Posts Tagged ‘Infrastructure’

Dead rat back on the plate – yum says interventionist Key Government

Among the most feared words in business are: “We’re from the government and we’re here to help”.

No worries for the current Government.

Industrial policy (about governments rolling up their sleeves and intervening in the economy, like encouraging new industries) is on its way back including picking winners, giving the market a nudge in the right direction and a bit of old-fashioned intervention.  (Industrial policy is not the same as economic policy which is about taxes, interest rates etc)

What’d you call things like the Government’s interest in:
• Creating an international financial hub in New Zealand
• Using the Global Alliance to springboard Kiwi R&D leadership in ways to grow more food with less emissions
• Launching an international scale mining industry
• Broadband plans.

Probably industrial policy and good stuff too. It’s willingness to get involved indicates an interesting state of mind for a centre right government led by a former money trader. Not that you’d ever hear them say the dread words “industrial policy”.

Of course for a long while industrial policy was a smelly dead rat in this country, and among others of a neo-liberal frame of mind. Economic text books were full of theories why industrial policy didn’t work, while in the real world there were the examples of China, Korea and other Asian Tigers showing it did.

BTW – Was something else going on in these countries as well? In his book Outliers, Malcolm Gladwell writes about the driving force of the rice culture and its attitudes to work. Old Chinese proverb: “If a man works hard, the land will not be lazy.”

Anyway, has the rat been resuscitated?

Dani Rodrik, Professor of Political Economy at Harvard University’s John F. Kennedy School of Government, thinks so. He says industrial policy never really went totally out of fashion in places such as China and Chile and more latterly, the UK and France.

Now he says we also have the World Bank’s chief economist and management consultant McKinsey advising governments on how to do it right. “Industrial policy is back.

“…when it comes to industrial policy, it is the United States that takes the cake. This is ironic, because the term “industrial policy” is anathema in American political discourse.  It is used almost exclusively to browbeat political opponents with accusations of Stalinist economic designs.

“Yet the US owes much of its innovative prowess to government support.” For example the internet grew out of the US Defense Department and Department of Energy now plans to spend more than US$40 billion in loans and grants to encourage green technologies.

Rodik says the shift toward embracing industrial policy is “a welcome acknowledgement of what sensible analysts of economic growth have always known: developing new industries often requires a nudge from government. The nudge can take the form of subsidies, loans, infrastructure, and other kinds of support.

“…scratch the surface of any new successful industry anywhere, and more likely than not you will find government assistance lurking beneath.”

Rodik believes industrial policy is a state of mind rather than a list of specific policies.

“Its successful practitioners understand that it is more important to create a climate of collaboration between government and the private sector than to provide financial incentives.

“Through deliberation councils, supplier development forums, investment advisory councils, sectoral round-tables, or private-public venture funds, collaboration aims to elicit information about investment opportunities and bottlenecks.”

This sounds exactly like the Key Government, if you exchange councils, round-tables etc for taskforces and working groups.