The Reemergence of Industrial Policies: Insights from EBRD’s Chief Economist
Industrial policies are experiencing a resurgence on a global scale, but not without concerns. The latest Transition Report from the European Bank for Reconstruction and Development (EBRD) highlights the mixed track record of industrial policies and warns about potential pitfalls. In an interview with The Astana Times, Beata Javorcik, EBRD’s chief economist, sheds light on the reasons behind this trend and the challenges it presents.
According to Javorcik, industrial policies aimed at transforming the sectoral composition of economies have been utilized since the 1970s-80s. Despite a period of skepticism in the 1990s, countries like the U.S., China, Brazil, and India are now embracing industrial policies as a means to enhance competitiveness and accelerate decarbonization efforts. Public support for greater state intervention in the economy has also contributed to the resurgence of industrial policies.
However, the EBRD report cautions that the global shift towards industrial policies is not happening in isolation. Major economies implementing strategic interventions are influencing policy decisions in other countries, leading to distortionary outcomes and hindering international cooperation. For instance, U.S. trade policies can have ripple effects on economies worldwide, impacting countries like the Slovak Republic and Hungary due to their exports to the U.S.
While industrial policies can be effective, they are challenging to implement correctly. Governments often face difficulties in balancing multiple objectives and ensuring that policies do not create bottlenecks or distortions in the economy. Effective industrial policies require strong administrative capacity, clear objectives, and funding support.
To implement successful industrial policies, governments must articulate their goals, introduce competitive pressures, and establish clear expiration dates for policies. Reforms, investment in administrative capacity, and good governance are crucial components of sustainable industrial policies. Investment promotion, in particular, stands out as a low-risk tool for economic development, as it attracts foreign investors without relying on subsidies or tax breaks.
In Kazakhstan, opportunities for governance improvements exist in areas such as the governance of state-owned enterprises, privatization efforts, and public-private partnerships (PPPs). Through collaboration with the EBRD, Kazakhstan can enhance governance practices, promote privatization, and improve the legislative framework for PPPs to foster economic competitiveness.
As the global landscape continues to evolve, the importance of good governance and effective policy implementation becomes increasingly vital. By adopting disciplined and transparent approaches to industrial policies, countries can navigate the challenges and harness the benefits of industrial development.
