Industrial policy is being reassessed in the light of the global financial crisis as well as the negotiations on a global agreement on the reduction of greenhouse gases--the fifteenth United Nations Climate Change Conference (COP15) which took place in December 2009 in Copenhagen. This conference took place against the concern (as the UN's climate panel's recent fourth report indicates) that human society is contributing significantly, through emission of greenhouse gases, to global warming, and that this will have an overall negative impact on global development. Kemal Dervis, in his WIDER Annual Lecture presented in Helsinki in March 2008, pointed out. 'Climate change will have a larger and more immediate negative impact on many of the world's poor. Our concern for development and poverty reduction, as captured in the Millennium Development Goals, dictates that we mitigate climate change urgently to reduce the threats to the development prospects of the most vulnerable, as well as take action to help those already affected to adapt.'
Human-induced climate change and its effects on global development is part of the more general challenge of achieving environmental sustainability. It requires a rethink of the process and outputs of production and of distribution and consumption. As recently put by Jeff Sachs (i) 'The global economy is literally unsustainable now and cannot absorb further economic and population growth without serious risks of global destabilization--even collapse'. In addition to rising greenhouse gas emissions and its consequences, areas of concern include rising commodity prices, peak oil, pollution from agriculture, and increasing water scarcity to name but a few.
Reassessing industrial policy is now necessary as (i) industrialization and industrial catch-up by industrially lagging countries will increasingly run into resource constraints and climate change impacts, and (ii) without appropriate forms of industrialization in both advanced economies and in developing countries, little progress will be made towards any agreement to replace the Kyoto Protocol. The Gordian Knot to be untied is how to achieve these changes in a manner that does not limit the development and industrial catch-up of the poorest countries, and which does not result in politically unacceptable job losses in advanced economies.
Industrial policies--whether explicitly termed as such or referred to as 'competitiveness' policies--will increasingly take centre stage in governments' responses as they grapple with rising commodity prices, growing inequality and sluggish growth. But given the dangers and failings inherent in industrial policy, extreme caution is required. Hence a new debate on industrial policy, supported by new research and new paradigms, is required to move forward. In recognition of this challenge, UNU-WIDER, UNU-MERIT and UNIDO held a successful workshop on the topic in Maastricht, The Netherlands on 22-23 October. Following this workshop, we outline a number of considerations for environmentally sustainable industrial policies in this article.
Industrialization still matters
Our point of departure is that industrialization still matters....