Industrial policy and the UK – the keys to success

An excerpt from a chapter by my old tutor at SOAS, Mushtaq Khan, who has written extensively on industrial policy in a range of late-industrialising countries, analysing case-studies with a range of outcomes in terms of development, successful or otherwise. Here he considers both the differences and the similarities with an industrial policy in the UK, which needs to innovate, rather than simply emulate already existing technologies and catch-up with the richest countries:

“For an advanced country like the UK, industrial policy clearly has to support both innovation and the development of competitive production capabilities that can convert ideas and knowledge into marketable products. There is no question therefore that industrial policy must have a focus on supporting innovation and the development of new knowledge. This involves investment in public bodies such as universities as well as in networks linking public and private players engaged in innovation. Countries such as the UK still have a lead over most emerging Asian countries in the organization of innovation, though there may be particular strategies of financing or organizing innovation that may be worth looking at. However, the second plank of any effective industrial policy has to be the development of competitive manufacturing capabilities so that good ideas and technologies can be converted into competitive products. Here the UK can learn a lot about the types of problems countries can face when they try to acquire (or, in the case of the UK, re-acquire) firm-level competitive capabilities. Britain’s gradual loss of manufacturing competitiveness after the Second World War was exacerbated after the 1980s in the context of rapid de-industrialization. The country lost much of the tacit knowledge embedded in the organizational routines of manufacturing firms, and as a result fell even further behind in terms of its capacity to regain a broad base of competitive firms. The experience of Asian industrial policy shows that the achievement of competitiveness in new sectors and technologies can be a difficult problem to crack. The two planks of industrial policy are closely connected because without a broad base of firms that can organize production competitively, a successful innovation strategy will simply result in the offshoring of manufacturing somewhere else.”

Mushtaq Khan (2015), The Role of Industrial Policy- Lessons from Asia, in David Bailey, Keith Cowling, and Philip R. Tomlinson, New Perspectives on Industrial Policy for a Modern Britain, Oxford University Press, p.80.


Ideas and wealth creation

rawA break from the economics (sort of), with a quote from the late social philosopher and eclectic thinker, Robert Anton Wilson, from one of his most popular books (and one of my favourite), Prometheus Rising, which tries to make sense of the workings of the human mind and its role in human development in its broadest sense. Here he is on page 113:

All wealth is created by human beings using their neurons intelligently.

A neurotic young man once went to a Zen Master and asked how he could find peace of mind.

“How can you lack anything,” the Roshi asked, “when you own the greatest treasure in the universe?”

“How do I own the greatest treasure in the universe?” asked the young man, baffled.

“The place that question comes from is the greatest treasure in the universe,” said the Master, being more explicit than is common for a Zen teacher.

Of course, as a Buddhist, the Master had taken a vow of poverty and did not mean exactly what we mean here. But he knew that the brain produces all that we experience – all our pain and worry, all our bliss states and ecstasies, all our higher evolutionary vistas and trans-time Peak Experiences, etc. It is also “the greatest treasure in the universe” in the most materialistic economic sense: it creates all the ideas which, socially employed, become wealth: roads, scientific laws, calendars, factories, computers, life-saving drugs, medicines, ox-carts, autos, jet planes, spaceships…”

Tax, redistribution and economic performance: the micro and the macro

Alexandria Ocasio-Cortez, the youngest woman ever to be elected to the US Congress, has made headlines recently with her arguments for much greater marginal rates of tax on the highest earners. Oxford University’s Simon Wren-Lewis yesterday posted this helpful piece on some of the economics and politics of such a policy. He is broadly in favour, and makes a good case for it.

Wren-Lewis is something of a New Keynesian, coming from the centre-left of mainstream thinking. The post covers plenty of ground, but tends to only focus on the microeconomics, while neglecting the macroeconomics, of higher taxes and redistribution. Continue reading

What is GDP in China? Thoughts on the slowdown from Michael Pettis

A fascinating piece from Michael Pettis, an economist I regularly reference, on how China is probably growing much more slowly than the official GDP figures make out, alongside a discussion of the nature and measurement of GDP itself.

This would confirm his long-held thesis that China’s ultra-high investment growth model has been unsustainable for some years, and will change of necessity, either through enlightened policy or, more painfully, in the absence of such a policy.

Trade tensions and rising protectionism are combining with the exhaustion of the recent economic upturn to slow growth in many countries.

The slowdown in China could lead to a ‘lost decade’ of relative economic stagnation there, until growth rebalances away from a significant share of unproductive investment and towards a higher share of consumption and a lower but more productive share of investment in overall demand.

Although the country is already economically powerful, its rise to global dominance could be much further away than many ‘China bulls’ have predicted. Even so, given its prominence in global manufacturing value chains, relative stagnation will have a large but uneven impact on global economic activity.