Tyler Cowen: belief

Transcript context

…ase so you have a large enough market that you can sell. Otherwise, any service sector that is doing really well eventually is going to experience very rapid terms of trade deterioration domestically. Those things, the transferability of the technology, the fact that it can absorb a lot of unskilled workers — traditionally, this is what’s changing — off the countryside, or out of informality and tradability I think is what makes manufacturing, historically has made it special. A question about industrial policy. I think we would agree in a number of the East Asian Tigers, industrial policy has worked out pretty well. But take the case now, there’s premature deindustrialization going on in many countries. It might be hard to reverse. Richard Baldwin writes of the splitting up of supply chains. So South Korea and Japan had relatively integrated supply chains. Now, the supply chains are all around the globe. In a time like this, where manufacturing is changing rapidly and policy itself is subject to a status quo bias, as we know from your own writings, what do you think is the new role for industrial policy, if any? Should we today, perhaps, not be more skeptical about it than we were, say, when Singapore started it? I think the answer to your last question is yes, although I wouldn’t say we should be more skeptical. I think we should expect lower return to it, is what I like to say, simply because I think the possibilities of industrialization in the sense that you could put, in the old days, 30, 35 percent of your labor force into manufacturing — that is not going to happen. Sub-Saharan Africa will not get there. What that means is that the returns to even successful industrial policy these days are less. That has a couple of implications. One is that, increasingly, I think we really need a different term. We shouldn’t say industrial policy. Maybe we should talk about a structural transformation policy. Your perspective in terms of how do you get to rapid transformation. You should move away a little bit at the margin from manufacturing into other parts of the economy. I think you should be thinking more about services, as well. A lot of services are tradable. To some extent, some of the advantages might exist in tradable services, as well. The other thing which I think a lot of . . . a common mistake in industrial policy that low- and middle-income countries do, which is to look at industrial policy or criteria for success of industrial policy in terms of output, exports, innovation, R&D, patents, and things like that. Whereas I would put a lot more emphasis on actually employment. The question is, are you generating adequate employment in these more productive industries that are oriented into world markets? Because the kind of industrial policy that ends up generating profits and investment and R&D in a low-to-middle-income country, but at the same time your employment is shrinking, is not going to be the kind of high-return activity for the economy as a whole. I think you’re basically right. I go around these days a lot less advocating for very forceful industrial policy, in large part because I do think that the returns to it have fallen. I think also we need to think through a lot more what it should look like in a world where in fact we are concerned at least as much about services as manufacturing, even in the middle-income or low-income countries.…

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