A Global Approach to Industrial Policy.
How to steer green growth with mission-oriented inclusive and sustainable industrial policies.
Industrial Policy is back, and we are seeing the development of a new type of industrial policy globally that is more ambitious in its efforts to direct investment and innovation towards clear objectives.
Rather than a sectoral approach centred around picking winners, the Institute for Innovation and Public Purpose (IIPP) is advocating for a new approach to industrial policy centred around mission-oriented goals. This raises important questions that need to be addressed: How do all sectors have to adapt, change, and align when there is a common mission? How can policy measures such as conditionalities be attached to loans or public procurement be utilised to ensure private firms organise behind a common mission? Where are potential bottlenecks arising from new types of public-private partnerships?
As part of the annual Mission-Oriented Innovation Network (MOIN) Gathering in London, IIPP recently discussed the challenges and opportunities of developing, implementing, and governing new forms of industrial policy aimed at steering green growth and inclusive development. The panel discussion, chaired by IIPP’s founding director Mariana Mazzuccato, included Alicia Báracena (ECLAC), Elisabeth Werned (European Commission), Mzu Qobo (WITS School of Governance), Martin Guzmán (Columbia University), and Nimrod Zalk (Department of Trade, Industry and Competition, Republic of South Africa). It provided an overview of the most pressing issues governments have to address and keep in mind when designing industrial policies for the 21st century.
The central theme that emerged from the panel discussion was the need for industrial policy to address structural change and ensure social and inclusive economic change without compromising on the environment and the climate. As Anna Báracena put it, there is a need for government policies that are industrial, social, and sustainable.
She further emphasised thinking about the complementarity of industrial policy and social policy with a regional direction and relation to the respective local community to create employment, innovation, and value addition. This also means that governments have to become investors to bring resources to certain areas that otherwise would fall behind. Similarly, Mzu Qobo argued that industrial strategy can form a new social contract, but we need to be careful not to repeat mistakes from the past where those left out during transitions were not adequately compensated. Ensuring that we do not recreate social tensions from the past is of utmost importance when defining a new approach to industrial policy.
Missions can help us define policies that ensure investments in those areas where most needed, avoiding extracting too many resources and inclusive job creation for local communities. Martin Guzmán further urged to abandon a siloed approach where each government ministry has its own shielded responsibilities and instead adopt a more coherent approach to industrial policy centred around common goals. This includes understanding the design challenges that a green industrial strategy must overcome to tackle issues such as inequality and parasitic public-private partnerships as Elisabeth Werner argued. Guzmán further elaborated on the necessity of industrial policy for Latin America today. After the previous commodity boom in the region without sufficient industrial policy meant that social and political fragmentation was the result.
Both Nimrod Zalk and Mzu Qobo talked about how industrial policy should be formulated in the case of the African continent. There are significant opportunities for structural transformation in the context of the African Free Trade Agreement enabling investments in renewable energy and leveraging mineral endowments. However, there is a danger that the global south, and in particular Africa will be left behind in transatlantic alliances for industrial policy.
In the case of Europe, Elisabeth Werner focused on the EU’s Next Gen Recovery Act and the Green Deal Industrial Plan. Centred around this is the EU’s new paradigm with a vision to be climate neutral by 2050. Central to this are legal targets in climate law, sending strong signals to private companies. In the long run, industrial transitions will have to address the scaling up of local production capabilities centred around critical materials, potential skill shortages and strong and competitive supply chains.
While acknowledging the importance of local context and specific policy solutions for different areas, the panellists also spoke about the importance of addressing global inequalities in the policy space, particularly for countries in the Global South. Martin Guzmán drew attention to the global architecture of finance and debt, taxation, as well as property rights and their effects on developing economies, while Alicia Báracena advocated for debt for climate initiatives and resilience funds through debt cuts. Nimrod Zalk explained how developing countries have managed to push for debt relief through commitments in international forums such as COP but cautioned on the scale of these commitments so far.
The panel concluded with the types of skills students of economics, political economy, and public policy have to be equipped to design and implement the next generation of industrial policies. In the past, countries have usually thought about industrial policy as a top-down, linear approach to disciplining the market, where the state had a very central role in this by picking the winners. This thinking is increasingly changing with a growing emphasis on collaboration between the state and the market. Through mission-oriented inclusive and sustainable industrial policies, the state and the market can co-shape and co-create public value.
