Re-thinking industrial policy

Deindustrialization is a global phenomenon taking place more rapidly in middle- income countries than in high-income ones. Despite the global decline of manufacturing employment, “industrial policy” is increasingly salient in research and policy debates. But deindustrialization poses significant challenges for industrial strategy—particularly as it relates to direct state investment in productive capacity.

In a new article, “Industrial Policy in the 21st Century,” Ha-Joon Chang and Antonio Andreoni lay the groundwork for a new theory of industrial policy:

“Since the 18th century, the debate surrounding industrial policy has been one of the most important in the political economy of development. We discuss a number of issues which cannot be accommodated within the neoclassical framework and which are also often neglected by evolutionary and structuralist contributions—namely, commitment under uncertainty, learning in production, macroeconomic management, and conflict management. We also address three new challenges for industrial policy makers in a changing world: the global value chain, the increasing financialization of the world economy, and changes in the rules of the global economic system.

Despite differences across countries in terms of their stages and levels of industrialization, their macroeconomic regimes and their political economy settings, the three sets of neglected issues we focus on are and will remain of paramount importance. The need to address long-term grand challenges like climate change calls for massive and coordinated investments in energy systems, production practices and mobility. The achievement of these global transformations still depends on micro-level structural changes in productive organizations and government interventions in creating new worlds of production as well as managing industrial and social restructuring.”

Link to the piece.

  • “Industrial policy can no longer be about industry or manufacturing per se. As the world economy turns increasingly towards services, it is clear that we will need a conception of industrial policy that addresses the need to nurture and develop modern economic activities more broadly, including but not limited to manufacturing.” Karl Aiginger and Dani Rodrik’s introduction to the special issue of Industry, Competition, and Trade. Link. In the same issue, Nathan Lane presents a “New Empirics of Industrial Policy.” Link.
  • In Industrial and Corporate Change, Mario Pianta, Matteo Lucchese, and Leopoldo Nascia assess the post-crisis industrial policies of the European Union and examine the potential for more active public investment policies in the years to come. Link.
  • John Waterbury’s extensive comparison between the industrial strategies of Nasser and Sadat. Link. From 1993, Hajoon Chang on the importance of state intervention in the “political economy of industrial policy in South Korea.” Link.

New Researchers

Measuring growth, productivity, and inequality

PhD candidate in Economics at the New School REMZI BARIS TERCIOGLU examines the complexities of growth and distribution in the United States since the 1947. In a 2019 working paper, he re-calculates real output growth when financial, healthcare and professional-business services are categorized as intermediate-consumption.

From the abstract:

“Since the 1980s, financial, healthcare and professional-business services (PBS) have grown rapidly and produced more of the US value-added, however, these services do not produce final uses for households. This paper explores the impacts of treating finance, healthcare, and PBS as intermediate consumption of the economy on US growth rates, decomposition of expenditures, and distribution of income over 1947-2017. After adjustments to the National Income and Product Accounts (NIPAs), the annual per capita growth declines by one-fourth after 1980, decomposition of expenditures changes in favor of investment and government spending, and the compensation of employees (CE) share of output declines sharply as more than 90% of the expenditures on finance, healthcare and PBS are financed out of CE. Average CE stagnates even though labor productivity continues to grow after adjustments; thus creating a productivity gap. The current treatment of finance, healthcare, and PBS in the NIPAs not only overestimates growth but also understates income inequality”

Link to the full paper.

Each week we highlight great work from a graduate student, postdoc, or early-career professor. Have you read any excellent research recently that you’d like to see shared here? Send it our way:

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  • New on the Phenomenal World, Wilson Sherwin looks to the welfare rights movement and cash transfer experiments of the 1970s to consider: “What type of activities would a UBI encourage?” Link to the post.
  • Antoine Dechezleprêtre, David Hémous, Morten Olsen and Carlo Zanella use Germany’s Hartz labor market reforms to test the relationship between wages and automation, finding that “an increase in low-skill wages leads to more automation innovation, while an increase in high-skill wages tends to reduce automation innovation.” Link.
  • For the rare earth files: a “Long-term outlook for global rare earth production.” by Jianliang Wang, Meiyu Guo, Mingming Liu, and Xinqiang Weid. Link. And from 2018, Terence Bell on the “Ancient History of Copper.” Link.
  • “Political Mobilization and Social Unrest in Rural Portugal in the Early Twentieth Century,” by Jesús Ángel Redondo Cardeñoso. Link.
  • At Data for Progress, Brian Callaci and Mark Paul anticipate the policy challenges associated with climate-induced labor displacement, and offer a history of American worker-displacement policies throughout the late 20th century. Link.
  • “This review argues that peripheral histories of international law challenge the narrative that a European international legal system was easily incorporated by the new non-European states that surged in the nineteenth and twentieth centuries.” Liliana Obregón on the development of international law. Link.
  • “Why are the prices so damn high?” Eric Helland and Alex Tabarrok on cost disease. Link.
  • Istvan Abel & Kristof Lehmann draw on Keynes and Schumpeter to critique the contemporary inflation-targeting monetary framework, and apply post-Keynesian monetary theory to explain the experience of Hungary’s central bank in the aftermath of the financial crisis. Link.
  • “The overall union membership rate dropped by 0.2 percentage points between 2018 and 2019, representing a loss of 170,000 union workers.” Hayley Brown and Hye Jin Rho analyze demographic trends in union membership decline. Link.
  • Seema Jayachandran reviews the literature on “microentrepreneurship” in developing countries. Link.
  • At 3P, Matt Bruenig presents a comprehensive plan to simplify, strengthen, and centralize America’s existing welfare infrastructure. Link.
  • “Policy discussions often treat EITC expansions and minimum wage raises as alternatives, of which we should choose just one. This is a misconception. In economic terms, the two policies are complementary and may be more effective in combination than either is on its own.” Jesse Rothstein and Ben Zipperer examine the empirical evidence in favor of EITC expansion and minimum wage increases. Link.
  • “After 1916, lawmakers included a provision in the National Defense Act that funded a swords-to-plowshares project to manufacture incendiary weapons during war and chemical fertilizer during peacetime. This essay examines how the United States entered a new era in agricultural production in spite of the government’s bungled job of enacting its mandate. It argues that 1916 marked a turning point, after which federal research helped usher in the chemical revolution in American agriculture. Significantly, it shows how legislators had pitched the arms-to-farms project as a type of federal fertilizer subsidy for farmers, but in practice the law became a corporate subsidy that helped agricultural firms become increasingly sophisticated chemical manufacturers.” Link. h/t Francis

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