Secretary-General

Smart industrial policies for development

 

Closing Remarks by Angel Gurría, OECD Secretary-General, delivered at the launch of the 2013 OECD Perspectives on Global Development
 

Paris, 15 May 2013

(As prepared for delivery)


Ambassador Wojciechowski, Professor Chang, Honourable Representatives from Brazil, China, Malaysia and South Africa, Representatives of the European Development Finance Institutions, Ladies and Gentlemen:

 

I am honoured to join you for the launch of the OECD “Perspectives on Global Development Report 2013”. I understand that this morning’s discussion was lively and productive. “Industrial Policies,” the topic of this report, is one of the most controversial policy areas. Nevertheless, it’s making its way back to the development policy agenda.

 

So why such renewed interest in industrial policy?

 

Shifting Wealth and Structural Transformation

The global economic landscape is undergoing deep and rapid changes, with emerging economies and developing countries playing an increasingly important role as new engines of global growth. In 2010, the OECD described this gradual shift of the world’s economic centre of gravity from West to East, from North to the South and from the industrialised economies to the large developing economies, particularly China and India, in the first edition of OECD Perspectives on Global Development, “Shifting Wealth”.  

The facts from 2010 provide evidence that this transition is taking firm root:


•    Since 2003, more than 50% of world growth has derived from the non-OECD area.


•    During the 2000s, more than 83 developing countries were growing at more than double the rate of the OECD average compared to only 16 countries in the 1990s.  


•    South-South trade has risen more than ten times over the last two decades.


•    More than half of global FDI inflows in 2010 went to emerging markets compared to less than 20% in 2000.  



Our forecast today is that wealth will continue to shift. Our data suggests that future world growth will continue to be driven by the giant emerging economies and is likely to take place in non-OECD countries. China and India’s combined GDP is expected to exceed that of the total for the OECD by 2060, as compared to one-third today. We also expect that developing countries will account for around 4 billion middle-class consumers (compared with 2 billion today).  

 


These trends have had major implications in the developing world. They have delivered strong growth, lifting millions out of poverty. To sustain future growth, many developing countries are exploring new opportunities through industrial policies to move up value chains, attract foreign direct investment (FDI), increase South-South trade, and tap new markets created by the emerging middle class.

 

This year’s report analyses a wide range of measures, identifies core challenges, and offers findings that can help design and implement supportive policies. It provides three basic ingredients that are crucial for successful industrial policies: investment in innovation and skills, access to financing and adequate infrastructure. But how to ensure that these new industrial policies are “smart” and do not replicate the mistakes from the past?


Towards smart industrial policy

I would like to stress three main points that are crucial to smart industrial policy-making "for" and "by" developing economies in the current global landscape.


1.    Smart industrial policy is about creating an enabling framework for economic development;


2.    Smart industrial policy needs to help foster inclusive growth;


3.    Smart industrial policy must contribute to sustainable development.

 


1 – Smart industrial policy is about creating an enabling framework for economic development

The term “industrial policy” can mean different things: to some, it means intrusive governments, picking national champions and hampering markets; to others it implies instead that governments need to make strategic choices – be it in support for research and innovation and in the design of infrastructure and skills policies.

 


“Old-style” industrial policies, based largely on subsidies to firms, state ownership and tariff protection bear the risk of government failure, rent-seeking behaviour, and the perpetuation of vested interests, with costs for producers, consumers and the wider economy.

 


But industrial policy can also be made to work. Developing countries can pursue smart industrial policy without targeting particular firms or industries. Instead, they can support a range of technologies and players with measures such as R&D incentives, support for labour training subsidies, access to financing and improved regulation and infrastructure.

 

Many countries still want to make strategic choices about particular sectors. The risks associated with this can be minimised through ‘soft’ industrial policies that build systems, create networks, develop institutions and align strategic priorities. Our report provides successful examples of collaboration between government, industry, and other organisations in China, India, and Brazil to develop economic activities that create jobs and increase productivity.



2. Smart industrial policy needs to help foster inclusive growth

At the OECD, we support governments to define better policies for better lives. Ultimately, smart industrial policies need to be about people, by creating more and better jobs, especially for the youth. Youth employment is of particular concern in developing and emerging economies, where 90% of the youth global labour force is concentrated. In Africa, the youth represent around 40% of the working-age population and constitute 60% of the unemployed!



Skills policies oriented towards industry upgrading should not only aim at investing in more and better skills, but also at aligning education with labour market needs, improving the school-to-work transition and encouraging the long-term adaptability of skills. Countries like Brazil, Costa Rica and India are taking active measures to synchronise skills development with industrial upgrading, working closely with the private sector to train youth in the appropriate fields. In Morocco, the National Pact for Industrial Development provides measures to link foreign direct investment (FDI) and the local economy through partnerships with foreign firm for skills upgrading in strategic sectors, like the automobile.

 

Industrial policies also need to account for the informal economy. Today, more than 50% of all jobs in the non-agricultural sector worldwide are informal.  Informal workers generally have low-paid, low-productivity jobs and frequently are excluded from formal social protection schemes. Industrial policies should provide appropriate measures to address these drawbacks and prevent informality from becoming a vicious circle of low productivity, slow growth and social exclusion.

 

3. Smart industrial policy must contribute to sustainable development

Smart industrial policy has to lead to sustainable development. Our report suggests that many developing countries are pursuing green industrial policies to improve economic performance and address broader challenges like climate change and other pressures on natural resources and the environment.

 

Investing in green technology to develop renewable or clean energy can have many social and public benefits, like clean air, lower carbon emissions, and less fossil fuel depletion. And they can potentially create jobs. We see this in the development of solar energy in North Africa, in wind-power in Brazil and China and in biomass gasifiers in Cambodia.

 

Avoiding the mistakes from the past

The OECD has begun to examine recent industrial policy trends in OECD countries and beyond to identify best practices. This work aim’s to understand how governments can best make strategic choices and determine the measures and circumstances necessary for success.  

 

As part of our Strategy on Development, we are also promoting policy dialogue and knowledge sharing among countries on Global Value Chains (GVCs) and natural resources based development.

 

GVCs are opening up new opportunities for developing countries: they reduce the cost of imports as well as exports, and deepen connectivity with the global market. Ultimately, GVCs can help developing countries link to trade and income growth.
Countries whose economies heavily depend on natural resources have also benefitted from surging demand in growing economies. However, resource-based economies risk rapidly exhausting non-renewable resources and getting caught in a “resource curse”. Our work on this will help identify options to cope with volatility, broaden the economic base and effectively tax rents.

 

Ladies and Gentlemen:


Together we can help to improve development policy and provide targeted advice to specific development challenges through smart industrial policies. This can be done without missing the opportunity to shift towards stronger, cleaner and fairer economies. The OECD is ready to collaborate with other institutions and with people like you to make this happen.

Thank you.

 

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Perspectives on Global Development 2013

 

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