Industrial policy for prematurely deindustrialized economies after the Covid-19 pandemic crisis: Integrating economic, social and environmental goals with policy proposals for Brazil

Deindustrialization has not equally affected countries worldwide. In developed countries, deindustrialization is driven by technological progress and manifests in the drop of the share of manufacturing employment in total employment. In most developing countries, though, deindustrialization has prematurely accelerated. Most empirical studies calculate the degree of premature deindustrialization based on aggregate calculations of the share of manufacturing value added in total GDP or manufacturing employment in overall employment. By not capturing the sub-sectoral levels, these studies overlook important information. Indeed, recent studies show that, at a sub-sectoral level, the most innovative manufacturing groups like machine and equipment and science-based manufacturing subsectors are not deindustrializing in both value added and employment shares. However, their contribution to employment generation is relatively minor compared to the labour-intensive and scale-intensive manufacturing sub-sectors. To reverse the deep premature deindustrialization from which many developing countries in Latin America and elsewhere are suffering, it is, thus, essential to understand the manufacturing industry at the sub-sectoral level. Since manufacturing still matters, one of the primary roles of industrial policy is to combine instruments to reverse premature deindustrialization. In line with the Neoschumpeterian national innovation system approach, industrial policy is viewed systemically and conceived as long-term mission-oriented national plans. Therefore, it must be connected and harmonized with the other economic and social spheres, such as science and technology, education and training, physical and human infrastructure, and, last but not least, the macroeconomic policies. We provide several descriptive statistics data and empirical simulations on overall employment and tech and green jobs from an increase in final demand with the input-output methodology. From this evidence, we suggest an industrial policy for Brazil after the Covid-19 pandemic crisis by identifying missions and priorities oriented to (i) reindustrialization; (ii) innovation and the creation of dynamic comparative advantages; (iii) generating formal jobs; (iv) reducing social inequality; (v) engaging in the digital economy; and (vi) gradually replacing high carbon dioxide (CO2) emissions technologies with lower ones. Since all these missions are justifiable with theoretical analysis and empirical evidence, they cannot be considered excessive. Indeed, it is Brazil that faces many challenges. We hope that the policy suggestions are helpful for similar developing countries that have faced premature deindustrialization and stagnation in the last decades.