Africa Prime brought to you by jamson select Reserve if you look around the world there's been almost no successful economy that has not had some form of industrial policy sometimes ex hidden uh sometimes EX hiden for instance in the defense department as in the United States but the internet which is the most important innovation probably in the world was supported by uh the US def was was basically inovation uh of the US government so you have to understand that every country has an industrial policy sometimes they shape the economy without thinking about it you pass laws uh you liberalize you regulate um in the United States again that our industrial policy led to an overblow financial sector 40% of all profits went into the indust into the financial sector it was clearly a distortion and brought our economy down so for Africa where the problem is job creation inequality it's clear that markets have not provided the solution not a surprise and therefore there needs to be a more active role for government markets are still at the core but there needs to be a more active role for government to to push move uh uh ensure that the markets perform the roles that they can perform you've argued that struct adjustment has effectively led to the de-industrialization of Africa um given that that was part of the kind of you know um Mantra that was preached to African governments for much of the 1980s and 1990s uh leading to declines in your manufacturing sector and so on or what little was left how do we catch up and and how does developing coherent industrial policy continent wide allow us to catch up is that even possible with you know manufacturing giants like China and India and Brazil oh I think there's a real opportunity in fact one of the main thrusts of the discussion we had here in South Africa was that this was a moment of opportunity uh wages real wages uh cost of production are going up significantly in China uh we looked at a case study for instance in Ethiopia where if you looked at the cost of production uh much lower taking you know wages relative to productivity much lower than and in Vietnam and China uh there are bottlenecks there are problems of infrastructure again a responsibility of the government uh there are problems of access to finance uh often financial markets are more interested in lending to Consumers uh for housing for buying a car than they are for creating jobs and this is something that has to be addressed in in a development agenda we've talked about infrastructure you've just mentioned that that is a big component component of what government brings to the table particularly around industrial policy but if you look at the African context in some cases we have very dysfunctional States we have uh states with very little capacity how useful is is industrial policy uh you know in that context and what what do you need to do to beef up that capacity um you know across the continent well that that was another question that was explicitly discussed we had people from Korea uh people from uh maius uh in many cases the state capacity at the beginning of the transition of the development strategy was comparable to that or even below that of many African States per capita income uh the state of government capacity in Korea was was not very good in the beginning of its enormously successful growth strategy uh so where capacity is important is really how you design your policy What policies uh are appropriate so for instance infrastructure is part of an industrial policy every government has to build Rogues if you don't you have no hope you have to build porks so that's an example of thinking as you build porks as you build Rogues what is the direction of your economy you have to regulate the financial sector every government does anyone that has tried to S you know to survive without it it's been a disaster so you're going to have to address the problem of how do you make the financial markets serve the rest of the economy so you you have to adapt to the uh capacities but you're going to have to perform these functions in any economy uh Professor talk to us about what are the lessons that we can learn from the Asian experiences um and can they necessarily be replicated you spoke earlier about um you know uh capacity levels being at comparable levels um but I mean a lot of Asian societies are quite closed societies for example so there's not a lot of negotiation around what it is that you you know um make laws about in a country like South Africa we have a very active populace where people want to be consulted and spoken to and so on we've seen with the eols for example there's often a backlash and it's not that easy development doesn't happen in that straight line how do you take what was working in Asia adapt them to an African context given that societies are often so very different from each other well first I want to point out that that when I said that the capacities were comparable uh to Asia I wasn't referring to South Africa whose capacities are much greater uh much greater than the capacities were in Korea say 40 45 years ago so South Africa is beginning with a big Advantage um now one important thing is they have transparency because Citizens need to know what exactly the the government is doing you know why is it doing uh what it's doing I think that actually industrial policies when there is broader citizen participation can be even more effective because what you're trying to do is enlist the strength of this tire society and moving in a particular direction uh make people realize that look at uh an imperative for South Africa is job creation creating more equality and then have a nationwide discussion what does that mean you know markets aren't doing it now uh we're not getting it under the current framework what are some of the possibilities for more effective job creation what are the tradeoffs we have limited resources uh how do we go about uh dealing with it one of the important and controversial areas is uh macroeconomic policy monetary policy uh no economy can industrialize with an overvalued exchange rate and countries that are resource rich like South Africa tend to have overvalue currencies and there's a wealth of experience on how governments have succeeded in bringing down the exchange rate and that's the kind of discussion that one needs you know uh some people say for insting that uh oh you can't do it because it's too expensive not true um China has has developed with managing its exchange rate build up over $3 trillion do of reserves a nice piggy bank when the economy when there's a global slowdown they can draw upon it it really has worked both for growth and stability we do talk sometimes about special economic uh zones but we see in places like India that it doesn't always work it's not always successful in South Africa we've piloted some with a patchy and a mixed you know result um it's it's ear days but uh the result is not necessarily what we thought I mean what what are we doing um you know other than special industrial zones what are the kind of interesting innovations that one can bring to Industrial policy that speaks to um the need to involve markets but in a rational approach to planning the economy and economic development one of the reasons for special economic zones reflects the scarcity of resources that you may not have enough resources to provide the necessary infrastructure that you would like to have have everywhere in the economy so if we can develop the resources the infrastructure say that is necessary for some cluster some some Industries or some group of Industries in a place that will give them a competitive Advantage another important Insight uh Economist is that it's very important for firms to interact with each other uh to share their experiences to get the input firms the firms that that that they buy key services from uh together with the firms and so you developing clusters develops that these kinds of competencies these kinds of networks that's why in the United States we didn't have an industrial policy explicitly but the government gave a lot of money to Stanford University to Berkeley University and around those universities we develop Silicon Valley which has been the really the the key uh part of the success of the US high-tech industry in the last uh 40 years so just let me expand a little bit on that so what is the place of industrial policy in you know this quest for knowledge-based economies I mean and does Africa given it the fact that it works of such a low base can it actually you know catch up can it actually interact at a competitive level well there there are differences obviously for different countries so talking about South Africa one of the important things to realize is you have to enter into your development strategy at many different levels you have a lot of unskilled people but you also have a lot of skilled people and so you're very well placed to to I might say participate enter into the the knowledge economy um if you look to say at other bricks take Brazil uh it's been very successful in certain niches in technology the best bio fuel technology uh uh us can't compete with Brazil in ethanol I mean it's really interesting we just can't compete they've developed that technology at the global level so I suppose uh Market driven but policy conscious if if you exactly exactly now in that particular case the in many of these cases the government Development Bank called bndes played a very important role they said okay we're going to help Finance this kind of activity the banks are are a little bit nervous about long-term investment Banks tend to be very short commercial Banks tend to be very short-sided development is a long-term matter and we're going to take the long term and that's what the development bank has done uh with a remarkable success now you know part of the controversy about industrial policy is people always look at the failures but if you only lent to successful projects that would mean you aren't not aren't taking enough risk the private sector fails I mean look at what happened in the United States in ex lending so if you look we've done studies of of for instance the technology projects that the US government has undertaken the average return is enormous we've had actually a very credible track record