Transcript The Questionable Relevance of Asian Industrial Policy

Growth Strategies and
Industrial Policy
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Motivation
Asian experience
Possible lessons
for Turkey
Derived from
research with
Howard Pack
Why the resurgent interest
in industrial policy (IP)?
Disenchantment with
globalization/Washington consensus
 Notion that Japan/Korea/Taiwan
“beat the West at its own game”
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Requirements for
Successful IP
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Identify market failure
Design correct policy intervention
Implement
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Calibrate intervention,
Alter as changing circumstances require,
Terminate as need be.
Note: IP justifications are most often due
to internal market failure; some are
international rent-shifting models, and in
these cases one must consider possibility
of retaliation
Four questions regarding
the Asian experience:
What was the impact of industrial
policy?
 Are these results likely to be
reproduced elsewhere today?
 Does the international system
impede implementation?
 Is the pursuit of an industrial policy
advisable?
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Major Policies Actually
Applied
Capital channeling: direct and
indirect subsidies, tax breaks
 R&D promotion
 International trade and investment
protection
 Lax competition policy
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Evaluation of impact
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Regression results (Beason-Weinstein
and Noland for Japan, Lee and Noland
for Korea)
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Input-output results (Pack)
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Case studies
Political economy and
ineffectiveness
Benefits went predominantly to
declining natural resource sectors
 Net fiscal flows to manufacturing
were negative
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On-budget subsidies went
to declining sectors…
100%
90%
80%
Coal Mining
70%
Small Business,
Textiles, ect
High Tech
60%
Agriculture, Forestry and
Fisheries
Sea Transport
50%
Coal Mining
Small Business,
Textiles, ect
High Tech
40%
Agriculture, Forestry and
Fisheries
30%
20%
10%
Source: Ogura and Yoshino,
1988, Table 1
year
1981
1980
1979
1978
1977
1976
1975
1974
1973
1972
1971
1970
1969
1968
1967
1966
1965
1964
1963
1962
1961
1960
1959
1958
1957
1956
1955
0%
Year
sector percent of total
Sea Transport
As did off budget
subsidies…
45
40
35
Health, Education Welfare
Infrastructure
25
Small Business
Agriculture
Regional Development
20
Industry and Technology
Export and ODA
15
Postal Saving Ow n Inv
10
5
1997
1995
1993
1991
1989
1987
1985
1983
1981
1979
1977
1975
1973
1971
1969
1967
1965
1963
1961
1959
1957
0
1955
% of total FLIP funds
30
Year
Source: Fiscal and Monetary Statistics Monthly
(FILP Volume), Ministry of Finance
Net subsidy to
manufacturing was negative
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Tax incentives to
most
manufacturing
sectors were
negative
Industrial policy
amounted to
partial
compensation
Industry
1955-1990
1955-1973
1974-1990
Normalized Industry Normalized Industry Normalized Industry
Tax Rate
Rank Tax Rate Rank Tax Rate Rank
Electrical Mach.
-0.403
8
-0.26
General Mach.
-0.403
8
-0.26
Trans. Equip.
-0.403
8
-0.13
Fabricated
-0.069
7
-0.26
Metal
Pet & Coal
-0.009
3
0.3
Precision Inst.
-0.403
8
-0.26
Cer/Stone/Glass
-0.009
3
0.3
Pulp & Paper
-0.891
13
-0.13
Chemicals
-0.009
3
-1.72
Basic Metals
-0.069
6
0.3
Processed
-0.736
12
-1.52
Foods
Mining
6.658
1
0.92
Textiles
0.719
2
11.68
Source : Beason and Weinstein (1996), Table 1.
8
8
7
8
-0.56
-0.56
-0.56
-0.35
10
10
10
8
3
8
3
6
13
3
12
0.14
-0.35
-0.56
0
0.04
-0.35
0
3
7
10
5
4
8
5
2
1
1.04
0.5
1
2
A saving grace: targeting
exports
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Clean standard not subject to
manipulation
“these were the only statistics that
could not be faked”
 Local firms could not rig international
competition like they could domestic
markets
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Possible externalities
 Support to laggards terminated
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Possible lessons for Turkey
Modest positive impact at best
 If industrial policy pursued, are
these results likely to be reproduced
in Turkey?
 Does the international system
impede implementation of Asianstyle policies today?
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Are the results likely to be
reproduced?
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Three possible sources of “Asian
exceptionalism”:
“Deceptively poor”
 Political upheaval, US-led land reforms,
and legitimacy through growth
 Land scarcity and “growth with equity”
v. “growth without development”
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“Deceptively poor”
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Unusually high
levels of human
capital
Low
contemporaneous
income due to lack
of physical capital
Rapid convergence
Country
Ratio of
Human
Capital
Per
Index to
Human
Capita Per Capita
Year Capital Index Income
Income
Japan
Korea
The Philippines
Israel
Thailand
Greece
Malaysia
US
Italy
Turkey
Argentina
Mexico
Spain
1955
1955
1956
1954
1955
1956
1957
1955
1956
1955
1955
1955
1955
1673
494
738
1200
302
693
334
2293
787
267
760
352
389
519
217
277
609
181
468
351
2443
971
365
1059
637
652
3.2
2.3
2.7
2
1.7
1.5
1
0.9
0.8
0.7
0.7
0.6
0.6
Unusually egalitarian
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Unusually equal
distribution of
income
US-led land
reforms and
relatively equal
distribution of land
Legitimacy
through prosperity
Japan
Korea
Taiwan
Simple Average
Gini
Coefficient
for Income
0.4
0.34
0.31
0.35
Gini
Coefficient
for Land
0.47
0.39
0.46
0.44
Argentina
Brazil
Egypt
Hong Kong
India
Indonesia
Kenya
Malaysia
Mexico
The Philippines
Singapore
Thailand
Turkey
Simple Average
0.44
0.53
0.42
0.49
0.42
0.33
0.64
0.42
0.53
0.45
0.4
0.41
0.56
0.46
0.87
0.85
0.67
n.a.
0.52
n.a.
0.69
0.47
0.69
0.53
n.a.
0.46
0.68
0.64
Source: adapted from Rodrik (1994)
Unusual endowments—the
implications of land scarcity
Land
4
0.25
Arg
2
Tun
Bra
1
Can
Tur
1
Pak
Spa
Tha
Per
Chi
0.25
Phl
Mex
Grc
Tot
US
Den
Swd
Mal
Ind
2
Fin
Fra
4
Ita
UK
Tai
Labor
0.25
Aus
Isr
Ger
Kor
HK
1
Nor
Jap
Physical K
Sng
2
4
Replacing Physical Capital with
Human Capital (1968 data)
HK
4
Jap
Ger
Aus
Kor
2
Swd
Den
1
Fra
US
Can
Bra
Arg
Tur
Tun
UK
Sng
HK
Isr
Phl
Ita
1
Per
Fin
Ind
Tot
Grc
Spa Tha
0.25
Nor
0.25
Tai
Mal
Mex
2
Chi
4
Pak
Labor
Land
0.25
1
2
4
Is it possible to reproduce?
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Are there new constraints imposed
by the WTO?
New rules and disciplines—the
subsidies code
 The end of the Cold War and the
dispute settlement mechanism
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Ideological opposition by the IFIs
Weighting costs and
benefits
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Modest benefits
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Possible
drawbacks:
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Encouragement of
corruption
Dumbing down the
financial system
Corruption Rankings - Japan,
Korea, Taiwan, Turkey
Japan
Korea
Transparency
International
Taiwan
Turkey
Japan
Korea
PriceWaterhouse
Coopers
Taiwan
Turkey
Japan
Korea
World Bank
Taiwan
Turkey
0
10
20
30
40
50
Percentile
Note: A larger value indicates less corruption.
60
70
80
90
100
Governance Rankings - Japan,
Korea, Taiwan, Turkey
Japan
Korea
Government
effectiveness
(World Bank)
Taiwan
Turkey
Japan
Time spent with
government
bureaucracy
(Global
Competitiveness
Report)
Korea
Taiwan
Turkey
Japan
Competence of public
officials
(Global
Competitiveness
Report)
Korea
Taiwan
Turkey
0
10
Note: A larger value indicates more effective
government, less time spent with bureaucracy,
and more competent public officials.
20
30
40
50
Percentile
60
70
80
90
100
Estimated Net Cost of
Financial Sector Clean-Up
Korea:
 Taiwan:
 Japan:
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16 percent of GDP
11 percent of GDP
10-15 percent of GDP?
Bottom line:
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While the odds of
developing
successfully
through selective
interventions are
better than those
on piyango ticket,
they are not
particularly
favorable.