…there is considerable evidence that industrial policy has influenced the sectoral composition of output and trade in Japan. However, rather than being the forward-looking driver that proponents of selective promotion envision, at least in terms of measurable interventions, the evidence suggests that such policy was aimed overwhelmingly at internationally noncompetitive natural-resource-based sectors. Indeed, once general equilibrium considerations are taken into account, in all likelihood the manufacturing sector as a whole experienced negative net resource transfers.
That is from the very interesting Industrial Policy in an Era of Globalization: Lessons from Asia, by Marcus Noland and Howard Pack. This book is a good rebuttal to the claim that Asian economic success was fundamentally driven by industrial policy. I thank a loyal MR reader who sent me this book, as a supplement to exchanges with Dani Rodrik.
Addendum: Do see Rodrik’s response in the comments…
My problem with industrial policy isn’t so much its results when it is done well as the distruptive incentives it creates. Industrial policy that does drive forward investments in important areas can have good results. The problem is that it all too often turns into corporate welfare.
“suggest[s] that industrial policy sometimes works” – isn’t that like saying “playing Blackjack is sometimes profitable”? Central planners are gambling with someone else’s money. Even if the odds are against them, occasionally they’ll come out ahead.
‘isn’t that like saying “playing Blackjack is sometimes profitable”?’
Not really. Even with an optimal strategy, the expected profitability of playing blackjack is presumably negative (at least assuming you can’t count cards). Dani’s whole point is that this isn’t necessarily true of industrial policy: there may be strategies that make it’s expected value positive.
If industrial policy is so great, how is it that the Asian “miracle economy” that has the highest GDP per capita GDP (and the lowest 2006 debt to GDP ratio) amongst those countries is also the one with the least top down policy over the past decades?
Show me a country that has excellent formal or informal protection for property rights, and has an excellent education system, and has a policy that plausibly favors investment, and is war-free, and I’ll show you a country that has done quite well over the time period that those prerequisites have been in place, especially if it starts from a low base.
You don’t need the industrial policy crutch to explain the growth of any country, they all fit the above to a pretty close degree.
@happyjuggler:
Japan started from a higher base?
Question: What’s the correlation between industrial policy and land reform. As I recall, left-wing style land reform in Taiwan by the Kuomintang (originally a Marxist-lNeinist party themselves!) provided a nice set up for solid capitalist growth.
JSK,
I’ve reread my post a couple of times and can’t discern where you got confused. I certainly did not intend to claim Japan started from a high base, and I don’t think it reads that way now after rereading it.
My reference to starting from a smaller (per capita GDP) base being helpful is simply a reference to convergence theory. It is easier to grow by playing follow the leader than it is to grow by playing innovator. Especially if you want to grow quickly.
By the way, the “country” I was referencing as doing the best amongst the “Asian Miracle”‘s, but inadvertantly left out its name, is Hong Kong, with a 2006 per capita GDP (PPP of course) of $37,300 and a 1% debt as a percent of GDP.
By comparison, other Asian countries GDP’s via the same source, including those not normally considered “miracles” and including the bigger population countries, include Australia $33,300 per capita GDP, Japan $33,100, Singapore $31,400, Taiwan $29,500, New Zealand $26,200, Brunei (for perspective, it is oil rich and not rationally comparable) $25,600, South Korea $24,500, Macau $24,300 (2005), Malaysia $12,900, Thailand $9,200, China $7,700, Philippines $5,000, Indonesia $3,900, India $3,800, Viet Nam $3,100, Pakistan $2,600, Cambodia $2,700, Bangladesh $2,300, Mongolia $2,100 (ok, it’s not a high population country, sue me), Afghanistan $800 (2004).
Let’s see, industrial policy was reasonably successful in Japan, South Korea, and Singapore, while laissez-faire was reasonably successful in Hong Kong, Taiwan, and China. Hmmmhhhmmhm …
Maybe some other factor might possibly account for the common success of countries with Northeast Asian populations?
Please, just stop dancing around delicate words and phrases and just come out and admit that you believe blacks are inferior to whites and Asians due to their low average IQ.
Did industrial policy drive Asian economic growth?
I didn’t read the book “Industrial Policy in an Era of Globalization: Lessons from Asia“ yet and I do not know how Marcus Noland and Howerd Pack justify the growth in Asia, but fact is, that the GDP of the eight states (Japan, Hong Kong, Korea, Singapore, Taiwan, Indonesian, Malaise and Thailand, which constitute an informal trade association) grew since 1960 more then twice as fast as the rest of the east Asian states and thrice as fast as Latin America. Their fraction on global export rose from 1965 to 1990 from 9% to 21%.
The neo-classicism holds that these countries have achieved their extraordinary development by orientation at the market and the international competition, and that the state only created general conditions.
In my mind, these countries have achieved their extraordinary development by acting instead of running the discussion whether the state ought to interfere or not. For them there is nothing to it, if they pitch up a technology that is especial worth to assist and (at the same time) collaborate with the domestic economy. Every Asian state whether democratic or authoritarian is helpful to the national industry. The diverse departments horn in massively – ideally and financially.
The Japanese state plays especially in the fundamental research a decisive and delegated role; it spend twice as much as companies, about 15 billion dollar.
The Asian competitor studied the Japanese “success-model† particularly and copies it more or less.
On this account, nearly every country in East Asia designed an ambitious research program and mighty institutions were installed for control and for sponsorship of the process of innovation.
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