Exploring Phenomenal World through Industrial Experiments

    Industrial Policy in the Global South: Lessons from China and South Korea

    The turn of the twenty-first century brought about a reassessment of development economics, particularly in the global South. The commodity boom of the 2000s brought windfall profits for resource-rich countries in the South, leading to new agendas for growth and development. As a result, there was a decline in political support for the Washington Consensus and a search for alternative strategies beyond neoliberalism.

    The 2008 financial crisis and the Covid-19 pandemic further highlighted the need for new approaches to economic stability and growth in the global North. However, the record of neoliberalism was always patchier in the South. While it may have been successful as a crisis mitigation strategy, it failed as a coherent program for long-term growth and stability. This led to a political rejection of neoliberal globalization and a demand for more interventionist state policies across the global South.

    States in the global South, particularly those rich in mineral resources, pursued “resource nationalism” as a way to assert control over their natural resources and capture more of the value generated from their extraction. In Latin America, a “new developmentalism” emerged, focusing on industrialization and structural transformation. These policy shifts signaled a renewed emphasis on state-led industrial policy in the pursuit of economic transformation.

    The rise of China as a global economic powerhouse presented a significant challenge to the Washington Consensus and offered an alternative growth strategy. China emphasized the importance of export manufacturing and strategic state control in creating a new productive basis for its national economy. By promoting specific sectors and establishing close relationships with leading domestic firms, China achieved industrialization and achieved success in global supply chains.

    The experiences of South Korea and China demonstrate that there is no one-size-fits-all approach to economic transformation. Each country must adapt its industrial policy to its own socio-economic context and institutional infrastructure. Instead of prescribing a fixed developmental strategy, there should be room for experimentation and adaptation while taking into account the unique circumstances of each country.

    Middle-income economies in Latin America and East Asia have shown a persistent aspiration towards structural transformation. They have drawn lessons from the experiences of successful newly industrializing countries (NICs) like South Korea and Taiwan. These countries promoted domestic champions, captured value in globalized supply chains, and developed indigenous technological innovation. By following this model, countries like Indonesia have introduced intensive growth strategies in emerging industries to overcome the middle-income trap.

    China’s industrial policy, exemplified by its “Made in China 2025” strategy, further emphasizes the role of the state in increasing the participation of national champions in manufacturing supply chains. This strategy combines sector-specific interventions, such as demand creation and risk-taking in high-tech industries, with incentives for businesses to expand markets overseas. China’s approach to industrial policy has been built through experimentation, drawing on both Soviet-style public enterprise regimes and state-driven sectoral development observed in East Asian countries.

    Success in industrial policy requires a comprehensive understanding of national political contexts and the identification of policy instruments that support export promotion. It also requires strong state capacity to mobilize domestic resources for sectoral development. Political leadership and a strong developmental structure are crucial to overcoming coordination problems and promoting competitiveness.

    External factors, such as geopolitical considerations and foreign investment, also play a significant role in shaping industrial policy trajectories. Strategic alignment with countries where lead firms shape the supply chain can create opportunities for technological learning and integration into global value chains. Geopolitical factors can shape state decisions to pursue industrial policy, as seen in the resource-based industrial policies in Latin America during the commodity boom.

    Developing countries face challenges in the face of growing protectionism in advanced industrialized countries. The European Union, for example, has passed legislation to increase the extraction and processing capabilities of European firms within the region, potentially impacting mineral producers in the global South. China’s shift in investment priorities, particularly through the Belt and Road Initiative, may also affect resource flow to the South. Therefore, flexibility and pragmatism are crucial in designing industrial policies that can adapt to changing international circumstances.

    In conclusion, the resurgence of industrial policy in the global South highlights the need to move away from a one-size-fits-all approach to economic development. Each country must tailor its strategies to its own socio-economic context, taking into account inherited infrastructures and changing international circumstances. By encouraging experimentation and adaptation, countries can pursue economic transformation and achieve long-term growth and stability.

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