The rules of the World Trade Organisation (WTO) leave space for industrial policies, including use of subsidies, which developing countries can, should, and, in some cases do, exploit. This has been highlighted by Massachusetts Institute of Technology Political Economy Professor Alice Amsden.
Speaking in Pretoria on Wednesday, she pointed out that, under WTO rules, the entire environmental and energy sectors are not "adjudicated". That is, countries are free to employ a wide range of instruments to promote the development of these sectors, including those forbidden for other sectors under WTO rules.
She cited the example of China, which is able to use subsidies to support its automotive industry regarding the development and production of energy-saving vehicles. Similarly, East Asian countries are legally subsidising their railways, because railways save energy.
Another important fact about the WTO is that it does not forbid industrial policy at the provincial/state level. "Regional policies are kosher under WTO rules," said Amsden.
She cited the example of the State of Massachusetts in the US, which is subsidising the development of the biotechnology and film industries within its bounds. In the case of the film industry, this help comes in the form of cash handouts.
Likewise, Thailand purposely established the country's automotive industry in its poorest province, both to be able to provide it with WTO-compliant support and to bring development and increased prosperity to the region.
At the national level, science parks also provide an example of a means to support developing industries without violating WTO rules.
Companies in science parks get better access to information and specialist support, which is essential for success in high-technology sectors. "Science parks are the new industrial policy," she affirmed.
However, she warned that there was "intense competition" between late industrialising countries. "Everyone wants to diversify. Everybody wants to move into the same industries."
Success will depend on having a national civil service that understands national (not just sectoral) needs. This will have to be selected through an exam process, in which the exams reflect national issues. This system, in turn, is dependent of having first rate national universities.
Amsden was addressing a public seminar co-hosted by the Department of Trade and Industry and the African Programme on Rethinking Development Economics.