The economic debate regarding the effectiveness of industrial policy is at an all-time high. An industrial policy is usually a set of actions that combine and coordinate government efforts to bolster economic activities in one or more sectors of the economy. They could include strategic protection of certain industries, government subsidies, direct public sector investments, tax holidays and breaks, supply-chain resilience, job creation, better-paying jobs, greening the economy, etc.
After having been shunned for decades due to the pervasiveness of neoliberal demagoguery, and the focus of analysis on import duties, there is currently a growing prevalence of industrial policies. Furthermore, as in the past, the pursuance of such policies is led by the countries of the global North. It is time that Jordan devises and implements an industrial policy.
International examples
The Biden Administration issued legislation last year that would
pump over a trillion dollars into the economy with a focus on innovation,
technology, IT, green economy, and infrastructure. The legislation, which
intends to syphon investment out of other countries, create new jobs in the US,
and maintain its innovative and experiential global leadership is camouflaged
in a legitimate sounding cloak of creating a greener economy.
But the US is not alone, the European Union is introducing similarly protective
legislation on semiconductors to increase the EU’s share in global chips production
capacitors. China also aims to boost its high-tech manufacturing. Furthermore,
the World Economic Forum believes that industrial policies will have a
significant impact on the global economy in the coming years.
Economic wars
Although industrial policies may trigger economic wars
reminiscent of the 1930 Smoot-Hawley Tariff Act, a United States law that
raised import duties to protect American businesses and farmers. The result was
severe retaliation by many foreign governments. China is already imposing its
protective measures on semiconductor sales in response to the recent US
deglobalizing actions.
There is almost a consensus among economists that industrial policies will
deepen geo-economic rivalries and tension, and, if they become widespread,
reduce competition in some areas as countries attempt to monopolize certain
industries or products, relocate economic activity and increase sovereign debt.
However, some believe that industrial policy will also increase innovation.
Moreover, the success of so many countries that adopted industrial policies
underscores their effectiveness in pushing the development of economies that
adopt such policies.
Jordan’s case for innovation
Jordan needs to have an industrial policy with an emphasis on
innovation. Why innovation? Because innovation is the vehicle for enhancing
productivity, productivity increases the incomes of workers, business
owners, and government—and they all need a boost right now. Furthermore,
innovation attracts foreign investment and investors as well as domestic
investment; thus investment promotion is more likely to succeed in economies
where productivity is growing at a fast pace.
Alas, currently Jordan’s score on the Global Innovation Index (GII) in 2022,
ranked 78 out of 132 countries, is no cause for celebration. Jordan is weakest
in infrastructure, ranked 100, and not doing so well in human capital and
research, at 76th place, in business sophistication it ranked 75th, knowledge
and technology outputs, 76th again, and creative outputs, 78th. Hence, the
industrial policy that should be adopted must be mission-oriented with
innovation enhancement being at its core. Otherwise, the necessary innovation
solutions will not happen, and productivity will remain stymied.
Resources should be reallocated to funding innovation whereby the government
finances research that is done by the private sector. The success of the
research can be availed to the private sector for developing and
commercializing its results under special conditions that ensure its spread
throughout the economy.
Published in Jordan News:
https://www.jordannews.jo/Section-36/Opinion/Jordan-s-decreasing-inflation-rate-celebration-or-more-work-ahead-30296
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