The Metamorphosis of Industrial Policy

Industrial policies are among the most significant but also the most controversial areas of economic policy. And there are plenty of reasons for this, including evidence that they can undermine free competition and free trade, help protect interest groups and encourage income concentration. Governments in countries at different development levels and ideological orientation have justified the use of industrial policies – some of them controversial – as a way of supporting domestic sectors and businesses, including job creation and income generation, technological development and national security.

Proponents of industrial policies, especially in more advanced countries, are more pragmatic in incorporating recent economic transformations into their work agendas. Consider the support of multinational corporations and the prioritization of sectors with monopoly incomes in international trade. Notable examples include the promotion of the aerospace, automotive and pharmaceutical industries. The agenda continued to be adapted and incorporated issues of interest into global value chains and strategic issues for multinational companies, such as unified global operations and mergers and acquisitions, which helped stimulate an unprecedented process of concentration of international markets.

But industrial policies are undergoing a new trend of change with the growing prominence of value-added services, which have permanently altered the backbone of these policies. While the original focus was on the production of tangible goods, the industrial policy would now give priority to intangible goods; and the original focus on production lines of goods has shifted to the development, management and distribution of services. Issues such as patents, licenses, digital services, professional and financial services, convergence and liberalization of services, public procurement, among others, have caught the attention of industrial policy advocates.

Industrial policies underwent even more dramatic changes with the advent of digital platforms and large technology companies, which became the object of desire of policy advocates. The rapidly growing power and concentration of digital markets and the dispute between a few large companies over domination led to tense international industrial policy conflicts. Data privacy issues coupled with allegations of market dominance abuse and corporate maneuvers to evade taxes and escape national jurisdictions have become another source of tensions. But support for large technology companies was not the highlight of contemporary industrial policies.

In fact, stimuli and support for the development, dissemination and adoption of certifications, technical and regulatory protocols and standards handled by private entities are probably the most effective public policies to defend business interests. After all, these patterns are monopolies, they establish the rules of the game, and virtually determine the participation of companies and even countries in global markets. These are operating and telecommunications systems, technical protocols for the production and operation of robots and machines, industrial production and e-commerce protocols, payment systems, technical standards and protocols for transport, marketing of goods and services, financial and capital market protocols, evaluation protocols for companies and banks, phytosanitary standards, among others.

Thus, industrial policies underwent a deep metamorphosis and went far beyond conventional market-based, protectionist measures. But despite the sophistication of the new agendas, their ultimate goals will basically remain the same as in the past, albeit now with a much stronger impact on competition and free trade, the defense of sectoral interests and the distribution of income. It would be no exaggeration to conclude that, in their different denominations and manifestations, contemporary industrial policies are the most influential economic policies of the early 21st century.

#Productivity Future efforts will require collaboration between the public and private sectors for the identification, planning, devising and implementation of policies that promote activities that accelerate sustained growth

So what happens in Latin America? Industrial market protection policies have been widely used in recent decades, but their contribution to the region has been controversial. Given our lag in development, in the context of strong international industrial policy activism, we must admit that horizontal policies, such as infrastructure-based policies, will not be enough to overcome the forthcoming challenges. Future efforts will require collaboration between the public and private sectors for the identification, planning, devising and implementation of policies that promote activities that accelerate sustained growth and international competitiveness in a context of transparency and governance.

A promising path is to explore the immense potential to add value and internationalize the sectors in which the region already has renowned comparative advantages and experienced entrepreneurs, specialized institutions and accumulated knowledge. These sectors include agribusiness, water, bioeconomy, forestry, mining and industry and service segments. Moving forward will require a focus on capacity development, scientific and technological development, trade partnerships, strategic alliances and the production, management and distribution of advanced services associated with these sectors. The potential for profits with increasing productivity of small and medium-sized enterprises and integrating the regional market should also be part of a roadmap that will take us to a better place in the global economy.