Drafting Industrial Policy

One of my projects is to assist a senior policy analyst with the Ministry of Commerce and Industry to draft Liberia's Industrial Policy. He is a very competent man, and therefore overworked, over-committed and serving on many committees. Thus much of the work in drafting a policy has been given to me - which is good and bad. Let me explain.

First I have been given a great responsibility. One I am qualified to do? probably not. But it is a project I am excited about and I think have the necessary skills to make it a success. I am in the process of speaking with various stakeholders. An important first step is getting buy-in and input from about key question from key stakeholders. The first question that comes to mind is - Why an Industrial Policy?

Given the past 40 or so years and seeing one failed industrial policy after another, one thinks that nothing good can come from the drafting of an industrial policy. I am thinking mostly of Latin American countries, borrowing ideas from the Washington Consensus, resulting in less than desirable outcomes. The effects of which we are seeing know with leaders rising to power that go to the other extreme - Hugo Chavez in Venezuela and Evo Morales in Bolivia. The other often illustrated examples are those of the Asian economies which arguably used government interventions and subsidies in markets more successfully. But it seems that this was due to much trial and error policy making - as many went through periods where their industrial policies reflected different ideological approaches or strategies.

So the next question is what will be Liberia's intention in drafting a policy?

I would like to see the Industrial Policy move beyond the characteristics of what has become traditional Industrial Policy. Liberia should benefit most from policy-making that considers and develops network of linkages with private groups, business associations and NGOs that possess valuable information that inform the crafting of effective policies which have to potential to overcome market barriers to growth.

What barriers to economic growth exist in Liberia? Given limited resources and capacity the exhaustive list is unknown by a single actor or sector. A possible list includes: lack of knowledge about what industries if developed will be competitive, lack of co-ordination of infrastructure and other investments, human capital development needs, underdeveloped credit market and lack of finance, corruption or bribery, as well as inefficient and ineffective laws and regulations. But the fact that one single actor does not know the specifics of each barriers, leads one to believe that a collaborative approach may be most effective.

Perhaps a way to move forward would be to outline a process to form a committee or council that creates strategic linkages with the private sector. I came across this concept of Industrial Policy by process in a paper titled An Indsutrial Policy for the Twenty-First Century, by a professor at the Kennedy School, Dani Rodrik. As Dr. Rodrik proposes this council might be charged with gathering information about objectives, discover where barriers exist, distribute and coordinate responsibilities for solutions, and importantly evaluate outcomes (maintaining the ability to end policies that are not successful).

Looking at Industrial Policy in this context allows it to be an iterative process where mistakes will be made, though can be efficiently and effectively corrected. In contrast, with a more traditional formulation of Industrial Policy, one is stuck with the decisions made until the policy itself is retired, not the individual items with-in the policy.

The next question that would need to be asked is does the government currently have the capacity to oversee such a process; assuring that policy making is transparent, and protocols are developed so that the collaboration with the private sector doesn't turn into collusion. Maybe not. But in an ideal world this is how I think Liberia should move forward. And perhaps they will at some point. But perhaps not.

In the next few months at the very least I hope to develop policy options that are perhaps less robust and comprehensive, but are realistic, manageable, and are ideologically somewhere in between letting the markets run wild, and complete government control. Hopefully we will develop policy that will effectively enable and accelerate markets to do what they do best - efficiently allocate resources and produce growth.