Governments in developing countries need more proactive strategies and policies if they want to close the gap in living standards with Organisation for Economic Co-operation and Development (OECD) countries, the organisation’s latest report says.
The report, titled “Perspectives on global development 2013”, released yesterday, contains further evidence that industrial policies are back on the policy agenda of developing countries “after decades when they were out of favour”.
Garth Strachan, the Department of Trade and Industry’s chief director for industrial policy, told Business Report that for 30 years the Washington Consensus had ensured industrial policies were unfashionable.
“The central message from the OECD now is that industrial policy is back and offers enormous opportunities but also presents many challenges; the critical question is how these policies should be pursued.”
Strachan said there was a new sense that manufacturing had to be a part of a sustained development programme.
The OECD report makes it clear that there is no single successful industrial policy model for developing economies to adopt and warns of several challenges. These include “capture by incumbents”, indiscriminate subsidies, preventing competition, short-term horizons and annual budgeting, as well as lack of monitoring and evaluation mechanisms.
While there is now greater acceptance of the important role that needs to be played by governments, the report notes, public-private alliances are critical in the design and implementation of industrial policies. It states that such alliances “should be guided by the pursuit of the common good of society and not the particular interests of a few”.
It acknowledges that the involvement of private companies in the definition of strategies and policies presents risks as well as advantages. “In particular some interest groups may try to shape policies for their own benefit and to the detriment of that of others, or simply propose measures beneficial to themselves but with no significant externalities for the country’s productive transformation.”
The report says a “major effort of investment in government capabilities is necessary” in developing countries.