Industrial Policy in Developing Countries
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Industrial Policy in Developing Countries

Failing Markets, Weak States

Tilman Altenburg and Wilfried Lütkenhorst

Against the backdrop of persistently high levels of poverty and inequality, critical environmental boundaries and increasing global economic interdependence, this book addresses the role and impact of industrial policies in developing countries. Accepting the reality of both market failure and policy failure, it identifies the conditions under which industrial policy can deliver socially desirable results. General conclusions on the political economy of development are complemented by country case studies covering Ethiopia, Mozambique, Namibia, Tunisia and Vietnam.
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Chapter 2: Societal goals ruling markets

Tilman Altenburg and Wilfried Lütkenhorst

Extract

In this chapter, we will establish our point of departure for the remainder of the book. We will make three fundamental points. In Section 2.1 we argue that a conceptual approach that reduces industrial policy to the function of correcting exceptional and temporary market failures (externalities) is misleading. It does not do justice to the normative content of any industrial policy that seeks to chart the future course for economic and social development. Section 2.2 further substantiates this argument with an excursus into the ethical dimension of economics. On this basis, Section 2.3 elaborates on the policy challenge of having to address a multitude of societal goals, which – in the overall perspective of sustainable development – include the promotion of socially inclusive patterns of growth and the safeguarding of environmental resources. At the outset, it is worth recalling that most of the arguments used to justify industrial policy evolve around various types of market failures, ranging from information shortcomings to spillovers of various types, imperfect capital markets, uncoordinated investment decisions, systemic infrastructure requirements, and so on – all of which are rooted in externalities that drive a wedge between private and social costs and benefits. Hence, so the argument goes, policy interventions are needed to take corrective action.

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