The Political Economy of Industrial Policy

Author: Ha-Joon Chang

Publisher: Palgrave Schol, Print UK

ISBN: 9780333588628

Category: Industrial policy

Page: 184

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This study provides a comprehensive discussion of the controversial issue of industrial policy, drawing on some recent developments in economic theory in areas like political economy, institutional economics, industrial economics and theories of technical progress.
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The Political Economy of Industrial Policy, Ha-Joon Chang, 1996

The Political Economy of Industrial Policy,

Author: Palgrave Macmillan Press, Ltd

Publisher: Bukupedia

ISBN: N.A

Category: Political Science

Page: 203

View: 8188

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Preface to the 1996 Reprint While one writes a book because one thinks that one has something to say that will interest more than just a handful of people, for an unknown fIrst-time author, it was still a wonderful surprise to find out that The Political Economy of Industrial Policy has been. doing sufficiently well to justify a paperback edition. Since the book was published, I have received a surprising number of responses from many people through various channels. There were some predictable reactions, be they positive or negative, but there were also some which I did not expect when I wrote the book. And for some of these reactions I felt the need to respond in order to clear up the misunderstandings. Moreover, as some of the issues I discussed in the book have seen a flurry of debate in recent years, I felt that I should add a word or two on the more recent developments. First of all, my use of the' concept of transaction costs in analysing the relative costs of different fonns of coordination invited a lot of justified and unjustified criticism. One criticism was that transaction costs are perhaps not as important as the costs of coordination failure themselves, and therefore that my emphasis on transaction costs was diverting attention from a more important issue. This was a response that I anticipated at various places in the book, but perhaps I did not do enough to prevent such misunderstandings. I was by no means suggesting that the costs from coordination failures· were less important than the transaction costs involved in correcting them, but simply that correcting coordination failures is not without cost, as it is assumed in many economic theories. . The other criticism that I faced due to my adoption of the term 'transaction costs' was that I was advocating the purely 'self-seeking' view of individuals, as many who use the concept tend to be, and that partly as a consequence of this I failed to see other forms of coordination such as 'networks' which are at least partly based on nonselfish, cooperative behaviours. This was, again, an unfortunate misunderstanding. While I certainly did not explore the network as an alternative coordination mechanism to the market or state intervention, this was not because I believed that human beings are so selfish they are incapable of spontaneous cooperation. As I keep emphasising at various places throughout the book, especially in the first two chapters, I do not subscribe to the pure, 'self-seeking' view of individuals. The reason why I did not deal \vith mechanisms of coordination based on horizontal cooperation was partly because I did not have enough expertise in the area, and partly because the book was on 'policy' by the state. Indeed, whether the state can make its policy implementation more effective through promoting cooperation among the relevant agents is one interesting issue that we should look at in future. In choosing to use the term 'transaction costs', and also the term 'New Institutional Economics', I had some misgivings myself. My own definition of transaction is somewhat broader than that used by many other authors writing in the tradition of the New Institutional Economics, and refers to the costs of running the economy or, as I also call in the book, the 'costs of coordination' (see Chapter 2, Section 3.1). And when the term also carried certain ideological baggages to which I do not fully subscribe, such as its emphasis on opportunistic individual self-Qeeking, I was not sure whether I should use the term. On the other hand, I did not want to create another term in our jargoninfested profession when there is an already accepted tenn which could convey the meaning sufficiently, if not perfectly, well. Hence my decision to use the term. Unfortunately, although somewhat predictably, this brought about unnecessary misunderstandings amongst many readers, but I still feel that my decision to use the term 'transaction costs' was, on balance, justified. When one writes on arguably one of the most contentious issues in modern economic debate, namely, industrial policy, one is bound to face the problem that by the time the book gets known to people, the debate has moved on. The book was finalised~ except for minor editorial changes, at the end of 1992, and there has been a good deal of controversy in the area since then. The most prominent of the recent debates was due to the World Bank's East Asian Miracle Report, which was published in late 1993. The so-called 'Miracle Report' stirred up a good deal of controversy on industrial policy by arguing that such policy attempted in the East Asian countries was largely ineffective, perhaps except in Japan, and that it is not something that other developing countries can try anyway because they do not have the administrative and other institutional capabilities to carry out such a demanding policy. While there is no need to repeat the detailed criticisms by many authors, including myself, of the methodologies and empirical validities of the Miracle Report's view on industrial policy, I feel that I should present a few salient points in summary form (for detai Is, see the articles published in the special symposium in World Developllzent, 1994, no. 4; essays in Fishlow et al., 1994; and Chang, 1995). First of all, the World Bank. claims that the industrial structural transformation that happened in these countries was 'marketconfonning' in the sense that their industries became capital-intensive more or less in line with the rise in their income and thereby capital stock. It then argues that this means these changes would have happened even without industrial policy. One problem with this argument is that with the rise in inco"me, which the Bank takes as something that drove the transformation in industrial structure, was actually also the result of the industrial structural fonnation· of the economy, which was shaped by industrial policy.· Also, the structural transfonnation of the East Asian economies may be 'marketconforming' in the very abstract sense that they started from labourintensive industries and only later moved to capital-intensive industries. Yet there was little 'market conformity' in the process, as the particular industries that developed over time were often selected and nurtured by the state, rather than by spontaneous market forces. Moreover, even if one makes the biggest concession and accepts that the transformation of the East Asian industrial structure was market-confornung, this still does not mean that industrial policy in East Asia had no impact because the speed of such a transfonnation was certainly accelerated by industrial policy. Anyhow, in the absence of actual examples of market-based progress towards an advanced industrial economy during this century (barring the very exceptional case of the colonial city-state, Hong Kong), the burden of proof is really on those who believe that such a progress is feasible. Secondly, the World Bank rejects the effectiveness of industrial policy in East Asia, especially in Korea~ on the grounds that total factor productivity in the 'promoted'. industries such as machinery did not grow as fast as that in the 'neglected' industries such as textiles. Even ignoring the fact that the textile industry was in fact one of the most heavily promoted in Korea (as its ability to earn foreign exchange was highly prized by the policy-makers; see Chapter 4, Section 4.1), the total factor productivity growth figures provided by the Miracle Report should be taken with more than a pinch of salt. There are enough contradicting evidences presented elsewhere, as one would expect given the well-known problems of measuring total factor productivity growth. It should also be added that the Miracle Report ignores other important indicators of industrial policy performance such as balance of payments contributions or spill-over effects beyond the two-digit industry level The Miracle Report's last line of defence is that industrial policy requires a high institutional capability - such as a capable bureaucracy and a· well-developed forum for government-business dialogue - and therefore is not applicable to countries without such capabilities. At one level, I could not agree with this statement more. It is certainly important to take into account one's administrative and institutional capabilities when one is designing a .policy. Moreover, I regard this as a welcome improvement over the standard mainstream practice of recommending an essentially same economic model - namely, an idealised version of the Anglo-Saxon economic system - to a bewilderingly wide range of countries regardless of their political and institutional conditions, which naturally often produces very disappointing results. Although one gets somewhat suspicious when the same people who used to· ignore political and institutional conditions when applying the Anglo-Saxon model suddenly become concerned about them when it comes to applying the East Asian model, I take this asa very positive sign that our profession is finally realising the institutional diversity of capitalism emphasised in this book. However, what is missing in the World Bank's new position regarding the question of institutional capability is a discussion of how a country that does not have an adequate institutional capability to administer 'complex' policies can construct such capability. As I point out at various places in the book, the East Asian countries did not start their industrialisation efforts with a competent bureaucracy and good institutions but consciously built them over time. Moreover, one should not forget that, as in production, there is also learning-by-doing in administration, and therefore that a bureaucracy which is intent on eventually administering a complex set of policies should try to build up its capabilities over time by engaging in some degree of complex policies from the beginning. So if a country starts from the assumption that it does not have an adequate ability to implement an intelligent industrial policy and therefore gives up any attempt, it will never learn to do it. As I repeatedly argue in The Political Economy of Industrial Policy, learning from other countries does not mean exactly copying their institutions and policies - which is not going to be successful anyway but requires first an understanding of the principles that lie behind these successful policies and institutions, and then constructing their 'functional equivalents' (which may or may not serve the given function better) with due attention to local conditions. There is an old Korean proverb that 'he who does not have teeth chews with his gums which nicely sums up the spirit of my argument. To develop this insight further in the modern context, one could say that if one hasn't got teeth, one should think about buying a set of false teeth or even· a food processor. To drive this point closer to home, I can do no better than refer the readers to the quote in the third chapter of the present book from the eminent scholar of Japan, Ronald Dore, on the replicability of some Japanese institutions on British soil. References Chang, H-J. (1995) 'Explaining "Flexible Rigidities" in East Asia' in T. Killick (ed.), The Flexible Economy (London: Routledge). Fishlow, A., Gwin, C., Haggard, S., Rodrik, D. and Wade, R. (1994) Miracle or Design? - Lessons from the East Asian Experience (Washington, D.C.: Overseas Development Council). World Development (1994) no. 4
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The Political Economy of South Africa

From Minerals-energy Complex to Industrialisation

Author: Ben Fine,Zavareh Rustomjee

Publisher: C. HURST & CO. PUBLISHERS

ISBN: 9781850652571

Category: Industrial policy

Page: 278

View: 7327

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Rather than proposing a blue-print for a more equable economic system in South Africa, this book presents the results and implications of research on both the history and current dynamics of the South African economy, from World War II to the present. The authors analyze a range of strategic economic trajectories, linking these to the shifting balance of economic and political power within South Africa. However, their approach is not prescriptive; instead, they set the boundaries within which the economic and political debates are conducted. They also discuss the theoretical arguments involved in the propositions that they and others have put forward. In this and other respects - such as the data presented and the fact that each chapter is written in a self-contained fashion so that particular topics can be studied in isolation from others - this study serves as a textbook of the political economy of South Africa.
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Industrial Policy and Development

The Political Economy of Capabilities Accumulation

Author: Mario Cimoli,Giovanni Dosi,Joseph E. Stiglitz

Publisher: Oxford University Press on Demand

ISBN: 9780199235261

Category: Business & Economics

Page: 575

View: 767

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This volume addresses the issue of state intervention in industry & markets. It provides a comprehensive critique of the policies informed by the Washington Consensus. Building on this critique, the editors bring together essays by leading experts in the field which focus on instances of successful industrial policies & interventions.
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Essays on Employment, Public Policy and Corporate Performance

Author: Michael Kitson,Jonathan Michie,Professor of Management and Business Birkbeck College Jonathan Michie

Publisher: Psychology Press

ISBN: 9780415204958

Category: Business & Economics

Page: 193

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This volume offers an original perspective on the relationship between economic theory and policy. It discusses the lessons of economic theory and policy from a broad political economy perspective.
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Malaysian Industrial Policy

Author: Jomo Kwame Sundaram

Publisher: NUS Press

ISBN: 9789971693404

Category: History

Page: 322

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Malaysian Industrial Policy argues that selective government promotion efforts have been successful and crucial for Malaysia's industrialisation despite some disastrous consequences associated with the Mahathir government's heavy industrialisation programme. The authors present evidence to show that direct and indirect government interventions have induced and supported investments, accelerating the structural transformation of the Malaysian economy. The analysis indicates that investment incentives with conditions attached rather than trade or investment liberalisation have been crucial to Malaysian manufacturing growth since independence. However, industrial development in Malaysia has been modest compared with that in Northeast Asia because of weaknesses in industrial policy and excessive reliance on foreign investments.
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The Political Economy of High Technology

Author: Anthony DiFilippo

Publisher: Greenwood Publishing Group

ISBN: 9780313274152

Category: Business & Economics

Page: 204

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The linkages between the government and the industrial economy that shape the direction of America's technological development are the focus of this work. DiFilippo analyzes this political economy both empirically and comparatively, and argues that an improvement in U.S. competitiveness, manufacturing, productivity, and the standard of living require a shift of technological resources from the military to the civilian sector. He examines such topics as conventional explanations of competitive decline and the industrial policies of Japan, West Germany, and France, and provides a practical alternative to confront many of the current economic problems.
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