The Industrial Layer

Abstract

Other than some abstract contemplation, contemporary economic literature does not talk much about the nature of the industrial production and investment process, its internal and external actors and the interaction between them. In consequence, economists, when considering the industrialization process and the industrial policy take industrial firm—which is indeed the main agent at the centre of the industrialization process and the recipient of the industrial policy—as a simple, neutral agent. In economic literature, manufacturing activity is thus presented by a production function of some simple mathematical form. In turn, it is implied that the industrialization process progresses in line with a simple physical investment model.

The reality is much more complex, and is the reason why so many countries have failed to industrialize and have fallen into the middle-income trap. The industrialization process is primarily undertaken by industrial firms which are the primary and direct agents of industrialization, and are established and led by industrial entrepreneurs. They employ workers and managers, build factories, develop and manufacture industrial products, and sell them in their respective markets. They seek access to finance and interacy with the regulators. In the process, the industrial firm acts as part of an ecosystem which may be called the ‘industrial layer.’ As certain features of the industrial sector are very different from the primary and tertiary sectors, the industrial layer carries some peculiarities.

The quality of the industrial layer is important in that it determines both the overall competitiveness of the industrial sector and the efficiency and effectiveness of industrial policies. Industrial policies, if designed or implemented without taking into consideration the particular characteristics, weaknesses, and strengths of the industrial layer are likely to fail.