State-Business Relations and Industrial Policy An Introduction 2013 UNU-WIDER Conference on 24-25 June in Helsinki. ‘L2C – Learning to Compete: Industrial Development and Policy in Africa’ Dr Dirk Willem te Velde Overseas Development Institute 24 June 2013
SBR & industrial policy: Overview • Research on SBRs • Renewed interest in industrial progress in 2 areas policy (context of structural - historical institutionalist (from transformation and job creation) PE/PS angle) • We know a lot on appropriate role - economic / measuring of industrial policy in development (pushing boundaries of • Relevance of state-business economist / PSc) relations for industrial policy (economic functions, principles, • Moving forward: practices) - Systematic analysis of SBR case studies (e.g. principles) Examine What are • - Comparative analysis of characteristics of effective SBRs SBR practice (measuring) for industrial policy - SBRs and structural change • Large gap in literature!
Growth Policy Pendulum A more managed and A less distorted and freer regulated economy market economy (addressing market failures) (addressing governance failures)
Relevance of industrial policy • Agreement of presence of market, government and co-ordination failures (e.g. skills, technology) (e.g. Pack and Westphal, Stiglitz, Rodrik, Lall); • But different and evolving views on relative importance of market failures vs government failures in constraining innovation / growth; (assessment framework?) • Industrial policy works in some cases/areas/times (Ireland, Singapore, Mauritius, Malaysia) but fails in others (parts of Eastern Europe, Latin America and SSA); (assessment framework?) • Emphasis shifted to design principles for effective industrial policy (Rodrik 1994; World Bank, 2012), area of comparative advantage (Lin, 2012) and institutional setting (incl. SBRs).
SBRs and industrial policy • Theoretical underpinning (economic functions) • Principles behind benign SBRs (institutional) • Forms / practice of SBRs • Study of SBRs and next steps
SBRs for Industrial Policy Economic functions • Market complementing functions (e.g. Doner and Schneider, 2000 for BAs) • Addressing market, government and co- ordination failures (Sen,2013;Velde,2010) – More efficient public spending (relevance, co- ordinating, affecting budget process) – Better reform policies (prioritising, acting on private sector constraints, standardisation) – Reducing policy uncertainty (reducing probability of policy reversal)
SBRs for Industrial Policy Principles • Evans (1995); Maxfield and Schneider (1997); te Velde (2006): – Transparency; – Reciprocity; – Credibility; – Trust • Rodrik (2004) – Political leadership at top; – Co-ordinating/deliberating councils; – Mechanisms for transparency/accountability
SBRs for Industrial Policy Practices / forms • Formal/informal; national/sector; ad-hoc, regular; skills/capacity; position papers; function (e.g. providing information, standardisation) • WB/OECD (2006): Charter for using PPD in PSD (10 points); Mandate, structure, champions, facilitator, outputs, communications, etc • ITC diagnostic: mandate and institutional alignment; structure and particapation; strong leadership and champions; contribution to policy formulation and evaluation/monitoring; private sector contributing capacity; building stakeholder confidence
Studying effects of SBRs Two strands • Historical / institutionalist (e.g. Chingaipe and Leftwich 2009 for Malawi; Schmitz et al 2012 for Viet Nam; Nattrass /Seekings 2011 for SA), focused esp. on principles (& LT development): insights that not all formalised structure work (eg NEDLAC) • Economic (measuring, correlation, careful macro/meso/micro level), focusing on measurable forms, functions and impacts (Sen, 2013); example next page or Bwalyas and Rohid on SBRs and budget process in Mauritius and Zambia • Key challenges: cause / effect; measurement, policy?
Value of services of business association revealed mirrors s tated preference (Zambia – enterprise survey data) Estimated coefficient on Mean of perceived value Variable productivity equation Of BA by individual firms Information on government 0.10* 1.85 regulation Lobbying government 0.08* 1.41 Information on domestic markets 0.07 1.42 Information on international markets 0.07 1.34 Accreditation standards 0.08 1.00 Resolution of disputes 0.02 0.97 Business associations affect performance by reducing policy uncertainty and by lobbying government over regulations (Qureshi and Te Velde in Sen, 2013)
Why both strands are important • Cambodian Government-Private Sector Forum (G-PSF) to promote an open dialogue between the government and the private sector (2000). • Forum led to more US$100 million of savings for the private sector and improvements in Doing Business ranks (GoC). • However, currently, there are questions on sustainability of PPD? (building on political settlements / local institutions vs. externally supported fora?)
Next steps? • Which SBR principles matter for what/when? Systematic analysis on the characteristics of effective SBRs across case studies in LICs (e.g. hist/inst empirical studies on successful economic functions of SBRs & good industrial policy design) • Which SBR forms help for what? Examine the practice of SBRs by comparing across locations a few selective indicators which can be measured objectively (e.g. ICT, impact assessments, skills) • Bringing them together? E.g. good practice helps only / esp. in combination with principles • Time Horizon? SBRs and quick solutions vs structural transformation
Evidence? SBR score (right axis) 0.04 0.7 Budget proposals of JEC (2006/2007) Fully Partly Not SBR Index Real PPP GDP per capita 0.6 Implemented Implemented Implemented grow th (left axis) 0.02 1. The transformation of Mauritius into X X X 1 800 0.5 one seamless and integrated business X X X (initiated in platform; X 2008/2009 0.9 700 2. The adoption of transparent, simple budget) and minimum procedures to start and X 0.4 0.8 operate businesses; 600 0.00 3. The establishment of a competitive air 0.7 access policy; SBR1 & SBR3 0.3 S 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 20012003 500 4. The introduction of competitive pricing 0.6 policies for international bandwidth; B 5. The establishment of an open policy to R 0.5 400 import high skills; 0.2 2 -0.02 6. Operationalizing of the Public Private 0.4 Partnership (PPP) legislation; and the 300 mainstreaming of SMEs in the new 0.1 0.3 economic model; 200 7. Transforming the labour environment 0.2 into a more flexible one; -0.04 0 8. Establishing the right balance between 100 legislative control and “space” for 0.1 investment. 0 0 1970 1975 1980 1985 1990 1995 2000 2005 2008 SBR1 SBR 3 SBR2 Preparati Budge on of t Prepar Budget Budge Budget ation ceilings/G t ceilings reen Execut Paper approved by ion (MTEF) cabinet Issue call MP circular Funds Releas SA August- s ed by October Budget MPSAs Sp Budget Approve prepare en Office d budgets d MoFNP End August - March Monito November MPSAs Parliam ring & entary budget Evalua proposals Hearing tion to MoFNP s MoFN The Republican Budget End January- Draft P Hearings November March Budget Budget President Submitt Decembe Preparation ed to r December- ZIBA Parliam January 140 C ent Benin Ethiopia Madagascar Malawi Mauritius South Africa Zambia End January The Zambia Business Council Age 0.00 0.00 -0.01 0.02*** 0.00 0.01*** 0.00 120 ZBF, MoFNP, MoCTI, MoAC, MTC, ZDA Size 0.01*** 0.00*** 0.00 0.00 0.00** 0.00*** 0.00 Critical value 100 Foreign 0.00 0.01 0.00 0.01* 0.01 0.01*** 0.01* Zambia Major value State -0.01*** 0.02*** 0.01 -0.01 0.06*** 0.01** 0.00 Business 80 Moderate value Forum Export 0.00 0.01 0.00 0.01* 0.00 0.01*** 0.00 Minor value Member -0.19 0.73*** -0.04 0.35* 0.64** 0.34*** 0.39* 60 CM TCZ ZAM ZNF No value Z U lobby -0.26 0.74** 0.19 -0.06 40 uncertainty -0.17* 0.06 -0.02 -0.01 -0.01 -0.02 0.02 20 ZFAW regtime 0.00 0.01 0.00 0.02 0.01 -0.01*** 0.00 BAZ IB constant 2.34*** 1.94*** 3.28*** 3.70*** 7.15*** 7.07*** 5.72*** 0 Industry effects Yes Yes Yes Yes Yes Yes Yes Accreditation Domestic International Regulations Lobbying Resolution Observations 100 141 99 120 64 399 146 information information F-statistic 2.12** 27.02*** 0.56 4.85*** 6.02*** 27.14*** 2.07** ZIB ZACCI R-squared 0.25 0.38 0.23 0.30 0.40 0.45 0.15 A
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