All the dogs that didn't bark ctd

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I recently raised questions about a column by Harvard Professor Dani Rodrik arguing that industrial policy is back. I have a few additional thoughts/updates on that post:

  • Professor Rodrik states: "But scratch the surface of any new successful industry anywhere, and more likely than not you will find government assistance lurking beneath." As I pointed out in my post, Rodrik throws into his definition of industrial policy everything from sectoral round tables to state-owned enterprises. In other words, it would be hard to identify any industry, successful or not, that has not received some kind of government assistance that fits under Rodrik's definition of industrial policy. We are left then wondering what the counterfactual is—would these industries have been successful even in the absence of this government support? See also this post by Bill Easterly which explains the related problem of reversing conditional probabilities.
  • Of course, as Professor Rodrik points out, industrial policy does have supporters, inside as well as outside the World Bank. See this detailed post by Yevgeny Kuznetsov on how the World Bank is supporting client countries in implementing industrial policy. Money quote: "By being responsive to the needs of the client, but without much fanfare, they [task managers] are in the forefront of the post-Washington consensus in their dialogue with our most sophisticated and demanding clients such as India, China, Argentina, Mexico, Russia, Malaysia or Chile."
  • Sunita Kikeri, one of the authors of the policy note on privatization trends that I cited in my earlier post, points out that much of the privatization covered in the note (something like 40 percent) is comprised of minority share sales with governments still retaining control. This is an important point, but I don't think it undermines my argument. I am not arguing that there is no industrial policy going on; rather, my point is that I don't see evidence of a big shift towards more industrial policy than was taking place before the crisis. More relevant is the point made in the note that "concerns that the crisis would produce a wave of nationalizations appear to have been unfounded."
  • Finally (and more as a sidebar than a main point), Rodrik points out that even McKinsey of all organizations is advising governments on how to do industrial policy. In fact, some folks from the McKinsey Global Institute came to speak at the World Bank a few weeks ago on their new report How to Compete and Grow. The report does lay out a framework for development that includes room for industrial policy. However, when the report's principal author was pressed on whether these types of policies have a positive ROI, she admitted that there is not sufficient evidence to judge one way or the other. The report simply provides guidance on which ways industrial policy could be implemented in a relatively more or less successful fashion.  

Update: An article in the most recent Harvard Business Review (The Big Idea: How to Start an Entreprenuerial Revolution) attempts to strike a balance between state support for industrial upgrading and avoiding picking winners. Money quote:

Governments would be better advised to remain sector neutral and to unleash rather than harness people’s entrepreneurial energies. They should observe which direction entrepreneurs take and “pave the footpath” by gently encouraging supportive economic activity to form around already successful ventures, rather than planning new sidewalks, pouring the concrete, and keeping the entrepreneurs off the grass. Yet this unglamorous but practical insight is often lost as cluster theory gets translated into government policies that are suspiciously akin to debunked centralized industrial planning.

Update II: Chris Blattman recently posted on industrial policy in Ethopia. Blattman says that "too many economists dismiss industrial policy as ‘picking winners’. This strikes me as either intellectually lazy or ideological (or both)." But isn't it a bit lazy to call those with whom you disagree 'lazy'? (And does that last sentence then make me lazy?)


Ryan Hahn

Operations Officer

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