Wednesday, March 24, 2010

Robert Wade on Industrial Policy

Duncan Green summarizes Wade's argument on industrial policy, particularly the distinction between 'leading the market' and 'following the market':

Leading the market is South Korean style picking winners – we want a steel or chip industry, so we’re going to spend big time and just make it happen. That worked in the Korean case, but has failed in many others. Following the market, on the other hand, is a much less risky form of industrial policy, based on systematically ‘nudging’ firms to upgrade their technologies through incentives, performance requirements, or the state playing a brokering role putting firms in touch with foreign investors. Robert saw this as a third way (sorry) between the command and control of South Korea, and the passive laissez faire of the traditional World Bank view that governments should stick to sorting out the ‘enabling environment’ of property rights and keeping the bureaucracy in check. Robert held up Taiwan as a model of successful following-the-market type industrial policy.

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