International Development Studies Basic Course Theme 2 Lecture 4

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International Development StudiesBasic Course
Theme 2 Lecture 4

• State, Industrialisation Strategies and
  Development
• Laurids S. Lauridsen

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The structure of the lecture

• Introduction
• Is industrialisation necessary?
• Many types of industrialisation strategies
• ISI versus EOI an overview
• ISI-strategy
• EOI strategy
• Experiences with EOI in the Far East
• Developmental state - state capacity

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Introduction Is industrialisation necessary?

• What is the alternative (neo-populism)
• Agrarian-based development
• A mixture of agrarian and craft
• Manufacturing
• Can provide industrial inputs to agriculture
• Can provide employment to rural surplus
  population
• Leads to a more robust GDP growth (terms of
  trade)
• Is an effective growth machine (higher
  productivity due to division of labour,
  specialisation, mechanisation, economies of scale
  and technological progress stronger linkage
  effects)
• Sacrifices in the form of alienation/marketisation
  , urbanisation, environmental degradation etc.-

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Introduction many types of industrialisation
strategies

• ISI (import substitution industrialisation)
• EOI (export-oriented industrialisation)
• ADLI (agricultural-development-led-industrialisati
  on)
• Natural-resource based industrialisation
• SME-industrialisation strategy
• Cluster development strategies (industrial
  districts)
• No standard pattern (Szirmai 261-262)
• Natural resource base
• Size
• Timing

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ISI versus EOI an overview (1)ISI
EOI

• Industrialisation in spite of the world market
• Self sustained growth via the domestic market
  (national economy)
• Balanced and diversified industrial structure
• State

• Industrialisation with the help of the world
  market
• Specialisation comparative advantages
• Unbalanced and specialised industrial structure
  (buy input where cheapest)
• Market

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ISI versus EOI an overview (2)ISI
(Structuralism) EOI (Neo-liberalism)

• Export pessimism
• Protection (Infant industry)
• (Competitive advantages)
• Structural change
• Linkages and externalities
• National ownership
• Capital accumulation
• Technological capabilities
• Market failures
• State and planning

• Export optimist
• Openness
• Comparative advantages
• Effective allocation
• Market relations and flexibility
• Ownership not important
• Technology choice
• State-/Government failures
• Market and price incentives

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Primary ISI dynamics and contradictions (1)

• External Internal
• Import capacity Import needs
  Production Consumption
• Export earnings Industrial dynamics
  -Commoditification economy
• - Income
• distribution
• - State sector growth
• Demand (volume)
• Price
• Terms of trade

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ISI content and sequences (2)

• Primary ISI (PISI)
• Easy ISI
• Known market
• Simple technology
• Natural versus policy-induced
• Linked to anti-colonialism and self-reliance
• Shift to secondary ISI (SISI)
• Intermediate goods, durable consumer goods,
  capital goods
• Reduce the import need plus increase (productive)
  consumption
• Infant industry protection (and subsidies)
• New industries need a learning period how long?
• New producers cannot compete with established
  producers
• Box 9.1 in Szirmai (p. 318)

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ISI failures (3)

• Inefficiency due to lack of protection and
  subsidies
• The small size of the domestic market no
  economies of scale
• Domestic monopolies with vested interests
• High consumer prices and relative low quality
• High import dependence current account crises
• Bias against export due to high domestic prices,
  high input prices and overvalued exchange rate
• Bias against the agricultural sector due
  internally to unequal exchange and externally due
  to overvalued exchange rate
• Corruption and rent seeking
• Capital intensive relative few jobs
• Luxury production based on existing (unequal)
  distribution of income
• Dependency TNCs and foreign technology

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ISI why important? (4)

• Used by successful late-industrialising (USA,
  Japan, Denmark, South Korea etc.)
• ISI as a necessary sequence in the process of
  industrialisation
• The character, scope and length of protection
• Inefficient versus efficient
• General versus selective
• Support new enterprises (learning processes)
  rather than just existing enterprises
• Performance requirements
• Pro-longed versus temporal
• Environmental sustainability arguments

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Export-oriented industrialisation (EOI) (1)

• Strategy switching
• The logic of PISI to EOI1 increase the import
  capacity and access to a larger market (world
  market)
• Why Asia before Latin America and why a general
  shift?
• Few natural resources
• The class basis (industry bourgeoisie, land
  oligarchy, working class)
• Regional dynamic
• Ideology
• Forced (SAPs)
• NIDL, TNCs, GVC

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Export-oriented industrialisation (EOI) (2)

• Oriented towards external market and competitive
  conditions
• Exploit comparative advantages
• Dynamic (and stability) depend partly on global
  demand (and access to it), partly on production
  costs
• Introduce correct prices
• Internally deregulation that eliminate market
  distorting mechanisms at goods- and production
  factor markets
• Externally liberalise markets for foreign trade
  and foreign exchange (neutral incentives for
  export and domestic oriented production)

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Export-oriented industrialisation (EOI) (3)

• Overall effects more efficiency, higher growth,
  more employment, more equal distribution of
  income
• Static effects efficient and optimal allocation
  of resources
• Dynamic effects stemming from export to the
  world market
• Advantages due to specialisation
• Economies of scale
• Competition and productivity
• Easier and cheaper access to inputs
• Follow international quality standards and new
  technology
• Learning-by-exporting
• Better access to foreign exchange to finance
  import
• Indirect effect minimise state failure

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EOI failures (4)

• The low wage, low productivity and low quality
  route
• Exploitative labour relations (political
  repression)
• Simple processing little learning and
  technology transfer
• Foreign governance by global producers/buyers
• High import intensity
• high export high import net earnings of
  foreign exchange low
• Little local value added
• Few local linkages (new enclaves)
• Vulnerability
• Supply an unstable part of the world market
• Footloose industries
• Technological dependency
• Terms of trade problems
• in non-dynamic manufacturing goods (rent-poor
  activities)

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False dichotomies

• Structuralists market failures and EOI failures
• State-driven ISI
• Neoliberals state failure and ISI failures
• Market-driven EOI
• East Asian Experience
• Guided market economy
• Selective, effective and sequenced ISI-cum-EOI
• Avoid/repair
• Market failures (incentives, capacity and
  institutions)
• State failures (discipline)
• ISI failures (efficient ISI)
• EOI failures (innovation oriented PONEs)
• Based on a high strategic capacity a
  developmental state

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Developmental state - intervention

• Stimulate and push industrial development
• by stimulating a very high level of productive
  investments, promoting the rapid transformation
  of newer technology into actual production
• by directing more investments into certain key
  industries than would have occurred without state
  intervention
• by forging close ties between financial capital,
  industrial capital and the state
• by spreading and socialising investment risks
• by taming international market forces to domestic
  needs
• by stimulating the animal spirits of investors
  through state-created rents
• by imposing discipline on the private business
  sector through specified performance requirements
  
• by inducing domestic firms to upgrade their
  organisational and technological capabilities
• by exposing many industries to international
  competition in foreign markets, if not at home.

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Developmental state embedded autonomy

• Internal organisation
• Autonomy
• High quality and prestigious civil service
  (meritocracy)
• In-house expertise
• Technical
• Informational
• Pilot agency (coherence)

• State-society relations
• Embeddedness through institutionalised links to
  business
• Avoid information gaps
• Reducing risk of corruption
• Ensure channels of implementation
• Ensure constant feedback on policies
• Power through not over