Industrial policy when institutions are weak: Can collaborative governance approaches add value?

1. Industrial policy when institutions are weak:Can collaborative governance approaches add value? Brian Levy July 3, 2012

2. Varieties of Industrial Policy • Targeted, sectoral state intervention • East Asian industrial policy (e.g. Korea; shipbuilding) • Ethiopia leather • Public support for ‘search and discovery’ • Export promotion • Matching grant programs • Facilitation of collaborative governance • Cluster initiatives • Other collective action support

3. Varieties of Governance Organizational and Institutional Complexity Low: Personalized Elite Bargain High: Impersonality • Each cell can usefully be considered on its own terms as having a distinctive type of elite bargain, with distinctive rules of the game and thus distinctive: • Incentives • Constraints • Opportunities • Risks

4. Governance Trajectories

5. Institutions for ‘top-down’ industrial policy A nested set of principal-agent relationships which link accountable political organizations, politicians, the central public bureaucracy, and front-line public officials “Top down” public management: The 2004 World Development Report’s “Long Route”

6. What does it take for the “top down” route to succeed? • A unified government principal, with clear developmental goal • Clarity at each level • Interests of external stakeholders vis-à-vis the relevant intervention are fully internalized by the ‘vertical’ political system • Well-functioning principal-agent at each level • Political accountability • Politicians => policymakers • Policymakers => frontline service providers • Oversight institutions of state function well • Hypothesis: which regime types support “top-down” route? • Citizens => politicians, via accountable political parties [#5; #6] • A developmental dominant political leadership [Subset of #2& #4] • ‘Top-down’ approaches will fail in competitive clientelist settings [#3]

7. “Top-down” supportive governance

8. Example: What kind of regime is South Africa? Organizational and Institutional Complexity Low: Personalized Elite Bargain High: Impersonality

9. Public Capacity and Accountability in 20 African Countries South Africa Botswana Tanzania Ethiopia/Rwanda Burkina Faso Ghana Senegal Benin/Mali Uganda Malawi Kenya Cameroon MOZ/Zambia Guinea Chad Nigeria Zimbabwe

10. What options for accelerating development might be both feasible and effective in difficult institutional environments? • “Working with the grain” • Possible that conclusion could be ‘none’; development may require a prior political and institutional zig-zag….. …but I’m giving it a try….. [Thanks, Justin……]

11. Haber’s politics of property rights in Mexico • Private investment =f(credible commitment to stable rules of game) • Property rights can be a targeted/private good • Integrated with structure of “vertical political integration” • Coalitions; clientelist networks • Underpinned by 3rd party enforcement • Private investment in Mexico: • 1880s-1910 (protection + give ownership shares to rival warlords) • Quarter century of sustained manufacturing growth) • 1930s- 1970s (PRI + protection + organized labour) • 5% growth for forty years

12. How to lock-in ‘islands of effectiveness” in contemporary competitive clientelist African settings? • Protected by non-expropriable specialist technical skills • Ethiopian airlines • Very high returns • Zambian mining • Have the ‘right’ political partners • Mozambique • Minority state equity • Collaborative governance?

13. Can collaborative governance work in weaker settings? • Hypothesis: Collective action to provide sector-specific public/club goods can also be used to insulate the sector against destructive political pressures • (policy reversal; rent extraction; other transactions costs increasing actions) • For insulation to be effective, trumping influence networks must be stronger than threat influence networks • Five cases: • Bangladesh garments • Ghana cocoa • Zambia cotton • South Africa hake fishery • South African garments: provincial & national

14. Bangladesh garments Why are quasi-rents from Bangladesh garments not predated away? • Activity-specific specialized skills • Relatively low capital investment • Organized sector associations • Political ‘diversification’: • Over 3,000 garment exporting companies • Distributed across the two dominant political parties • Export market & credibility => shared incentive to defend sector from predation, by either party

15. Ghana Cocoa • Early 20th century smallholder platform…. • Rents expropriated, production collapses 1950s – 1970s • Turnaround during Rawlings period; continuing rapid expansion. How locked in? • COCOBOD? No………… (vs Kenya Tea Authority) • Multistakeholder cocoa price setting committee, with strong farmer representation • Cocoa farmers are in swing voter constituencies

16. Zambia’s cotton outgrowing • A seeming success • Ginneries privatized in mid-1990s • Outgrowing arrangements with small farmers (entirely private sector driven) • Very rapid ‘headline’ growth: 60,000 tons (1990s) => 200,000 (2005) • But huge cyclical swings • 1998: 100,000 => 50,000 (1999) • 2005: 200,000=> 100,000 (2007) • Institutional weaknesses underlie swings • Side-selling/pirate-buying • No organized countervailing small farmer associations • 2002: Government “Cotton Outgrower Credit Fund” exacerbates institutional failures • Finances only 3% of harvested area • Non-transparent credit allocation • “serious questions about activities of some fund beneficiaries”

17. Using Global Standards -- A Fisheries Example The sustainability risk: Additional quota above sustainable limits given to deep-pocket or otherwise influential fishing companies • Senegal and fishing concessions for EU and Russian vessels South African fishery’s mitigation measures • Internal transformation (BEE) • Sea Harvest now majority owned by BEE Brimstone Group +employees • I&J transfers 20% equity to BEE consortium, 5% to employees • As of 2008, the two firms account for 62% of 15-year quota (vs 75% in 1990) • Align with global standard – Marine Stewardship Council • MSC certifies that sustainable arrangements are in place • MSC monitors compliance • MSC recertifies after five years

18. South Africa Garments Provincial: 2004- ongoing: • Two business-led provincial clusters: • financed by members plus fees, plus province • Ongoing support services to firms National: 2005 ambitious plan negotiated • Across national value chain (retail; garments; textiles); • preliminary business-govt agreements reached • But trumped by SA’s difficult political economy: • Labor initially stays outside process • No meeting of minds between labour and business groups • Government unable to be effective honest broker • Tripartite agreement eventually signed, but empty shell 2011: another round of crisis; stabilized by govt

19. Ostrom’s Good Practice Principles I

20. Ostrom’s Good Practice Principles II

21. National-level: Failures of Collaboration

22. (How) can collaborative governance potential be enhanced? • Support good practice collective action (a la Ostrom’s principles) • No stakeholders with veto potential can be left out!! • Discuss political risks, and mitigation options, as part of industrial policy dialogue • Strengthen horizontal associations • Large => small numbers; trumping capability • Leverage global supply chain & standards networks • But who will facilitate……….? => Politics is trumps!!!!