the Cambridge economist Ha-Joon Chang argues, industrial policy is the proverbial 'Prince' that is missing from 'Hamlet' in discussions about development. So should NGOs work out a global campaign on industrial upgrading, or is that just too weird and abstract to work? By Duncan Green.


8th November 2012 - Published by From Poverty to Power

Regular readers will know that I am a big fan (as well as friend) of Cambridge economist Ha-Joon Chang (right), whose most recent book,23 Things They Don’t Tell You About Capitalism should be at the top of any policy wonk’s reading list. Last Saturday, he gave a brilliant keynote at the annual conference of the UK Development Studies Association. Its title, ‘Bringing Production Back into Development’, was a deliberate challenge to those in the room, as he argued that the discussion on development has become like Hamlet without the Prince.

The Prince, according to Ha-Joon is ‘productive capabilities’ – the steady upgrading in skills and industry that has characterized virtually every successful experience of national development, including of course his native Korea. From Adam Smith to the 1980s, the consensus was that such upgrading was the core business of development. No longer:

Left and Right both ignore the issue: Neoclassical economics only concerns itself with how to improve the efficiency of market exchange. It assumes away the problem of how to build productive capabilities in the first place. The ‘Left’ is only concerned with regulating capitalism, taxing it properly, then spending the proceeds on the things it cares about – health, education, poverty reduction.

That focus on health and education is important in enhancing individual productive capabilities, but it is not enough. Most upgrading takes place inside large firms, so you need to consider systemic issues via industrial policy and building institutions.

I’m not sure if those in the room realized what a bombshell Ha-Joon was delivering. He was arguing that most of development’s sacred cows – Amartya Sen, the MDGs, basic needs, poverty reduction are missing the main point. I won’t rehearse his arguments any further (just read 23 Things), but over lunch, we discussed the implications for NGOs and others. Is a campaign on industrial upgrading just too weird and abstract to work? Not if you break it down into its components:

At the multilateral level, lots of NGOs have bought into this, for example, criticising intellectual property rules for blocking technology transfer, or pressing to defend ‘policy space’ within the WTO or regional trade agreements, where the powerful countries are actively seeking to reduce the ability of less powerful ones to conduct industrial policy. This is the heart of Ha-Joon’s breakthrough book, Kicking Away the Ladder, and also the subject of a South Centre pamphlet we wrote together back in 2003, The Northern WTO Agenda on Investment: Do as we Say, Not as we Did. Ha-Joon also wrote a South Centre/Oxfam paper on WTO industrial tariff negotiations. To that could be added international campaigning for a minimum level of corporate taxation (to prevent the race to the bottom), against tax havens etc.

At a national level, NGOs could campaign for natural resource revenues to be used at least partially for industrial upgrading (which would mean they oppose the CGD proposal to spend them all on social protection). This could involve incentives to upgrade technology, train workers and promote a decent jobs agenda. See second half of this paper by Ha-Joon for more.

More traditional NGO territory such as advocacy on strengthening welfare systems would fit in here, as social security is central to reducing the human toll of the kind of ‘creative destruction’ involved in industrial upgrading, as firms and jobs rise and fall. Ha Joon also argues that cooperativization is a good way of pursuing upgrading, by adding value to primary products, improving marketing etc.

Politically, such a shift might well be problematic. From my experience working on codes of conduct in supermarket supply chains, I would say that trades unions are more likely to see NGOs as competitors than allies. Arguing that the state should build what we used to call a ‘national bourgeoisie’ – a class of entrepreneurs with a commitment to national upgrading, rather than ‘rent-seeking’ rip off merchants – might well be hard for staff and partners committed to working with grassroots organizations of poor people, who sometimes have a tendency to see all large private sector firms as the enemy.

You could argue that this is not our thing, that we should leave industrial policy issues to governments and other grown-ups. Ha-Joon’s point is that outside national governments, no-one in the system is trying to put the Prince back into the play – not the multilaterals, not the aid donors (who still largely oppose industrial policy as distorting the wonders of the market), and only very few heterodox economists (who he memorably likens to the heroes at Helm’s Deep in Lord of the Rings, fending off an army of neoliberal orcs).

What do you think?

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