Institutional Framework for Industrial Policy

INSTITUTIONAL FRAMEWORK FOR INDUSTRIAL POLICY

May 6-9, 2012Jordan, AMMAN

Dr. Ohan S. BalianBy

Outline

Introduction Rationale for industrial policy Design elements Proposed structure of framework Concluding remarks

Introduction

Diversification strategies Industrial policy defined as

government intervention in the form of support programs to the private sector

Market failures Principle Agent vs Embedded

Autonomy 13 best practice design elements

Rationale for industrial policy

Informational Failures: Government support to investors is

necessary because when entrepreneurs explore new business opportunities, they incur high discovery costs with no guarantees of success.

Coordination Failures: Governments also intervene because for

some industries to succeed, other industries must also be established simultaneously.

Design elements Embedded autonomy: Industrial policy making is embedded

within a network of linkages with the private sector without any loss of autonomy.

Generic design elements: (1) High-level government support; (2) Coordination and Deliberation Councils

within which information exchange takes place; (3) Industrial policies should have both an incentive and a conditionality structure.

Design elements (contd…)

Top 10 design principles1. Provide support only to ‘new’ activities 2. Prepare criteria/benchmarks for

success and failure3. Use built-in ‘sunset’ clauses4. Target activities, not sectors 5. Support activities that generate

spillover and demonstration effects

Design elements (contd…)

6. Choose competent implementing agencies

7. Monitor implementing agencies closely 8. Maintain channels of communication 9. Minimize the cost of ‘picking losers’ 10. Adopt programs with a capacity to

renew themselves

Proposed structure of framework

Description of existing structures Generic components: (1) Ownership; (2) Coordination Councils; (3) Carrots-and-Sticks Other components: (1) Formulation; (2) Monitoring and Evaluation; (3) Deployment

Concluding remarks

The recent turmoil in the global economy has reinforced the role of the government as an indispensable provider of support the private sector

Must be more effective in conveying policies on-the-books to policy makers on-the-ground.