Organizing Economic Development: Industry and the State in the New Global Economy

Abstract

This dissertation examines the role of the state in industrial transformations, and considers how state agencies can design strategies that promote industrial growth in the ‘new global economy’. Recent perspectives in economics have pushed at the edges of the Washington Consensus; in theory, governments can promote economic development by nudging industries with loans, subsidies, and other sectoral interventions. In practice, these views appear sensible yet vague, while many traditional interventions are no longer feasible under the rules of the World Trade Organization. International financial institutions, for their part, have argued that industrial policy demands ‘better governance’ than is characteristic of less developed countries. I discuss the challenge of redeploying industrial policy in developing countries in light of international rules and consider options for institutional design.

At the macro level, Chapter 2 examines the link between the quality of public administration and economic development, focusing on two questions: First, does bureaucratic probity promote economic development? Second, should ‘good governance’ be seen as a prerequisite for industrial policy? Chapter 3 examines the link between trade protection and industrial change. Tariffs are not a miracle drug, but they have been a critical element of state-led development strategies. I contribute to the debate with new cross-national, cross-industry quantitative evidence. Cross-country regressions have been a staple of the literature on trade and growth for the last two decades, but the results have been mixed, and studies rarely examine the underlying mechanisms—such as industrial ‘catching up’—that link tariffs to economic outcomes.

The great question is not whether states should deploy industrial policy, but how. Chapter 4 examines the experience of Chile as it pushed, year after year, decade after decade, to develop a global salmon industry. To draw out the implications for other developing countries, Chapter 5 looks beyond Chile’s ‘developmental state’ and focuses on how to create ‘space’ for industrial policy. Developmental state theories typically assume that industrial policies are visible and open to public scrutiny. Today, there is all the more reason to maintain a neoliberal fiction while moving industrial policy underground.