Core Session 3: Growth and Development

Industrial policy is experiencing a global revival.

Global competition has sparked a renewed interest in industrial policy. China’s success with industrial policies, which diverge from neoliberal frameworks, has prompted other countries to reconsider state-led economic strategies.

National security and climate change are key drivers. The US and other nations are implementing large-scale policies such as the Inflation Reduction Act and CHIPS Act to compete in sectors like semiconductors and renewable energy, with national security concerns taking center stage.

Developing countries can harness industrial policy for social development. The experiences of Malaysia and Brazil underscore the importance of using industrial policy to benefit the people by fostering job creation and improving living standards through targeted industrial development.

Developing countries face both challenges and opportunities in implementing industrial policy.

Effective industrial policy requires the right institutional bodies. To harness the rapid spread of innovation and technology, developing countries must build the right institutions to compete with richer industrial countries. With strategic thinking, they can drive progress even with limited resources.

Coordination between central and subnational governments is vital. Misalignment between national and subnational policies, especially in decentralized systems, can pose significant challenges. Centralized direction can help prevent harmful regional competition that leads to a “race to the bottom” such as aggressive tax policies.

Brazil’s experience in industrial policy requires long term investment in human capital. Brazil, like many emerging markets, began its industrial journey after an economic shock, focusing on key sectors like agriculture and defense. The rising demand for bioethanol from the EU and the high yields from sugarcane boosted its role in renewable energy. Brazil’s experience includes both successes and setbacks, highlighting that key investments in human capital and R&D are essential for effective industrial policy.

Preventing excesses and failures in industrial policy requires balancing efficiency and resilience.

Short-term efficiency can compromise long-term resilience. Systems like Just-in-Time (JIT) are highly efficient in the short term but are vulnerable to disruptions during major shocks, as seen during the pandemic and geopolitical crises. Sacrificing some efficiency can strengthen resilience over the long term.

Building resilience requires accounting for long-term risks. Industrial policies should incorporate strategies to withstand potential disruptions, such as geopolitical conflicts or supply chain breakdowns, ensuring that systems remain robust in the face of unexpected challenges.

Developing economies can leapfrog by focusing on niche sectors. Countries with limited resources can concentrate on niche industries to build resilient sectors that perform well, even in a volatile global economy. By tapping into regional integration, developing nations can create diversified and stable value chains.