Industrial policy: a taboo only in Sub Saharan Africa

the 2008 global financial crisis has  enhanced the legitimacy of  industrial policy in a number of ways. First, the crisis prompted some major industrial policy actions – both defensive and proactive. The bail-out of US automakers is the best example of defensive industrial policy and the ‘green’ subsidies to the auto industry in the US and other countries are the best examples of proactive industrial policy. Second, having originated from over-development of the financial sector, the crisis has restored the legitimacy of industrial policy even in countries like the US and Britain, where  it had been a taboo.  Third, the continued rise of China and the solid performance of Germany,  both of which have never been shy about using and talking about industrial policy, throughout the crisis period have also made people think again about the importance of industrial policy.

Despite all of this, however, there is a persistent scepticism about the applicability of industrial policy to  the  African countries. However  well the policy may  have worked in countries like Japan and  Korea in the past, it is argued, it simply won’t work in most developing countries, especially those in Africa. The reasons cited are varied – ranging from excessive natural resource endowments (the so-called ‘resource curse’ thesis), pathological politics, the lack of bureaucratic capabilities, and the changes in the global economic rules –but the implication is that the African countries would be better off sticking to their natural resource advantages, rather than trying to develop manufacturing industries through industrial policy. That was Cambridge economist Ha-Joon Chang discussing the most common arguments against industrial policy in Africa. Ungated pdf version here, Interesting throughout.