[Debate] Africa needs active industrial policy to sustain growth

[Riaz K Tayob]

[So will Nick Dawes of the M&G read this and catch a wake up... think 
not... My comments on the M&G site are often blocked, sometimes only 
allowed once I try to escalate the query...]

Africa needs active industrial policy to sustain growth
16 Jul 2012 12:04 - Guardian Reporter

Industrial policy is only one of many signs that signify the recent 
shifts in the debate on development policy, especially in relation to 
Africa.
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"Industrial policy used to be a four-letter word at the World Bank," 
observed Joseph Stiglitz, the Nobel economics laureate, in a recent 
conference on industrial policy in Africa that I attended. He should 
know. He used be the chief economist of the World Bank, albeit a very 
unorthodox one.

The statement itself, if a little exaggerated, was nothing 
extraordinary, as the World Bank's extreme aversion to industrial policy 
had been well known. What was extraordinary, however, was where the 
statement was made – a conference that was partly sponsored by the World 
Bank. So, the conference was a bit like a Vatican theological colloquium 
trying to positively re-evaluate Protestantism.

Extraordinary it may sound, the conference is only one of many signs 
that signify the recent shifts in the debate on development policy, 
especially in relation to Africa.

In the 1980s, in their desperate attempts to survive the third-world 
debt crisis of 1982, most African countries became heavily indebted to 
the World Bank and its sister organisation, the International Monetary 
Fund. Their loans came with a lot of strings attached.

The borrower countries were made to cut government spending, privatise 
their state-owned enterprises, deregulate their financial markets and 
liberalise international trade and foreign investment.

The reasoning behind these policies – often called the Washington 
consensus policies – was that big and intrusive governments were the 
main causes of poor economic performances of the African countries. Once 
you lift the "dead hand" of the state, it was expected, private sector 
entrepreneurs would burst out and revive their economies.

Filling the vacuum
The expectation was, to put it mildly, unmet. In most African countries, 
there was no private sector that could rush in to fill the vacuum left 
behind by the shrinking state. Even in countries where the private 
sector was reasonably developed, it could not thrive in an environment 
of vastly heightened import competition and collapsing public 
investments in infrastructure, education and skills.

As a result, between 1980 and 2000, per capita income in sub-Saharan 
Africa fell by 9%. This was a highly embarrassing record for the 
advocates of the Washington consensus, as the interventionist policies – 
whose mistakes their policies were supposed to be correcting – had 
raised it by 37% in the preceding two decades.

Fortunately, economic growth has come back to Africa in the new century, 
making the 2000s the region's fastest-growing decade ever.

This has not come about because the Washington policies suddenly started 
working, as admitted by even some of the World Bank staff at the 
conference. It has been mainly driven by the primary commodity price 
boom, fuelled by the rapid growth in resource-hungry China (with the end 
of civil war in some countries lending a helping hand).

Moreover, the growth recovery does not mean that the African countries 
are out of the woods. Even after a decade of unprecedented expansion, 
per capita income in the region today is barely 10% higher than in 1980, 
given the economic devastation wreaked by the Washington consensus 
policies in the 1980s and the 1990s.

More important, there is a serious question about the sustainability of 
recent growth on the continent. Leaving things to the market, following 
the Washington orthodoxy, few African countries have been able to 
convert their recent resource bonanza into a more sustainable industrial 
base.

Worryingly, over the past decade many African countries have increased, 
rather than reduced, their reliance on primary commodities, whose 
notoriously large price fluctuations make sustained growth difficult.

'Miracle' economies
Hence the growing interest among the African countries in industrial 
development through more active industrial policy – similar to what we 
saw in the east Asian "miracle" economies, like Japan and Korea, between 
the 1950s and the 1980s.

This interest is even further encouraged by the fact that the main 
source of Africa's recent economic recovery itself – the Chinese 
economic boom – has been generated by such policy. Moreover, there is an 
increasing recognition that, contrary to the prevailing myth, most 
western countries, including Britain and the US, aggressively used 
industrial policy in the earlier stages of their developments.

There are also changes in global politics that encourage the abandonment 
of the Washington orthodoxy. For many African countries, China is now a 
major – and often the biggest – trading partner and aid donor. This 
means that deviation from the Washington consensus policies is less 
costly in terms of aid flows and trade preferences.

Moreover, in the past several years, many other developing countries – 
especially the Latin American ones – have also moved away from the 
Washington orthodoxy, providing a certain degree of "safety in numbers" 
for countries that want to defy the orthodoxy.

Last but not least, the bankruptcy of free-market policies in the core 
capitalist countries revealed by the 2008 global financial crisis is 
making it more difficult for local free-market economists to defend the 
Washington orthodoxy.

So, everything points to a more active use of industrial policy in the 
African countries over the coming years.

No doubt some of them will make mistakes and mess things up in the 
process, but, to judge by past records, most countries will be better 
off in the long run with a more activist development strategy than with 
the bankrupt Washington orthodoxy. And what if some of them get it 
wrong? The right to make mistakes – the right to be wrong – is the true 
sign of autonomy, which most African countries have been denied for far 
too long. – © Guardian News and Media 2012