The Effect Of Industry Policy On Economic Development: A Debate

Is industry policy still possible today?

Industry policy also known as IP is a strategic effort which is used by developing and developed countries to encourage development and growth in parts of an economy. The IP is a way governments of such countries can improve the competitiveness and capabilities of the country’s domestic firms. Industry policy helps domestic firms through promotion of transformation. The content of this paper discusses the possibility of industry policy helping development countries rising up in development. Various developing countries have various problems in their quest to move up the ladder on their way top supreme economic development. These challenges can be reduced through the application of various policies which are both industrial and non-industrial policies. Industrial policies are sector specific compared to macro-economic policies which combine all sectors. The content of this paper therefore debates on the possibility of industrial policy leading to increased economic development of developing countries in the modern world.

Is industry policy still possible today; what are the major obstacles hindering the developing countries in their climb up the ladder of development and how can they be overcome?

The question above looks at effect of industry policy on transformation of economic development of the industrial sectors. Various developing countries suffer from various obstacles in which hinder them from climbing up the economic development ladder. These problems can be solved through application of various policies and strategies. Industrial policy is strategic way in which a given government can encourage development and growth in parts of the economy mostly the manufacturing sectors. Developing nations suffer from various obstacles which can be solved through application of industry policy (Helen 2012). Even though industrial policy is perfect and can lead to economic transformation and development, other policies like free trade can be used to promote development. Over a period of time, many have argued that industry policy is the single way in which real economic growth and development can be achieved by developing countries. However, some view industry policy as one of the ways which have never worked.  

The main question is whether industrial policy can be effective in the modern world.  This policy according to various sources is effective and many of the world developing practitioners are recently adopting the system.  A part from just the developing nations, most of the developed countries embrace industry policy and have been using this policy as part of their own development strategy. In the modern days industry policy can be effective and result in to positive development outcome. Industrial policy is possible in the modern world and can be away in which third world countries can climb the economic development ladder.  The government of developing countries should resolve into the application of industrial policy in order to make the most of their country’s current comparative advantage.

The Importance of Industry Policy for Developing Countries

Industry policy is important for developing countries and these countries should embrace this policy. The modern world is moving towards free trading environment where countries can trade freely with each other. For free trading theory to be perfect industrial policies should be developed and implemented by developing countries (Sung 2015). Two countries trading together in free market should have comparative advantage over the other. Without properly implemented industry policy, developing countries will not be able to have and maintain the comparative advantage. Industry policy is therefore important in the modern world for the countries to generate the comparative advantage suitable for free trade. Developing countries require perfect economic environment and political environment where the government is able to align the country’s efforts and resources in relation to their development.  The developing countries should first begin by making profits from human resources as well as resource intensive and other resources which the nation can produce best.

Developing countries should identify their comparative advantage and develop their industrial towards improving the comparative advantage. A nation with comparative advantage is able to develop economically through free trade (Kim 2015). Developing countries should identify various sectors they are best and create a comparative advantage in that sector. Most of the developing countries have natural resources which other nations may not have, these nations should come up with working industry policy to create combative advantage (Sung 2015). With the comparative advantage created through industrial policy application can lead to economic development. Comparative advantages enables a nation to earn more from a free trade.

The comparative advantage can be used to earn more from a free trade, with much from a trade a country is able to increase the GDP growth rate.  Industry policy help countries to identify the various areas in which they can benefit from and enable such nation to focus resources towards a specific area leading to development. Through the application of industrial policy, a country is able to maximize production leading to increased GDP as well. With increased Gross Domestic Product, the nation’s development is able to improve in terms of economic development. For any nation to improve a given sector, most of the national resources are channeled toward the same sector (Michael 2017). The nation will therefore improve infrastructure to maintain in order to promote the sector and gain more of the sector. In the modern days where free trade has taken the front as the best way to help upcoming countries develop, creation of comparative advantage is important. Industrial policy therefore is the best way the developing countries can develop their comparative advantage and climb the development ladder. 

Identifying and Developing Comparative Advantage

On the other hand, industrial policy is also known not be working and cannot lead to economic development in the modern world. Industry policy has is important and can only fail when poorly structured.  Other than the diagnostic issue, a typical issue is that modern approaches are too effortlessly be held captive by politically capable gatherings who at that point control it for their own particular purposes as opposed to for basic change. There is extensive proof that specific segments in developing countries such as Tunisia banks, media communications and transport got security from household and remote rivalry in light of the fact that the previous President Ben Ali's family had business interests in these parts (Helen 2012). The "Ben Ali firms," which represented 1 percent of private-part yield 3 percent of business, had 21 percent of the benefits in the economy. The restraining infrastructure control allowed to these parts raised costs to the point that Tunisia's sending out division was never again focused. Since this issue is found far and wide, the inquiry to be asked before presenting a mechanical arrangement is: One method for decreasing the danger of political catch is to advertise the connection amongst cronyism and work, with the goal that residents can put weight on lawmakers to convey on their guarantees.

Most of the developing countries focus on the development of the firms not sectors. Industrial policy and strategy has ordinarily focused on segments. The discourse of "picking champs," in light of some variation of similar favorable position, is ordinarily about which parts ought to get special treatment. However, segments don't exchange; firms do (Michael 2017). The reason we generally centered on parts is that they do not have adequate point by point firm-level information in creating nations. Since the circumstance is enhancing, these nations are finding a lot of heterogeneity among firms inside a part (Kim 2015).

Specifically, in divisions without a conspicuous relative preferred standpoint, there are very effective sending out firms and some unsuccessful ones. These perceptions have prompted inquire about on the attributes of fruitful firms and the likelihood that modern arrangement would be more compelling on the off chance that it focused on these qualities instead of all organizations in a part. Likewise, certain approaches, for example, phytosanitary directions, may include a differential impact inside a segment, empowering a few "stars" to develop, while others shut down (Michael 2017). At last, some far reaching approaches, for example, trade rates, that were thought to have effects may have differential impacts once firm attributes are considered.

The Possibility of Political Capture and Its Effects on Industry Policy

Industry policy may lead collapse of other important sectors which may be seen as a sectors which are not important (The Practice of Industrial Policy 2017). The government industrial policies may lead to collapse as these policies supports only sectors believed be important and can create a comparative advantage to nation. When some sectors are ignored development of such a sector reduces leading to many people leaving such sectors to more favored sector and this may result into low economic development.

Major obstacles hindering the developing countries in their climb up the ladder of development

Most of the developing countries have less building ability to prepare budgetary assets locally. Industry policy requires the capacity of the state to proficiently gather and oversee impose incomes in order to gather development funds in developing countries (Michael 2017). What strikes is the way that the casual segment still constitutes a stamped offer of the economy in the majority of these nations. However in Antalya, dialog on the casual economy was absent. In what manner can the casual area be burdened? Instead of gathering more resources domestically least developing countries depend more on already developed countries for development (John 2017). It is inescapable that most of the developing countries will keep on relying vigorously on outside help to saddle the open doors in the casual market, and improve their specialized and institutional abilities to activate assets effectively. The development of these nations highly depend on their ability to collect domestic resources.

Developing countries depend intensely on essential products, abandoning such products results into unpredictability in item costs (Kim 2015). This prompts irregular characteristics in adjust of installment and financial flimsiness. Some African nations, for example, Angola and Mozambique have been hit especially hard.  Some recommend this financial helplessness is a noteworthy block to developing countries graduation. I think this is an obsolete contention – there isn't adequate proof that essential item value instability decreases add up to efficiency or effects GDP development (John 2017). Actually, much proof recommends the most constraining variables are frail human asset and shaky foundations; nations that have influenced adequate interest in building their human and institutional money to have possessed the capacity to withstand impermanent monetary stuns. Along these lines, yes to monetary enhancement, yet need ought to be given to speculations coordinated towards improving human and institutional capital (Michael 2017).  Most of the developing countries have over a long time focused on the specific sectors leading to poor economic development.

Focusing on Firms Rather than Sectors

Molarity of the developing countries show dissatisfaction at absence of worldwide help for methods for execution, including absence of change to steadily troublesome exchange administrations, the disparity between vowed monetary help and monies really conveyed, and token innovation exchange. For instance, the G8 gathering of nations fell more than US$10 billion short on its Africa promises for 2010 alone (John 2017). Vital as it is to concentrate on nearby changes, it is urgent that adequate consideration is given to methods for execution. Without this, the graduation of developing nations remains a negligible yearning. These countries should have proper methods of implementing economic development strategies. Poor implementation of various policies have resulted into these countries developing at a low rate compared to developed countries which have perfect development strategy implementations.

Developing countries delegates voiced worry about the brain boggling number of objectives and targets set by different worldwide systems, including the Sustainable Development Goals, IPoA, the Paris Agreement on environmental change and the Convention on Biological Diversity, to give some examples. Monitoring every one of these objectives is depleting and not really the most effective method for executing improvement motivation. A cognizant procedure with streamlined announcing systems is the favored route forward (John 2017). The demand from various world organization on sustainability development on the developing countries may also be an obstacles to their development. These countries have their rate of investments restricted by various rules and regulations relating to development. The nations have several objectives and targets set by the world organization diverting their development focus leading to limited economic development growth.

Most of the developing countries have poor political system which onto focus on economic development.  These countries over several years have been affected by power struggle and wars leading to poor economic development. Various development policies more so industrial policy requires perfect economic environment which can only exists as a result of development politics (Block 2008).  Politics may lead to investments or scare away various investors who may invest in a given country. The government should therefore develop effective economic environment through development politics to encourage investors (John 2017). Most of these countries’ political system is composed of corrupt individuals whose main objectives are self-benefits rather than general development. Corruption affects all sectors of the economy leading to the poverty and over dependence on few developed countries for all the support and this is a challenge to economic development.

There is a likewise struck by the accentuation on the part of the private area both in financing and conveying improvement in developing countries. This has picked up consideration following developing benefactor weariness and lessening Official Development Assistance.  Without a doubt, it is apparent that ODA streams to the developing countries have declined in genuine terms in the previous couple of years (John 2017). This is because of various reasons incorporating a moderating economy in the created world, defilement and 'poor administration' on the beneficiary side, the current move of assets to helpful emergencies, also the ascent of right-inclining populist governments in support countries such as Europe. This has been an obstacle to developing countries as, most of the time their development plans collapse with the collapse of development sectors which offer them support in terms of finance and strategic support (Fred 2008).

The above developmental problems can be one with through application of various policies and strategies (Dobbin 2014). For any nation to overcome the above obstacle, the nation must come up with sustainable development goals and objectives which include the global vision in relation to sustainable development, economic growth balancing as well as environmental protection a gender. The current world is moving towards free market where countries can trade freely with other nation within the trading bloc. These nations can only benefit from such trading activities through a comparative advantage.

Industry policy is one of the ways in which a country can use the domestically collect domestic resources and use the m for economic development (Fred 2008). Developing countries can employ various ways to collect the resources and channel to a given sector. Through industry policies various countries are able to forward resources to a sector which can be a competitive advantage to the nation. Channeling of resources to a given sector leads to a nation having a comparative advantage which will enable that country to take part in a free trade (Dobbin 2014).  Industrial policy can be used to prevent a given industry from suffering stiff competition from external firms or industries (Fred 2008).  Through other policies like trade tariffs and duties, the government is also able to collect resources in terms of finance which can be used for economic development.

Another way to help with the collection of domestic resources is through development of legislations which guided collection and use of the collection of resources (Mathews 2017). The government should come up with laws which govern the collection and usage of the collected domestic resource as this will result into each penny collected to count leading to increased development. The government should also apply industrial policy to trading sector where they should protect the domestic firms from imports (Mann 2017). This can be done through taxing imports and subsidizing export industries. This will result into increased production and development leading to increased rate of GDP. In order to perfectly implement these industrial policies, each developing nation should have to create type of government which focusses on development of the whole country rather than having a government which is composed of few individuals with self-interest.

With application of industry policy, the government of developing nations will have reduced dependency rate. Developing countries as noted above show reduced development rate as a result of over dependence on the developed countries. The developing countries should therefore apply various policies to ensure maxim domestic revenues collection. The revenues collected domestically can be invest into various specific sectors which at the end creates more capital for development and economic boost. Developing countries should focus on specific field and diversification of development objectives (Midteide 2016). With development goals, developing countries will be able to rise up from the comfort zone and move up the development ladder. Developing countries have a lot natural resources such as labor which they can exploit into their advantage (Michael 2017). Human resource if one of the resources which creates a comparative advantage. Investing into a specific field of development, a nation will be able to increase production in the sector to compared multi field investments.

Industry policy as evident in the content of this paper is important for development of any nation. The statement of discussion can therefore be justified since it is the foundation of development. Most of the development problems facing developing countries can be solved through implementation of industrial policies. Developing countries should therefore adopt the policy in order to climb the ladder. Industry policy according to this discussion is possible in the modern days and important to developing countries.

Conclusion

As discussed in the content above the importance of industry policy has been noticed. Implementation of industrial policy by developing countries is possible and it is one of the ways developing countries can climb up the economic development ladder. The application and implementation of industry policy results into a comparative advantage which in turn enables a country to benefit from free international trade. Though the use of industry policy suffers from various drawbacks, developing countries can perfectly implement the theory of industry policy to overcome economic growth and development challenges. Industry policy is therefore important and possible in the modern economic world and should be adopted by developing countries on their way up to achieve economic development.

References

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 Mathews, J. (2017) Global Green Shift Book Subtitle: When Ceres Meets Gaia Book Author(s): Anthem Press. 

 Mann, M. (2017). Has Globalization Ended the Rise and Rise of the Nation-State: Review of International Political Economy, Vol. 4, No. 3, The Direction of Contemporary Capitalism (Autumn, 1997), pp. 472-496.

Midteide, S. (2016). Industrial policy: the pharmachemical industry in Mexico. Oslo, Centre for Development and the Environment, Univ.

Kim, S. (2015). Developmental Environmentalism: Explaining South Korea’s Ambitious Pursuit of Green Growth, Politics & Society 2015, Vol. 43(2) 213–240

The Practice of Industrial Policy (2017). Government-Business Coordination in Africa and East Asia, Oxford University Press.