The post-Washington Consensus has emerged recently as an umbrella denoting the search for pragmatic and context-specific solutions to problems of developing countries. The recent financial crisis, with its epicenter in the rich economies, has demonstrated that the whole world, not just poor countries, is developing. One feature of the new pragmatism is that industrial policy is back. But in contrast to import substitution, it is an open economy industrial policy – the objective is to increase economic openness: enhance flows of knowledge, foster productive innovation, and promote non-traditional exports. Under rubrics such as productive development policies or innovation strategies, governments in developing countries are providing public inputs, each customized and bundled to suit the needs of particular domains of economic activity, but not others.
How are we responding? One way to understand the World Bank’s role in articulating the post-Washington consensus is to imagine a pyramid. At the top are the ‘thinkers’ of DEC, the Bank’s research and data arm. There are encouraging discussions on new structural economics (Justin Lin), empirical work on new trade theory, and – as one would expect – a new open industrial policy. At the foundation are task managers of lending operations. By being responsive to the needs of the client, but without much fanfare, they 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. A new generation of lending technology and innovation operations is quietly emerging which emphasizes selectivity and focus on a few domains and sectors of the economy deemed strategic rather than the across-the-board focus on innovation climate. Practitioners take the need to make ‘’strategic bets” for granted (‘’the entry costs are high, technology is changing rapidly, one can’t do everything, we need to be selective”), so the issue here is to design private-public institutions to share risks and minimize state capture. New institutions of open industrial policy are being self-discovered on a daily basis, yet there is too little contact between the new theory (‘thinkers’) and cutting edge practice (‘doers’).