Industry policy, technological change, and the state

Industrial policy and innovation policies need to be strongly revitalized and focused on LDC development. Given the concentration of several LDCs in forestry, fisheries, mining, agricultural commodities, and oil, the task of these revitalized industrial policies is to support locally relevant development. Although much has been written about institutions and economic growth and development to date, the question is what aspects industrial policies should focus on in these economies. For several LDCs, even where growth is rapid, this trade-related growth has occurred without the benefits of diversification and structural change, private sector capital has been shy, and ODA continues to be a major source of financing but not necessarily directed at building productive capacities (UNCTAD, 2007; 2008). Of course, with changes in transportation or other costs, the extent of trade might diminish in the future. Nevertheless, many LDCs while enjoying elements of current growth rates of commodity exports, remain distinctly vulnerable as well. Directed industrial policies can therefore be a core instrument for developing economies that must build productive capabilities to compete in what is now a highly traded world economy (Rodrik, 2004, Haque 2007). Perhaps more importantly, industrial policies combined with ODA and social spending concerns, can form the basis of important new social compacts to improve domestic conditions. This paper attempts to lay out both a conceptual and practical approach to how these policies can be revitalized.