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Industrial Policy

Encouraging investment policy and promotion reform in times of uncertainty

Amira Karim's picture

Foreign direct investment (FDI) is often considered by economists and policymakers as integral to economic growth – a cornerstone of modernization, income growth and employment.

Yet for many countries, FDI can be elusive, and chasing it can lead policymakers to frustration.

Even economies built by FDI – for example, Singapore – are on this continuous chase, aware that attracting and retaining FDI is not an easy task. They also know that the benefits of FDI do not accrue automatically and evenly across all countries, sectors and local communities.

But first, there must be a realization of the importance of FDI. Singapore – a country once called a “political, economic and geographic absurdity” by its first Prime Minister, Lee Kuan Yew – never doubted the centrality of FDI, promoting it from the outset of its independence. Singapore saw in FDI an opportunity to develop a substantial industrial base, to create new jobs for its then-poor and low-skilled workforce, and to generate crucial tax revenues for its nascent government to spend on education and infrastructure.

Two decades after that initial strategic acceptance of FDI, Singapore emerged as a newly industrialized economy.

It is little surprise, then, that Singapore’s experience was highlighted at a recent World Bank Group peer-to-peer learning event here in the city-state. Responding to strong demand from client countries, two teams from the Trade & Competitiveness Global Practice – the Investment Policy and Promotion (IPP) team and the Singapore Hub team – co-hosted the learning forum entitled "Promoting Investment Policy and Promotion Reform in Times of Uncertainty."

Supported by SPIRA – the Support Program on Investment Policy and Related Areas – the forum enabled some 80 government officials from East Asia, South Asia and Africa to share their experiences in economic and export diversification; to discuss the role of international trade and investment agreements as leverage toward domestic reforms; and to discuss how to translate investment policy and promotion strategies into measurable results. SPIRA, implemented by the IPP team, supports client countries across all regions in attracting, facilitating and retaining different types of FDI.

‘Smartest Places’ via smarter strategies: Sharpening competitiveness requires ingenuity, not inertia

Christopher Colford's picture

Defeatist demagoguery marred the 2016 election season, and it continues to resonate with many beleaguered voters in advanced Western economies, who dread the gloom-and-doom scenarios sketched by narrow-minded nationalists. For reassurance about positive strategies for economic renewal, try a dose of optimism about urban “hotspot hustle and cutting-edge cool” – thanks to a book that champions smart public policies, delivered through an activist approach to Competitiveness Strategy.

Gazing into the rear-view mirror is a mighty reckless way to try to drive an economy forward. Yet backward-looking nostalgia for a supposedly safer economic past – with voters' anxiety being stoked by snide sloganeering about “taking back our sovereignty” and “making the country great again” – infected the policy debate throughout the dispiriting 2016 election year, and its defeatist aftermath, in many of the world’s advanced economies.

Scapegoating globalization and inflaming fears of job losses and wage stagnation, populists have harangued all too many voters into a state of paralysis or passivity. Lamenting the loss of a long-ago era (if ever it actually existed) of economic simplicity, nativists and nationalists have been conjuring up illusions about an era when inward-looking economies were (allegedly) somehow insulated from global competition.

Optimism has been in short supply lately, but an energetic new book – co-authored by a prominent World Bank Group alumnus – offers a hopeful perspective on how imaginative economies can become pacesetters in the fast-forward Knowledge Economy. Advanced industries are thriving and productivity is strengthening, argue Antoine Van Agtmael and Fred Bakker, now that many once-declining manufacturing regions have reinvented their industries and reawakened their entrepreneurial energies.

Welcome to the brainbelt,” declares “The Smartest Places On Earth: Why Rustbelts Are the Emerging Hotspots of Global Innovation” (published by Public Affairs books). Now that brainpower has replaced muscle-power as the basis of prosperity in an ever-more-competitive global economy, the key factor for success is "the sharing of knowledge." Longlisted for the Financial Times/McKinsey Business Book of the Year Award, “Smartest Places” is receiving well-deserved attention among corporate leaders and financial strategists – and it ought to be required reading for every would-be policymaker.

The era of “making things smart” has replaced the era of “making things cheap” – meaning that industries no longer face a “race to the bottom” of competing on costs but a “race to the top” of competing on creativity. Knowledge-intensive industries, and the innovation ecosystems that generate them, create the “Smartest Places” that combine hotspot hustle and cutting-edge cool.





Those optimistic themes may sound unusual to election-year audiences in struggling regions, which are easy prey for demagogues manipulating populist fears. Yet those ideas are certainly familiar to readers at the World Bank Group, where teams working on innovation, entrepreneurship and competitiveness have long helped their clients shape innovation ecosystems through well-targeted policy interventions that strengthen growth and job creation.

“Smartest Places,” it strikes me, reads like an evidence-filled validation of the Bank Group’s recent research on “Competitive Cities for Jobs and Growth.” That report, published last year, offers policymakers (especially at the city and metropolitan levels) an array of practical and proven steps that can help jump-start job creation by spurring productivity growth.
 

The Alchemy of Achievement: ‘Go for the Gold’ by Planning for Competitiveness

Christopher Colford's picture

Strategic planning brought the UK Olympic success. Can it also pay economic dividends? (Credit: London Annie, Flickr Creative Commons)Success doesn’t just happen automatically – not in the economy, and not in any competitive arena of life. But by focusing your resources realistically in the areas of your greatest strength, you can maximize your chances of coming out on top. Perhaps in some long-vanished world of effortless monopolies and protected markets, passivity might once have been enough – but in a world of relentless global competition, a lazy laissez-faire abdication cannot deliver optimal results.

That lesson has come through clearly amid these elegiac end-of-summer days, as the world continues to bask in the Olympic afterglow of the Summer Games in London. The games lifted the spirits of sports-watchers worldwide – and the postgame analysis of just how the host country, Great Britain, ran up its highest medal count in 104 years has provoked some intriguing ideas about creating an “Olympic effect” for economic development.

Creating competitive markets

Ryan Hahn's picture

It is a matter of debate whether governments should play an active role in stimulating industrial upgrading. But it strikes me as highly unlikely that an activist role for government has much benefit for products low on the value chain. A new policy note from ODI on four product markets in five developing countries seems to bear this out.

Development 2.0: The skills gap

No summer lull for the Development 2.0 world, it would seem, judging from recent activity: from Richard Heeks’ paper on Development 2.0: Transformative ICT-Enabled Development Models and Impacts to a comprehensive checklist comparing “old school development” with Development 2.0 aid; from Idealware’s

World Investment Report 2010: Investing in a low-carbon economy

Low-carbon FDI in areas such as renewables, recycling and low-carbon technology manufacturing is already large (some $90 billion in 2009), but its potential is huge. This is one of the conclusions of UNCTAD’s 2010 World Investment Report, released last month. The report is the most recent in an annual series exploring the latest trends and prospects for FDI flows and recent policy changes, and also offers a deeper analysis of a topically relevant issue of the day.

Is the mainstream ready for output-based aid?

There is an ongoing conversation in the development community, certainly amongst donors, about the need to make sure that aid is well spent and reaches the people it is intended to help. Most recently the UK shared its vision for international development, highlighting Value for Money and the use of results-based approaches.

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