Edited by Ugo Mattei and John D. Haskell
Chapter 22: The political economy of industrial policy: after the crisis, back on the agenda
The debate surrounding industrial policies to promote manufacturing development has, since the eighteenth century, been one of the most important in political economy. Even before the appearance of Adam Smith’s celebrated Wealth of Nations, Antonio Serra’s Short Treatise addressed the problems of underdevelopment by focusing on economies of scale and agglomeration, with a specific focus on manufacturing. Paolo Mattia Doria and David Hume investigated what they called the ‘jealousy of trade’, while Antonio Genovesi in Naples and Cesare Beccaria in Milan proposed a set of policies that nations should follow in order to develop their manufactures and escape a situation of dependency. Alexander Hamilton and Friedrich List formulated the infant industry argument, later rediscovered by classical development economists in the second half of the twentieth century. Many of these classical developmentalist ideas again became central during the 1950s and 1960s. Economists like Rosenstein-Rodan, Ragnar Nurske, Albert Hirschman, Raul Prebish, Celso Furtado, Gunnar Myrdal, Joan Robinson and Nicholas Kaldor put forward a number of theories focused on developing countries’ catching up, structural transformation and manufacturing development. This developmentalist school built the foundations of the modern political economy debate on industrial policy and development. Theories of balanced and unbalanced growth, dualism within and across countries, institutional bottlenecks, circular and cumulative causation, and production linkages, were used to explain the nature of the industrialisation process and to propose a wide spectrum of selective industrial, trade and technology policies in developing countries.
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