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Role of state in inclusive development

Role of state in inclusive development. Robert H. Wade London School of Economics 29 August 2011 . Chile’s dualism/trilism. Sunkel: “Chile: towards inclusive devt”, 2009 One of most unequal Y distributions in world. 26% of popn < 60% average income

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Role of state in inclusive development

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  1. Role of state in inclusive development Robert H. Wade London School of Economics 29 August 2011

  2. Chile’s dualism/trilism • Sunkel: “Chile: towards inclusive devt”, 2009 • One of most unequal Y distributions in world. 26% of popn < 60% average income • “Chilean economy, & thus Chilean socy, divided into differentiated & largely unconnected worlds”. “[I]ntersectoral relationships characterized by very incomplete intermediate production linkages”

  3. Sunkel (contd) • Imperative to diversify production structure away from mining, ag, forestry, fish, & raise productivity of SMEs. • Need overarching long-term (15-20 yrs) program of structural transformation.

  4. How to diversify: lessons from E Asia • Abandon dichotomy b/w export-led growth & import substituting industn.; emphasise complementarity b/w growth of domestic demand & export demand. • BWIs based devt strategy on (1) neoclassical growth theory, (2) export-led growth theory (EOI) • Neoclass devt ecsts held up EAsia as proof that EOI > ISI; ignored domestic demand. • In fact, EAs combined EOI with ISI simultaneously, to boost both export demand & domestic demand.

  5. Diversification & domestic demand • Supply side: how EAs states accelerated diversification. • Economy-wide indicative planning at top; industrial extension service at bottom. • At top: Taiwan: Council for Econ Planning (K. T. Li) • Science & Technology Advisory Group (STAG)

  6. Diversification & domestic demand (contd) • At bottom: Industrial Development Bureau • 180 staff (mid 80s), mostly engineers (3 economists) • Motto: “The most important thing in life is to have a goal, & the determination to achieve it”. Cf. UK civil servants • Acted as industrial extension service • Acted as “arranged marriage bureau” b/w FDI and domestic firms. Eg Philips

  7. Diversification & domestic demand (contd) • Trade policy: • As EAs became richer, liberalized trade. • But trade regime managed: high inter-sectoral variability of protection; protection given against performance conditions.

  8. Diversification & domestic demand (contd) • Domestic demand side: • Measures to curb growth of income/wealth inequality: land reform; limits on wealth accumulation in form of real estate; taxes on luxury consumption (eg foreign cars); financial sector kept under tight control. • These measures helped (a) to sustain domestic demand, (b) channel wealth accumulation into “productive economy”

  9. World Bank policy norms: rethinking? • Chief economist Justin Yifu Lin – “new structural economics”. Cautiously endorses state efforts to accelerate upgrading & diversification. • Rejected by most self-respecting Bank economists • “For every Korea there are a hundred failures. Who would you put your money on? • “The best industrial policy is none at all” (Gary Becker, 1985)

  10. WB policy norms: rethinking? • But Lin’s ideas being operationalized in Finance & Private Sector Devt VP (Janamitra Devan) • “Competitive Industries Program” • Piloted in: Jordan; Kenya; Kazahkstan; India; VN • Chile?

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