Industrial policy has finally moved away from the arid debate on 'picking winners' versus 'levelling the playing field'. Today, there is growing understanding that the market imperfections on which the theoretical arguments for industrial policy rest are pervasive, especially in low-income countries.
From theory to practice
There is less understanding, however, of how to move from theory to practice. For this reason, the 'how' of industrial policy-making is as important as the 'why' and the 'what' but it has received far less attention.
While there is considerable diversity, there are a number of common themes that characterize successful business-government coordination. Four of these are of particular relevance to governments attempting to improve the practice of industrial policy: commitment, focus, experimentation and feedback.
In Asian economies, ranging from Japan to Vietnam, senior members of the political and government elite were publicly committed to and held accountable for industrial development outcomes. One virtue of having a champion is that it identifies a person who has the job of explaining the policy agenda and who can be held politically responsible for things going right or wrong. A second reason why high-level leadership is critical to the success of strategic coordination is the need for coherence within government in following up and implementing the decisions reached as a result of public-private problem-solving.
Where, as was often the case in Africa, public officials believed the political leadership lacked deep interest in industrial development outcomes, there was little follow up to efforts to engage the private sector. The research on Ghana for example suggests that although the state has expressed a strong rhetorical commitment to the private sector, there is not much actual commitment by political elites.
East Asian case studies suggest that one way in which the flow of information between the public and private sectors can be encouraged and the risk of capture reduced is by focusing on specific constraints to firm performance. This is the 'helping hand' aspect of industrial policy, and it is particularly relevant to countries at the early stages of industrial development. The key elements of the process are agreement between business and government on a specific objective, and the proposed course of action. A timetable for resolution of the problem is announced and progress in...