Institutional Geometry of Industrial Policy in Sustainable Development

Abstract

This chapter focuses on the supportive network of developmental institutions that is needed for governments to succeed in nudging or kicking their countries into a more productive and higher-value added economic structure. No country has achieved industrial and postindustrial transformation without the use of targeted and selective government policies to shift the production structure towards activities and sectors with higher productivity, better paid jobs, and greater technological potential. Moreover, those countries that succeeded in this shared a broadly common geometry in the institutions established within government and within business. The chapter shows that the opportunities these create for information sharing, dialogue, feedback, learning, and monitoring played a vital role in their success. In particular, it describes the need for governments to have a degree of “embedded autonomy” within the broader economy and mechanisms for “reciprocal control” to ensure that when government supports business, it is translated into the desired outcomes.

The good news is that this geometry is not a preordained endowment possessed by only some – it is the result of strategic design and commitment, nurtured despite challenges over time, and other countries can potentially do the same. The chapter argues that policymakers need to give as much attention (if not more) to this geometry of institutions and the information, rules, and norms that spread from them, as they give to the nuts and bolts of policy mechanisms. Such geometry enables government to learn from failure as well as from success and to manage rents appropriately to ensure that rent-seeking does not become an alternative wealth creating strategy. The chapter uses recent examples from developing countries including institutional innovations in Ethiopia, Uruguay, and others, in addition to more historical insights from Africa, Latin America, East and South East Asia, and other regions.

This text draws on Chapter 6 of the UNCTAD Trade and Development Report (TDR 2016), which the authors co-wrote during the first half of 2016. Colleagues and independent experts offered useful comments on that which are gratefully acknowledged. This text does not necessarily reflect the official views of UNCTAD and any faults remain the authors’ own.