Ha-Joon Chang's new book, 23 Things They Don't Tell You About Capitalism, has been widely reviewed – the latest by James Crabtree in today's Financial Times (needs a subscription to access) and also by John Gray in The Observer. I haven't read the book yet, but my interest was aroused by the FT review.
James Crabtree focuses on two arguments (presumably out of 23) – the first that manufacturing is still important to the leading economies despite the growth of services, the second that emerging economies should follow the path of active industrial policy practised by the rich economies in their own past. James writes of the author:
“He has shown in particular that western countries
who preach free trade and competitive markets commonly protected their
own industries during earlier periods of growth.
He admits that
attempts to back native industries — from the Concorde to the Indonesian
aircraft manufacturing industry — have often been expensive flops. But
he says developing countries need to improve their “batting average” of
winners versus losers, although he neither explains exactly how this
might be done, nor whether it is possible for all developing countries
to do so simultaneously.”
I have some sympathy with the need to rehabilitate industrial policy after the swing of the policy pendulum so far away from government engagement with industry. For anti-activism ends up being an industrial policy by default, with the most powerful lobbyists shaping policy in their interests – the financial sector springs to mind.
Having said that, there's a world of difference between an intelligent awareness on the part of government that the economy has some comparative strengths which should be encouraged, and that infrastructure investment and public spending need to be guided by strategic priorities, and any industrial policy which thinks about actively helping 'winners' beat the competition from other nations. This older flavour of policy is still likely to end in expensive disaster, and encourage some governments to aim for the impossible. What's more, the challenge is greater now because the technology frontier has moved so much since South Korea in the 1970s decided to build steelmakers from scratch. The opportunity for catch-up is negligible in some advanced sectors – but what are the odds of governments being sensibly realistic rather than fashionably ambitious?
Still, I'll keep an open mind and perhaps see if the book can persuade me.
This worked for South Korea and Singapore but not for Ghana or Argentina, so I suspect it may be something more to do with culture and something less to do with system, if you see what I mean.
Certainly it's a strategy that has failed many more times than it has worked…
I listened to the RSA podcast of his talk about the book while cycling to work today, and to be honest it sounded sort of thin. Is the book worth reading?