Is The Industrial Policy Relevant In The 21st Century?

The purpose of this paper is to examine whether industrial policy has any place in industrialization and economic development of developing countries in the new world economy. The author argues that the answer to this question depends on the development objective of the country and the role envisaged for international trade. If the role of international trade is to achieve the objective of the integration of developing countries into the world economy purely for the sake of integration, the industrial policy is irrelevant. By contrast, if development is the ultimate objective of their integration to the world economy, what is irrelevant is the current dominate economic philosophy and the international rules which govern trade and development. Such rules facilitate globalization but they are not particularly conducive to industrialization and development of developing countries. We have been witnessing two contradictory developments in the world economy and international policy during recent decades. On the one hand, the need for sophisticated trade and industrial policies has increased; on the other hand the economic philosophy has changed against government intervention in the economy. The need for industrial policy has increased because the international market has become increasingly more concentrated; global production, international trade and technology have become more and more dominated by TNCs; technological changes have accelerated and production has become more knowledge-intensive. The policy space of developing countries has, however, shrunk due to the dominant views of the orthodoxy. Such views have been reflected on the conditionalities, imposed on many developing countries by International Financial Institutions (IFIs), bilateral donors and to a large extent through GATT/WTO rules and advocacy of “Washington Consensus”. Meanwhile the across-the-board and universal trade liberalization implemented by most developing countries during recent decades has failed after the failure of across-the-board import-substitution of the preceding decades. Such failures have put trade policy as well as trade diplomacy at the cross-roads. The failures of the top-down approach to trade and industrial policies through which one size-for-all rules are drawn at he international level and imposed on developing countries raises a serious question: is not there a need for rethinking trade and industrial policies? After arguing for the relevance of industrial policy, the author presents an alternative framework by taking a bottom-up approach in this study. He presents a relevant framework for what is required at the national level to catch- up in the process of industrialization and development and, and on this basis, he argue briefly for changes in international trade rules to make them development oriented.