Letter IEDI n. 881–Industrial strategy is the rule and not the exception around the world
While Brazil is still discussing the pertinence or not of developing a national industrial strategy, in a recent document the United Nations Conference on Trade and Development (UNCTAD) cataloged no less than 101 countries, distributed in all regions of the globe, which adopt comprehensive policies for the sector, infrastructure and adjacent services.
In addition, there are other actions that were not considered for having specific purposes, such as strategies aimed only at small and medium-sized enterprises (SMEs), entrepreneurship or digital development. Policies focusing on just one sector alone or only on service infrastructure were not addressed by the study either.
Since the global financial crisis, the number of countries that have adopted national industrial development strategies has grown dramatically, according to the UNCTAD World Investment Report 2018, whose chapter "Investment and New Industrial Policies" is analyzed in this Letter IEDI. The survey identified 114 formal industrial strategies, three-quarters of which (84) were adopted in the last 5 years.
The study argues that countries of all levels of development are using such policies not only for structural transformation purposes but also to respond to a variety of challenges such as job creation and poverty reduction, participation in the ongoing technological revolution, integration into global value chains (GVC), promotion of efficiency, clean energy and green economy etc.
However, the new generation differs significantly from past interventions in both method and scope. In contrast to the old centralizing industrial policies that tended to protect specific industries, the current ones are more agile, interactive, inclusive, flexible and integrated with other policy areas and pay more attention to overarching challenges. In the new policies, vertical and horizontal actions continue to be combined in 40% of the UNCTAD sample, with 1/3 of them emphasizing horizontal measures.
In the view of the institution, the modern model combines interactive measures and top-down plus bottom-up interventions. Policy packages are characterized by multiple layers, with effects at the firm, industry, and industrial system levels. The latter goes beyond manufacturing and includes infrastructure and complementary services that are essential for the creation of productive capacity.
Policy measures to improve the macroeconomic, social and environmental setting in which industry develops form the foundation of the new strategies. Multilayer and multidimensional models have emerged in response to the need for flexibility and selectivity in the design of these policy packages.
In addition, foreign direct investment (FDI) and the operations of multinational corporations have become, explicitly or implicitly, an integral part of contemporary industrial policies. Many initiatives include incentives in the form of tax and tariff reductions or financial support through grants and loans in target sectors, as well as reduction of red tape, creation of special economic zones, clusters, incubators, technology parks, etc.
Based on criteria such as the degrees of sector specificity, government intervention, openness to foreign competition and export orientation, UNCTAD proposes a taxonomy of industrial policy models, grouping the strategies into three broad categories:
1. Build-up model for the industrial base. Strategies of this kind tend to emphasize the improvement of physical infrastructure (ports, energy, telecommunication, etc.) as part of the industrial strategy. They represent 40% of the sample. Prioritizing the development of specific industrial sectors, these strategies push enterprise development and aim to improve access to finance for small and medium-sized enterprises.
2. Catch-up model. The catch-up strategies prioritize the formation of skills and abilities, support to SMEs and export promotion. They correspond to 36% of the sample. In this case, government procurement is an important tool for promoting domestic enterprises.
3. Model based on the new industrial revolution (industry 4.0). Representing 24% of the sample, these strategies emphasize the strengthening of industrial ecosystems, with Public-Private Partnerships focused on innovation, R&D institutions and soft infrastructure common elements.
These three broad models of industrial strategies are not mutually exclusive and are far from closed models. The study also includes a series of recommendations for the design of modern industrial and investment policies, which, regardless of the prevailing model, should include relative openness, sustainability, new industrial revolution readiness, inclusiveness, coherence, flexibility and effectiveness.