In this paper I discuss the role of industrial policy in development. I make five arguments. First, from a theoretical point of view there are good grounds for believing that industrial policy can play an important role in promoting development. Second, there certainly are examples where industrial policy has played this role. Third, for every such example there are others where industrial policy has been a failure and may even have impeded development. Fourth, the difference between these second and third cases rests in the politics of policy. Industrial policy has been successful when those with political power who have implemented the policy have either themselves directly wished for industrialization to succeed, or been forced to act in this way by the incentives generated by political institutions. These arguments imply that we need to stop thinking of normative industry policy and instead begin to develop a satisfactory positive approach if we are ever to help poor countries to industrialize.
In this paper I discuss the political economy of Sierra Leone and how it should influence the
World Bank's Country Assistance Strategy (CAS). The main focus of the research is to try to
understand the extent to which the perverse political incentives which drove the country into
poverty and civil war between 1961 and 1991 have re-asserted themselves since the return of
peace in 2002. This question is made particularly compelling by the return to power in 2007 of
the All People's Congress Party, who presided over the decline of the country. My preliminary
conclusion is that while there are some obvious changes in the political environment, appeal
remains in the political strategies which were so costly to the nation and some new forces which have emerged have potentially perverse consequences. This likely undermines the effectiveness of advice by the World Bank and also seriously reduces the prospects of successful economic development. There are also changes in the economic environment, such as the terms of trade, which may provide the prospect of sustained economic growth, but without political change such growth will likely be oligarchic, lead to large increases in inequality and unlikely to be pro-poor. I suggest that the best option for the World Bank is to attempt to further deepen the reform of political institutions which it has supported since 2002. Though political institutions are not the whole story, they do heavily influence political incentives and the history of Sierra Leone makes clear that they have first-order effects. While the Bank has, correctly, fostered decentralization, the reform process needs to be deepened and complemented by the reduction of executive autonomy, the strengthening of Parliament and the introduction of greater democracy into the institution of chieftaincy.
In these notes I outline some political economy factors relevant for the decentralization policy of Bolivia. Decentralization is an important change in political institutions which can improve the efficiency of the delivery of public services and can also promote democracy. However, even if efficient, since decentralization also redistributes political power and influence, it is unlikely to be unanimously supported unless a complex system of compensation is simultaneously introduced. I discuss who the central political groups are in Bolivia, what are their interests in decentralization and the instruments they can use to influence the outcome. I also discuss why the demand for decentralization is so intense now and whether or not promoting will help to solve the current political crisis in Bolivia.
In this paper I argue that the most important consequences of the current economic crisis for developing countries will not be the direct negative economic effects, which have received the most attention. More important are the induced effects on politics, policy and institutions. In this context I ask: can the crisis provide opportune circumstances for developing countries to reform their institutions? Such a claim is implicit in the discussion by the Obama administration of not wanting to "waste a good crisis" and it is supported by a large social science literature on the implications of crisis for policy reform. I argue, however, that while there exists an optimistic scenario, there is also a pessimistic scenario. I illustrate both scenarios by examining the history of policy and institutional reform in the great depression of the 1930s and show that the consequences of this crisis for policy were very different in independent developing countries than they were in developed countries. I also argue that the recent experience of policy reform since the 1980s in fact provides less support for the "good crises" hypotheses than is commonly believed. Crises may be good or bad, depending on the nature of the political equilibrium in the societies they hit. I conclude with some speculation about Sub-Saharan Africa: though the most likely scenario is that the current shock is not large enough to change the institutional equilibrium in developing countries, if it were, there are circumstances which are consistent with the optimistic scenario.