Download Industrial Policy in East Asia

Implications for South Africa
Shahid Yusuf
October 27th 2011
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Sustained doubling of GDP growth rates over
the 15 year average of 3.3 percent per annum
Labor intensive growth drivers to reduce
unemployment, currently 26 percent
Export orientation and competitiveness to
sustain growth of expanding industries.
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East Asian tiger economies that achieved 7
percent growth rates during 1965 – 1997
Relied upon manufacturing industries and
export successes to enter ranks of high
income countries
Korea and Taiwan (China) the principal role
models.
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Globalization of trade, increasing access to
US market facilitated buyer driven trading
networks, FDI and outsourcing
Focused development strategy and political
commitment to rapid development reinforced
by external pressures
Investment and export incentives
Emergence and growth of firms responsive to
incentives
Improving quality of industrial workforce
which buttressed manufacturing capabilities.
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Trade oriented industrial policy
Political imperatives: with regime survival and
national security linked to growth
performance
Expanding, literate, disciplined industrial
workforce
Entrepreneurial and technical skills aiding
entry of firms and building of manufacturing
capabilities.
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Functional: Providing relatively uniform
incentives to all manufacturing activities
using fiscal, financial, education, vocational
training, science and trade facilitation policies
Targeted: Singling out selected industries of
strategic significance, with better long term
growth and technological spillover prospects.
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Mainly functional in the 1960s when
developing light industries
Increasingly targeted in the 1970s through
the 1980s when creating transport, chemical,
ferrous metal and engineering industries
Reverting to mainly functional policies after
mid 1980s
State sector played lead role in metals and
chemicals sectors; private sector in others. In
Taiwan, state directly assisted electronics
industry.
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Established a number of capital intensive and
high tech industries with the help of directed
fiscal incentives, financing from government and
banks and technical support from public research
institutes
IP costly and industries had long gestation lags
Few spectacular success stories e.g. Pohong Steel
in Korea, TSMC in Taiwan
Shift to functional IP in 1980s to ease budgetary
burdens, pressures on banks, and reduce
allocative distortions.
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Functional IP widely employed to limited
effect
China’s industrialization associated with
selectively targeted IP
Middle income countries seeking high income
status through faster growth rates
Middle income trap, frequently voiced
concern: IP viewed as possible solution.
Past rapid growth in some countries a function of:
 Resource transfer from primary to urban sectors
 Exploitation of natural resources and energy
 First round of industrialization involving transfer
of codified light and assembly based
manufacturing assisted by capital and technology
funneled through FDI
 Russia, Mexico, Chile, Indonesia, South Africa
and Botswana in this category
 Low hanging fruit approaching exhaustion;
growth regressing to global mean of 3-4 percent.
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Functional IP widely exploited; countries
about evenly balanced – however, scope for
improving business environment, logistics,
and infrastructure services
Growth record of targeted IP questionable,
costs substantial and WTO disallows certain
subsidies for middle income countries
Global manufacturing overcapacity and
medium term trade trends make it difficult to
identify winners – more so than in the 1990s
Costs more apparent than long term gains.
Strengthening functional IP:
 Improving quality of scientific, vocational and soft
skills
 Increasing productivity and commercial outcomes
from R&D
 Enhancing labor market flexibility
 Enriching urban-industrial ecology through lowering
of entry barriers, financing, BDS and use of UILs and
science parks to stimulate clustering of SMEs.
 Leveraging technological and production capabilities
of mining and affiliated manufacturing industries
 Exploiting potential of green technologies optimized
for African conditions.
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Improving quality of skills is a long term
project
Current rates of investment and saving will
only support growth rates of 4 percent or less
Raising TFP via technological advances
requires a large increase in R&D and research
talent
Global trading environment clouded: medium
term trends point to greater South-South
trade with uncertain implications for growth.