Opinion
Will Africa leave the World Bank behind?
So will Jim Yong Kim temper African governments’ desires to get more involved in the economy? Certainly a clear case can be made against state involvement in industry. From around the world, at different periods in history, politicians and business-people have come together to bleed the public purse dry in the name of industrial policy.
Africa has some acute examples, such as the hundreds of millions of dollars that went into the steel works at Ajaokuta in Nigeria, Zimbabwe’s own steel company ZISCO, Tanzania’s General Tyre East Africa, and Volta Aluminium Company, the aluminium smelter in Ghana.
Successful Asian economies such as China, South Korea, Taiwan and Japan managed to introduce market mechanisms into such state support. Often state subsidies were dependent on export receipts, which are difficult to falsify.
If a particular company could show it was successful at exporting a particular good, then it received more state support.
“Japan’s Ministry of International Trade and Industry was superb at structuring competitive, highly transparent fights for industrial licences, staggering the entry of different firms to manage the mix of protection and competition, and forcing businesses to upgrade their production equipment”, writes Joe Studwell in How Asia Works.
The debate around this subject at the World Bank has been dormant for decades. Recently, a new front was opened by Justin Lin, the Bank’s chief economist from 2008 to 2012. Significantly, he was the first chief economist the Bank has ever had from China.
Lin’s work did not advocate a fully-fledged embrace of industrial policy, but he did talk about the role of the ‘facilitating state’. Echoing Meles Zenawi, Lin writes: “Developing economies are ridden with market failures, which cannot be ignored simply because we fear government failure.”
In this mild version of state-directed development, there are useful things a state can do to encourage industrialization. One is providing subsidies aimed at innovation in order to help companies to bear the cost of coming up with new products.
Another is government assistance in coordinating all infrastructure, institutional, legal, financial and educational improvements that need to happen before more sophisticated companies can develop.
