Célestin Monga

The Rejuvenation of Industrial Policy

This essay is about an important area in which there has been major rethinking -- industrial policy, by which the authors mean government policies directed at affecting the economic structure of the economy. The standard argument was that markets were efficient, so there was no need for government to intervene either in the allocation of resources across sectors or in the choices of technique. And even if markets were not efficient, governments were not likely to improve matters. But the 2008-2009 global financial crisis showed that markets were not necessarily efficient and, indeed, there was a broad consensus that without strong government intervention -- which included providing lifelines to certain firms and certain industries -- the market economies of the United States and Europe may have collapsed. Today, the relevance and pertinence of industrial policies are acknowledged by mainstream economists and political leaders from all sides of the ideological spectrum. But what exactly is industrial policy? Why has it raised so much controversy and confusion? What is the compelling new rationale that seems to bring mainstream economists to acknowledge the crucial importance of industrial policy and revisit some of the fundamental assumptions of economic theory and economic development? How can industrial policy be designed to avoid the pitfalls of some of the seeming past failures and to emulate some of the past successes? What are the contours of the emerging consensus and remaining issues and open questions? The paper addresses these questions.

The Growth Report and New Structural Economics

Despite its heavy human, financial, and economic cost, the recent global recession provides a unique opportunity to reflect on the knowledge from several decades of growth research, draw policy lessons from the experience of successful countries, and explore new approaches going forward. In an increasingly globalized world where fighting poverty is not only a moral responsibility but also a strategy for confronting some of the major problems (diseases, malnutrition, insecurity and violence) that ignore boundaries and contribute to global insecurity, thinking about new ways of generating and sustaining growth is a crucial task for economists. This paper reassesses the evolution of knowledge on growth and suggests a new structural approach to the analysis. It offers a brief, critical review of lessons learned from growth research and examines the remaining challenges -- especially from the policy standpoint. It highlights how the 2008 Growth Commission Report identifies the stylized facts associated with sustained and inclusive growth. And it explains how the new structural economics provides a consistent framework for understanding the key findings of the Report.

Household welfare and poverty dynamics in Burkina Faso : empirical evidence from household surveys

The authors investigate the dynamics of poverty and income inequality in a cross-section of socio-economic groups and geographical regions over the five-year growth period following the 1994 devaluation of the CFA franc in Burkina Faso. Results show rapidly increasing urban poverty accompanied by rising income inequality, declining poverty -growth elasticities, and significant changes in the poverty map. In rural areas, the incidence of poverty remained the same and income inequality did not increase. In contrast, the distribution of welfare across socio-economic groups was more stable. The rank ordering of socioeconomic groups on the welfare scale did not change during the post-devaluation growth period. Poverty remains largely a rural phenomenon, whose inelastic nature may justify a shift toward growth-oriented policies that at least maintain the rural poors share of income to reduce poverty in the medium term. Among factors that feed into income inequality: disparities in wages and in educational attainment and unequal access to productive assets (especially human capital).

Introduction: The Rejuvenation of Industrial Policy

Knowledge validation has never been a painless process. It often takes a major, disastrous historical event for even the most self-evident ideas to gain wide recognition. It is therefore not surprising that the Great Recession of 2008–09 — whose global economic and social cost is still yet to be quantified -has led to a rethinking of many aspects of what might be thought of as the conventional wisdom in economics.

Comparative Advantage: The Silver Bullet of Industrial Policy

Throughout human history, people have held their political leaders responsible for the general social and economic conditions of their nations. Fairly or unfairly, some leaders have been hailed as national heroes while others have been thrown out of power or even punished more harshly depending on the level of collective happiness or anger. But never in modern history has the leader of an industrialized country been convicted by courts for his stewardship of the national economy. Yet, that is what happened recently when former Iceland Prime Minister Geir Haarde was prosecuted and found guilty of failing to manage his country’s economy appropriately prior to and during the 2008 global crisis. While he was cleared for the most serious charges and barely escaped jail sentence, his reputation and political legacy were forever tarnished. The irony of the story is that he had long been viewed as instrumental in transforming Iceland from a fishing and whaling backwater into an international financial powerhouse before the global crisis.1

Solving the Mystery of African Governance

The dominant view of good governance as a pre-condition for economic success is theoretically compelling but empirically difficult to establish. Historical analyses tend to indicate a very strong correlation between institutional development and economic growth. Today’s high-income and good-governance countries generally had bad-governance environments at low levels of income. Moreover, some of today’s most successful economies still exhibit sub-optimal governance indicators. By focusing on the search for the determinants of some global governance standards that often reflect particular political, ideological and philosophical conceptions of power, the traditional literature on governance has so far failed to offer a set of actionable policies that poor countries could implement to foster inclusive growth in a pragmatic and incentives-compatible way. This article acknowledges that governance problems are indeed major impediments to economic growth. But contrary to conventional wisdom, it argues that the well-known governance problems in African countries are mainly the reflection of their low level of development, and the results of failed state interventions and distortions originating from erroneous economic development strategies. Instead of posing ‘good’ governance as the main prescription and a prerequisite for sustained growth, development economists should design policy frameworks that offer the maximum likelihood of success because they are consistent with comparative advantage while providing minimum opportunities for rent-seeking and state capture.

Uncivil Societies - a Theory of Sociopolitical Change

In times of crises, it is always useful to revisit some of the paradigms that underlie collective thinking and action. For nearly 200 years, most social science has relied on the assumption that the emergence of strong and nurturing social capital through a vibrant civil society yields all kind of positive externalities to society. Following intuition and anecdotal observations from Alexis de Tocqueville, a large body of theoretical and empirical research has attempted to confirm that societies strive politically and economically when they are able to build strong non-state actors and community organizations. Many disciplines-mainly political science, economics, law, and international relations-have constructed influential analytical frameworks in support of that general proposition. This paper examines the philosophical foundations of conventional wisdom and observes that it often fails to take into account the dark side of some civil society groups, from the mafia to Al Qaeda. While acknowledging the potential contribution of civil society to the development process, the paper also cautions again the rush to circumvent the state, which sometimes sustains community-based initiatives in poor countries. It suggests the possibility of the production of negative social capital by non-state actors.

Cluster-based industrial parks : a practical framework for action

They are being hailed as the new Holy Grail of economic development. The success of special economic zones (SEZ) in general and specialized ones in particular (industrial and technology parks) in countries as diverse as Australia, Denmark, Sweden, Germany, Switzerland, Ireland, Japan, the United Kingdom, the United States, and more recently, China; Korea; Taiwan, China; or Mauritius, has led several African leaders to launch new similar initiatives. This paper establishes a common point of reference for those who believe in the virtues of SEZs, explains why the many existing ones have not delivered the expected outcomes, and summarizes the key issues on the agenda. It then suggests cluster-based industrial parks as the most effective tool for developing competitive industries and generating employment, and provides some practical guidance to development practitioners and policymakers on the road ahead.

The mechanics of job creation : seizing the new dividends of globalization

This paper assesses some of the main strands of the theoretical literature on unemployment and employment and shows that their interesting conclusions may not be transferable to low-income countries whose endowment and production structures are profoundly different from that of high-income economies. It then tackles the knowledge deficit on employment creation by shedding light on the new economic opportunities that latecomers may derive from the dynamics of globalization -- especially the economic success of large emerging economies such as China and Brazil. It offers a simple analytical framework for identifying opportunities for labor arbitrage in the global economy and suggests a practical policy framework for exploiting them.

Post-Macroeconomics - Reflections on the Crisis and Strategic Directions Ahead

For decades, many researchers argued that economics had nothing to fear from enriching itself with lessons and advances from other disciplines. Unfortunately, these suggestions were either neglected or dismissed upfront in what was then arbitrarily considered mainstream economics. The global crisis has led even Nobel Prize winners to acknowledge that the problem facing economists and policy makers today is mostly intellectual - it is the need to confront the systematic failure of thinking, especially on the part of macroeconomists. Despite its unprecedented magnitude and heavy financial, human, and intellectual cost, the crisis certainly does not invalidate everything that has been learned about macroeconomics. However, the costs highlight some of mistakes of the dominant intellectual macroeconomic framework. Post-macroeconomics should not be understood as another metanarrative of the end of metanarratives. The use of the prefix post here suggests and emphasizes much more than temporal posterity. Post-macroeconomics should follow from macroeconomics more than it follows after macroeconomics. The theorizing of post-macroeconomics is therefore neither systematically oppositional nor hegemonic. It does not advocate a - dialectic opposition - between macroeconomics and post-macroeconomics. Rather, it suggests that the latter builds on the former and goes beyond it.