The IMF debates the crisis and industrial policy

The Hanoi Hilton,
IMF, Robert Wade and
jet lag. One strange day.

[any feedback on these wonku summaries, introduced in response to the reader survey?]

My week in Vietnam kicks off with a weird jet-lagged day at the Hanoi Hilton c/o the IMF and the Vietnam State Bank, who organized a conference on ‘Post Crisis Growth and Poverty Reduction in Developing Asia’. The conference was very formal – all suits and ties and long panel discussions punctuated by lunch at the neighbouring Hanoi Opera (wonderful old building left over from the French colony – Ho Chi Minh addressed the crowds from its balcony) and a dinner with some haunting music and a rather unsettling attempt at Vietnamese flamenco – the frilly skirts were right, but the serene smiles and stately, graceful movement gave it an unreal, underwater quality. After lunch, all the long distance travellers (including me) struggled to stay awake, evoking a scary future in which all the big global decisions are taken by jetlagged zombies. I presented our findings on the global economic crisis, but I think the blog has probably had enough about that. What were other people saying?

The IMF, led by big cheeses John Lipsky and Anoop Singh, talked like the World Bank, (as it tends to these days), stressing poverty reduction, inequality, social protection and climate change, as well as the need for growth, growth, growth and macroeconomic stability. It seems particularly keen to stake a claim to climate change funding via a $100bn Green Fund. Heck, the conference was even carbon neutral (I asked how much all that offsetting cost, and the IMF guy said, ‘it better not come to over $10,000……).

The big surprise of the day was the keynote by Robert Wade of the LSE. Robert is a long time proponent of industrial policy, which is government not the problemhardly the IMF’s favourite theme, so I was intrigued at his invitation. And he pulled no punches. Starting off with this New Yorker cartoon on the role of the state, Robert argued that the rise of Asia pretty much demolishes the Washington Consensus view that the state should confine itself to a regulatory role. With Alice Amsden and Ha-Joon Chang, he’s been making that argument for the best part of 20 years, and I think they’ve made a lot of headway.

But what caught my attention was the distinction he drew between two kinds of industrial policy – ‘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.

James Adams for the World Bank politely demurred, stressing that elements of the Washington Consensus (eg cautious macroeconomic management) have withstood the test of the time. Think I may have to dig out John Williamson’s original list of Washington Consensus policies and give them marks out of ten in light of the global crisis – or has someone already done that?

As for how the discussion in Vietnam varies from that in the UK – growth and infrastructure were the big themes. Hard to imagine getting any interest in all that limits to growth stuff – it was all how to shift from 6 to 8% per annum, with no acknowledgement at all that at some point, that might just be relevant to carbon emissions.

Oh, and I just checked, and yes, the Hanoi Hilton meant something else entirely during the Vietnam war.

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Comments

3 Responses to “The IMF debates the crisis and industrial policy”
  1. Stephen Jones

    Still liking the wonkus although this one seemed more a tease into the main article than a summary.

    I’m sure in a “Yes, Prime Minister” episode from years ago it was carefully explained that decisions were all agreed in advance of summits by the civil servants, since politicians were so jetlagged, and power shouldn’t be left ‘in the hands of the zonked’.

    Did the IMF speakers give any ideas of tangible proposals that they think would improve long-term stability post-crisis?

    Did Wade give any other examples of where he sees other countries’ industrial policies sitting on this scale? Are others (aparting from Taiwan) finding a useful balance?

    Duncan: Yes Minister has usually got there first, so no surprise there. Wade takes his examples from East Asia, but only mentioned Taiwan yesterday. One specific proposal was to emulate the Taiwanese in having civil service bodies whose job is to go round emerging small and medium enterprises and assess their needs, put them in touch with suitable foreign investors etc – Robert called it ‘Industrial extension’ analogous to ‘agricultural extension’. Spoke to one Vietnamese insider today who thought his suggestions were very useful, and saw Wade’s presence (and Oxfam’s) as a sign of positive change at the IMF.

  2. Phillip

    Thanks for the post. I think it’s pretty clear that the global financial crisis has accelerated the trend of poor countries moving to look to Asia rather than the U.S./free markets as appropriate development models. Having SOME form of industrial policy is getting harder to dispute. (Though the question of effective government remains.) Development experts need to let go of the misleading question “Industrial policy: yes or no?” and start asking themselves “what is the appropriate industrial policy in this country given government capacity and other factors?”. Though the answer may be “none” for some countries, that certainly won’t be the case for all.

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