Tiger tactics? Should governments intervene?

A shibboleth of the age of globalisation is that governments must not intervene in trade and industry. Is there a role for targeted interventions in industrialisation - most recently evidenced by the success of the East Asian Tigers? Are developing country governments powerless as the IMF, WTO and donors deny them instruments of policy used throughout history to promote industrial development?

A paper from the University of Oxford’s Queen Elizabeth House takes issue with the consensus that there is no legitimate government role in ‘selectivity’ - altering the market-driven allocation of resources between production activities. Admitting that traditional import-substitution strategies have no place in the modern world, it presents an economic case for selective intervention. Experience of the Tiger economies is used to argue that without government activism African states are doomed to remain beggars at the technological feast wrought by globalisation.

East Asia did what is now beyond the pale. Korea restricted imports, subsidised exports, guided credit, promoted giant conglomerates and stymied foreign direct investment (FDI). The Taiwan government provided half the total research and development (R&D) expenditure and forced foreign firms to diffuse technology. Singapore has welcomed FDI but guided spending to strategic sectors of its own choosing. Thanks to government interventions, state investment in strong industry-university linkages and provision of information to small enterprises, these countries were opened up to international information flows.

East Asian-style selectivity is no longer an option. Africa is not poised to emulate the Tigers. Other points in the report include:

• Strong ideological assumptions about market efficiency assume that technology can simply be transferred to a developing country like a physical product.
• Now that all major exporting countries are engaged in constant battles over detailed technical matters, governments without legal expertise cannot compete in the new arena of WTO trade disputes.
• Remaining scope for industrial policy may be a grey area, but savvy governments can get away with camouflaging measures that are not permitted.

What, in the circumstances, can Africa do? The report advises that governments should:

• Replace the headlong rush to liberalisation with a gradual and nuanced strategy similar to that of Korea in the 1980s.
• Recognise that joined up government, with resourced support institutions, is essential for coherent industrial strategy.
• Explore tried export strategies, not simply try to pick new high-tech winners.
• Reform or privatise state-owned industries to make them subject to market discipline.
• Provide incentives to enterprises to provide training and fund R&D.

Source(s):
‘Selective industrial and trade policies in developing countries: theoretical and empirical issues’, Working Paper #48, Queen Elizabeth House, University of Oxford by Sanjaya Lall, August 2000 Full document.

id21 Research Highlight: 18 September 2001

Further Information:
Sanjaya Lall
Queen Elizabeth House
21 St Giles
Oxford OX1 3LA
UK

Tel: +44 (0)1865 273 600
Fax: +44 (0)1865 273 607
Contact the contributor: sanjaya.lall@economics.ox.ac.uk

Queen Elizabeth House (QEH), UK

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