Revisiting manufacturing and industrial policy
Last year has witnessed a sudden revival in revisiting industrial policy. My interest in the topic was rather a practical matter. I live in a country where “innovation” and “innovation policy” are burning hot topics(Turkey). This is a tragic irony in my view because Turkey has never completed industrialization. Innovation policy without industrial policy seems a bit odd to me.
The industrialised countries have more or less followed a linear path from supporting science to supporting innovation (science-industrial and technology-innovation). But now in most developing countries (as in Turkey) everybody talks about innovation policy completely ignoring the role of industrial policy. So in a sense the foundations of innovation policy in the developing world are not as strong as the ones in the developed world. When Bart Verspagen (the director of UNU-MERIT) approached us that we should have a special session on industrial policy in the 11th Globelics conference in Ankara I jumped on the idea. I was happy to see that I am not alone in revisiting industrial policy.
It has been a month after the conference but now and then I still find myself looking for stuff on industrial policy. Are there more people who points out to the role of manufacturing and industrial policy? If so why is this sudden revival? At least for the first question I found some answers.
1) Entrepreneurial State of Mariana Mazzucato from SPRU elegantly shows that much of the innovations that we use in our daily life today are actually products of deliberate government policy in the past. The book has numerous examples on how government created markets rather than fixing markets. The proactive role of state is highlighted in the book but nevertheless Mazzucato pinpoints US industrial policy in the 1960s as a case of how state created markets (though we thought that it fixed market failures).
2) European Commission’s October 2012 communication on industrial policy: the aim is to increase the share of manufacturing in GDP to 20 percent (it is now around 15 percent in Europe). The international economic think-thank Bruegel has highlighted this as “industrial policy is back!” But actually the 190-page report on manufacturing in Europe take somewhat a skeptical stance.
3) A recent project-syndicate commentary by Dani Rodrik looks at the manufacturing sector and shows that developing countries deindustrialized earlier than the developed countries. In many industrialized countries the employment share of manufacturing rose above 30% and then slowly declined. The deindustrialization was late and took time. Whereas in the developing world deindustrialization was early and fast. In most developing countries such as China, Brazil, India the peak employment share of manufacturing was about 15%. Rodrik calls this trend as “premature deindustrialization”.
4) I’ve also heard somewhat radical comments on the role of industrial policy. The new president of the International Schumpeter Society Jorge Niosi has put it boldly in the 11th Globelics conference in Ankara: “those aiming for innovation without industrial policy will stay producers of paper and soybeans”.
5) A new edited book from OUP “Pathways to Industrialization in the Twenty-First Century. New Challenges and Emerging Paradigms” by Adam Szirmai, Wim Naudé, and Ludovico Alcorta is another timely discussion on the future of industrial policy
I am sure there are more important contributions to the discussion. The second question is still on the table: why is this sudden interest in manufacturing and industrial policy?
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