International Handbook on Industrial Policy

International handbook on industrial policy /

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According to Rodrik , markets do not provide enough incentives to push for these changes. These are market failures that prevent structural adjustment. However, networking in order to realise synergies is also fundamental in industrial development, hence the objective of industrial policy to favour the creation of systems, that we could call systems of development. There are in this perspective systemic failures that policy also has to address see von Tunzelman in this issue.

Reviews of the state-of-the-art concerning different issues concern long time period that comprises the liberal years of mainly the s, showing it is full of policy intervention. Industrial policy therefore has always been and continue to be implemented around the world, despite the official discourse that rejected it until recently see for instance US industrial policy in section 4. The Handbook shows that the number of questions, fields and instruments of industrial policy is varied and complex, from antitrust, to regulation, intellectual property rights and clusters, regional industrial development and development of broader spaces.

The problem is that given that industrial policy could not be mentioned nor studied until recently, no broad view of industrial policy has been developed. A broad view is necessary not only to orientate the various fields and measures towards specific objectives, such as the development of new sectors, but also in order to address the problem of coherence of industrial policy. Without the broad vision that considers the interaction between various instruments, such as antitrust law, policy to promote cluster creation, support to research activities, but also labour market policy influencing market flexibility and macro policy, industrial development policies are likely to be incoherent.

Coherence not only regards the various instruments, but also the different levels of implementation, namely regional, national and supra national. Industrial development was seen as a determinant of economic development that in turn determined social and cultural development. The social impacts of some industrial characteristics, such as the division of labour, were also very closely examined in order to determine their sustainability and the possible role of policy, hence the State, in correcting possible negative effects.

In order to examine this point, we first analyse the reasons for the crisis and then move on to its impact. The frontier between the two worlds has been sometimes torn or kept with suffering, as shown by the Vietnam War or the construction of the Berlin Wall. Globalisation can be represented by a game in which all players play against each others, including new important players such as China, India, Brazil and the new Russia, so much so that it has become necessary to establish new rules for the game.

After the disasters caused by the bad rules established after the first World War, European countries had learned and had new ideas in mind.

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These thoughts led him to argue that after a very strong discontinuity such as a war economy, it is not useful to try and go back to the situation existing prior to it, but rather it is preferable to concentrate on sustaining the recovery of the economy on the basis of the new conditions. In that later small tract, he proposed compulsory savings and rationing in order to prevent inflation during the war. He was at Treasury during the war and after thinking about measures to accompany the war economy, he focused on economic measures for the post-war era.

He led the British delegation at the international conference of Bretton Woods in but his proposal was rejected in favour of the US ones, preferring to peg currencies against the dollar and the dollar against gold. Keynes had highlighted the risks of such a system and had proposed the bancor as a composite currency comprising the different national currencies, that would support an international monetary system based on the stability of various economies rather than just one.

The strong public spending on defence contributed to domestic demand, but the largest contribution stemmed from mass consumption and low imports. For many years this system was consolidated by decreasing costs of both raw material and labour, labour supply being fed by immigration, in a regime of fixed exchange rates and capital costs.

This situation developed up to the economic boom of the early s. In , President Nixon declared the end of the convertibility of dollar into gold. The end of the fixed exchange rates regime, the deep rise in oil and raw material prices, the endless workers conflicts, the hyperinflation that for years accompanied economic stagnation show again, as pointed out by Keynes, the necessity to identify adequate levels of governance of the world economy in front of changes that affect the political organisation of the world economy. He recalls the warning signals that the crisis of several Latin American countries represents, the Japanese and then the Asian crises, and the speculative waves that have characterised the world economy over the last years of the decade.

All constituting tremors that signalled the arrival of a bigger earthquake, the financial crisis of Figure 1 shows real GDP growth for the whole world, for advanced economies and emerging and developing countries since Sourc e: IMF statistics www. A new cycle follows, of growth up to apart from the crisis , followed by a sudden fall in , and then the actual development phase up to the current crisis. The later countries are most hit by the actual crisis since they almost go back to the growth levels of the earlys.

Thus world growth is now entirely driven by the growth of emerging countries. This corresponds to the fall of the Berlin Wall and the end, from a political point of view, of bipolarism. This process by which growth levels of emerging countries growingly diverge from that of advanced countries, the former gaining higher levels than the later, accentuates with the Twin Towers disaster on 11 September The European Union deepened integration with the monetary union and the adoption of a common currency between a core of member countries.

Stability was thus based on the responsibility of all members. Much has been written on the euro, some arguing that it would be too weak, although it revealed too strong after its inception. In any case, during the crisis the single currency revealed an element of stability and strength for European countries, although the European Union is still adjusting to the most important enlargement of its history, in terms of number of new members, after the entry of Central and Eastern European countries.

The policy of Deng is characterised by opening to the world economy, attracting capital first in the area of Shenzen between Canton and Hong Kong, then in the rest of the country, basing industrial development on low cost production for the external market. This opening also induces democratic opening demands from the Chinese people, that the regime however does not sustain until the Tien An Men slaughter 4 June , which makes clear that the only way to support economic opening without a political one is via high growth rates implying growing income for the population.

In the same years all Asian countries, except for Japan, experience rapid growth, except for the crisis that hits first and foremost Japan. A stop-and-go policy is therefore implemented in order to reduce inflation but also to support exports. A speculative bubble is created, that shifts savings and investments towards activities with high short-term returns, to the expense of productive investments. However, the Japanese economy maintains weaknesses, with an ageing population and mature industrial system.

In the devaluation of the Thai currency opens a phase of financial crisis that extends to the whole Asia. Thailand is a small economy hence very open, so much so that its recession rapidly extends to the other Asian countries. Indeed, the search for short-term profits leads the financial markets, if not regulated, to rapidly expand, attracting all savings, to the expense of the productive sectors which have difficulties in investing and to the government sector, which deficit tends to increase.

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Such disparity grows up to the point where financial assets are too overvalued and the bubble explodes. Argentina and the other countries peg their currency to the dollar, thereby implying a reduction of inflation but also a drastic internal restructuring that induce the rapid exit of the markets by the less competitive firms in a regime of trade opening and overvalued currency. Here again the phenomenon of bubble in the financial and housing markets that shifts resources away from the productive sectors induces a new dramatic crisis in India experienced a series of reforms during the s that allow the country to consolidate growth based on the development of a competitive industrial sector also supported by investment in human capital.

To this one must add the rigidity of international institutions which only believe in and apply the so-called Washington Consensus, namely a drastic reduction in the role of the State, with reduction in interest rates, so that the capacity of the government to intervene with monetary policy is reduced, together with privatisation and liberalisation of financial markets as a factor for trade opening and rapid integration of capital markets.

Until they also hit the American economy. The evolution of the American economy appears to be mirroring the Japanese economy in the s, but from the American balance of payments worsens continuously and dramatically also relative to the Chinese balance of payments. The housing market also expanded a lot, with capitalisation effects similar to those of the financial sector. The financial innovations allowed a booming market and high development of the tertiary sector, that however experienced a first internal crisis in Bush in the elections against Al Gore was also a victory of an industrial system over another one.

Bush continued the liberal policy of Reagan and Bush senior, of deregulation and strengthening the links between the military industrial complex and the federal government. Although the dollar was undervalued, the balance of payments kept worsening because of the rising imports of consumer goods from Asia. In such a situation characterised by low money cost and boom of new financial instruments, the housing markets boomed even more, incorporating the inflationary expectations of an increasingly indebted economy, in both the public and the private sector.

Source : IMF statistics www. Obama wins the election with a programme aimed at both redefining the rules of the game between the State and the market, boosting internal demand through a variety of actions and inducing a restructuring of industry. President Bush defined the American Competitiveness Initiative 1. President Obama has also defined and started to implement such a strategy. The strategies at least since Clinton put research and development and human capital as the main levers of the competitiveness of American businesses and especially of the development of new sectors, that bring new jobs, opportunities for the restructuring of old business and economic leadership of the country in key sectors.

Already the Omnibus Appropriations Act Public Law and the American Recovery and Investments Act Public Law increased the budget allocated to research and innovation not only because of their potential contribution to the recovery of the economy but also because of their long-term prospects regarding the development of new sectors. The research and innovation effort has four priorities: basic research, clean energy, health and security. Clean energy is clearly a priority of the Obama administration given the adoption of the Waxman-Markey Bill in June , which is the American Clean Energy and Security Act ACES primarily aiming at reducing greenhouse gases emissions by developing new energy sources.

The federal government mainly subsidizes large firms: very small firms have federal subsidies for about 9. States innovation policy seems to focus on the development of new sectors at the regional level favouring collaboration among firms, providing high skills, …. For instance Best analyses the development of a new biomedical industry in the State of Michigan, where the State had a role through innovation and human capital policies support to universities so that they could attract high quality students even from other American States but the most important appears to have been the interactions between firms, local governments, research centres and other important actors.

This act obliges researchers receiving federal funding to actively transfer their innovative technologies to industries, universities, State and local governments.

Industrial Policy and the International Economy

Thus the USA have used a number of instruments in order to guarantee the coherence of competition and trade policy with their strong support of domestic industry. The three main instruments can be argued to be specific provisions in trade policy; government procurement and the legal framework for intellectual property rights. In the period from to today the USA have always supported trade liberalisation in international negotiations, but they always have taken measures to help industries damaged by free trade. The US therefore voted the Trade Acts of and The Act contains provisions against free trade.

First, the Section regulates import relief in order to prevent or to remedy serious injury to domestic producers resulting from increased imports associated with tariff reduction.

Individuals injured appeal to International Trade Commission. Second, Section is an unfair trade practices statute. It is designed to ensure fair and equitable access of US products in foreign markets. As a result, Reagan took some unilateral protectionist measures.

In addition, a new Trade Act was adopted by the Congress in , which President Reagan had to sign. Thus Weiss and Thurbon , p.

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The fact that most American national champions such as Boeing, IBM, Lockheed, Caterpillar and Motorola all have depended and still largely depend on government contracts to ensure market shows that government procurement has been an important tool of industrial policy in the US. On the one hand, the US push for foreign procurement markets to open, both in multilateral negotiations Government Procurement Agreement, GPA of and in bilateral negotiations e. On the other hand, the US protect their procurement market by imposing buy national rules.

Many governments around the world have local preferences, but the US goes further by making Buy American a legal requirement for its federal agencies Weiss and Thurbon, , p. European Commission, Since the Bayh-Dole-Act of and the subsequent laws encouraging the patenting of inventions subsidised by the State, universities have encouraged their researchers to patent their innovations. However, in the case of universities, which primary aim has always been fundamental research in order to diffuse it openly to the rest of the economy, thereby guaranteeing maximum spillovers, other aims might prevail.

During the negotiations of the Uruguay Round, the USA argued that the violation of intellectual property rights could have as negative effects on international trade relationships as non tariff barriers. Hence the USA asked that the commercial dimensions of the treatment of intellectual property be extended within the GATT, while redefining their technological policy.

The new American doctrine of intellectual property protection of living objects and software has diffused in the EU Coriat, Other countries, such as China, have changed their system following US pressures. The diffusion of American norms worldwide is completed in the TRIPS agreements, negotiated within the framework of the Uruguay Round and progressively implemented since Measures to promote new industries are strong and different but complementary at the local State and federal level.

Trade policy is also coherent with the support of domestic industry through a number of provisions and exceptions defined officially for reciprocity reasons. The legal framework is also complementary with industrial policy and all contribute to provide a context conducive to the competitiveness of the American industry. The context external to the EU was also important since the Doha agreements were signed in the same year and saw the entry of China in the WTO.

The Lisbon strategy proposed a concerted action that involved all the policy lines already experienced and constituted an important innovation in the decision-making method of industrial development policies.

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