The Return of Industrial Policy

[clapping] When I was invited to the talk, I was asked to speak on some relevant topic having to do with development inequality and the Global South, and it seemed to me that industrial policy is something that is relevant, not only because it brings all these matters together, but because it is also now in the air once again after a hiatus of many, many years.

And I thought it would be interesting to explore what exactly it is, where it came from, what its prospects are, and what to make of it today in this world as we move on into, hopefully, a new era.

Now, the context in which industrial policy has come up today is very different from the last time that it was a major issue, and the last time in development studies that it was a major issue was in the mid-1990s.

And interestingly, the World Bank itself came up with a report called "The East Asian Miracle," and this report was a landmark event because even while it continued with the World Bank's basic orientation, which was that development should be market-oriented and should avoid an extensively interventionist state, it did have to accept, at least grudgingly, that the Northeast Asian miracle economies, primarily Korea and Taiwan, but then also some of the Southeast Asian economies that had done well, had relied to a great extent on state intervention.

And the report had to go through all kinds of somersaults to both acknowledge that state intervention occurred and was not entirely disastrous, but at the same time keep to the orthodoxy that it should nevertheless be avoided.

Now, that was the mid-1990s, and that was the moment at which development studies was taking a turn under the influence of some very, very important works by scholars like Robert Wade and Alice Amsden.

It was taking a turn where it was discovered and argued to great effect that not only was state intervention a regular feature of East Asian success in their development, but was a foundation for that success.

In the interim, the scholarly world deepened this argument and indeed confirmed it in many, many ways.

Now, the irony, of course, is this was happening exactly at the moment when liberalization in the developing world was at its peak.

Just as "The East Asian Miracle" report comes out, we see that across Latin America, South Asia, and in the East Asian miracle economies themselves, the developmental state and all the institutions of liberalization were being rolled back.

So not surprisingly, just as the Bretton Woods institutions acknowledge the importance of industrial policy, the actual practice of industrial policy starts to wane.

So how is it that today we find the topic coming back? Well, not only has it come back, the World Bank has a very different attitude towards it.

It's come back largely now because the advanced world is moving towards some sort of practice of state intervention.

And because of the enormous influence that the United States and Europe has on the bank, lo and behold, the bank not only publishes now in 2026 a report on industrial policy and its revival, but is largely supportive of it.

So it looks like something that was taken off the agenda for a quarter century is now back on the agenda.

So in this talk, I want to address four questions.

First of all, what exactly is industrial policy? Secondly, what were the conditions that gave rise to it? Where did it come from? Fourthly, what were the variables, the factors that determined whether it was successful or not? Because it is indeed the case that it was not always uniformly successful.

And having then explored this historical lineage of industrial policy, we want to ask the burning question for today, which is, what are the prospects for its success today, and what forms should it take if we are to return back to it in the sort of way we did in the post-war era? So let's just start with the definition.