Economic Planning and Industrial Policy in the Globalizing Economy

This introductory chapter provides an overview of economic planning and industrial policy, discussing their origins, first appearance, taxonomies and the motivations behind them with a view to explaining the basis for their role in the current world economy.

The chapter provides a concise review of the major theoretical contribution to economic development since the Second World War. Backed by the Harrod–Domar growth model, economic development strategies in the 1940s till 1960s were much dominated by the debate between balanced growth championed by Ragnar Nurse and Rodenstein-Rodan and unbalanced growth led by Albert Hirschman. Unbalanced growth doctrine favors using the limited resources to develop identified strategic sector which will then pull and push other sectors to support and achieve overall growth. The unbalanced growth approach somewhat jived with theories based on economic dualism associated with researchers like Arthur Lewis, John Fei and Gustav Ranis. The basic dual economy theory explains how an agrarian economy with no modern industrial sector is transformed into a mature industrial economy. The idea of development as transformation from primitive traditional society to one characterized by high mass consumption was skillfully described by Rostow’s book in 1961. By the end of the 1980s, new theories that have substantive impact on economic development were propounded by academics and researchers in field of business strategies, urban planning and spatial economics. Many of these have neoclassical economics foundation and also have derived insights from increased spatial interdependence and competition attributed to globalization and availability of new communication technologies. New concepts like competitive advantage, agglomeration economies and global value chain become increasingly familiar in development economics.

Understanding economic development as a change in economic life, Schumpeter (History of economic analysis, 2004, p. 63) argues that the explanation of economic development should be sought at the social facts outside the economic theory. Changes in economic data may be just pointing out to a simple adaptation of the economy while economic development encompasses wider and deeper changes in the structure of the economy.

This chapter discusses the different possible roles played by the Japanese government to enhance the total factor productivity (TFP) growth rate during the “growth miracle period” (1955–1973) as well as the “two lost decades” (1990–2009). The growth accounting exercise conducted in this chapter using the Japanese data shows that TFP was not only the driving force for the rapid economic growth of the growth miracle period but also a decline in the TFP growth rate was responsible for the sluggish economies, particularly in the 1990s. High net technology imports were demonstrated to have likely played an important role in the TFP’s rapid rise during the growth miracle period. However, possible causes behind the TFP’s slower growth rate during the “two lost decades” remains actively debated in literature. Caballero et al. (Am Econ Rev 98(5):1943–1977, 2008) offers the possible explanation of zombie firms, i.e., unproductive firms that should exit the market but survive because of support from banks or the government. If “zombie lending” is a major cause of slower TFP growth rate, opening the markets and letting firms compete through deregulation would be one promising policy the Japanese government could enact in order to boost the TFP growth rate.

We can summarize the planning experience of Turkey within the scope of industrial plans of 1930s, development plans within a period of 1960s–1980s, national development plans starting from 1980s, and a transition period to strategic plans of today. Those years were the breaking points of transition in the concept of planning. This study evaluates these breaking points and aims to shed a light upon the transformation and development of planning in Turkey.

Japan is the first non-Western nation to “catch up” with policies instituted by advanced nations. Before Japan completed the catching-up process, Japan had been devoted to imitating political and economic systems of Western society. Largely, Japan succeeded in imitation; however, where democracy is concerned, Japan made a mistake. While democracy consists of two factors, i.e., the private right of assertion and the citizen’s participation in local administration, Japan imitated the private right of assertion, only. As a result, land-use planning became “a picture of a rice cake” (something of little value) and actual land use was not implemented. Once land use was not effectively implemented, land-use planning has been difficult to restore and will result in negativity for future generations. Learning from Japan’s failure of land-use planning, today’s developing countries should make efforts to introduce citizens’ participation into local administration.

The chapter considers the application of modern concepts of development as in competitive advantage, value chain, cluster analysis and agglomeration economies, applied assiduously to foster growth in the Singapore’s economy. Economic development in the Singapore’s economy is divided into different phases. The roles and usage of the new concepts in charting plans and policies that transform a former British colony and trading post into a modern industrialized economy with world class infrastructure and sophisticated enterprises are discussed in profiling the different phases of development.

This chapter explores the interplay between national and macro planning, industrial policy conceptualization and implementation, and state restructuring in South Africa. It also looks to contextualize such processes within changes brought about by contemporary globalization. The study draws from the emerging practice of development history as a means of providing additional insights into the current development policy within the country. This chapter has been informed by range of insights offered by intersecting traditions and discourses in critical institutionalist writings (Wood 2012).

Traditional Japanese industrial policies have, since the 1990s, evolved towards knowledge-based industrial policies. In this chapter, we first explain the salient features of both the traditional and knowledge-based industrial policies and compare them from the perspective of the role of the government. Knowledge-based industrial policies emphasize the role of the government as a facilitator and coordinator rather than a guide. Accordingly, the policy instruments differ as well. The changing global economic environment in the era of the knowledge economy and the emergence of new regional rivals, Korea and China, also led to significant changes in policy design and corporate governance styles as well. On the other hand, we argue that there is still an influence of the developmental state practices in policy-making. To present a full account of the recent industrial policies in Japan, we present the recent changes in the policy-making process as well as the economic mindset with reference to the official documents on industrial policies.

In this chapter, I examine the origins of Ireland’s export-oriented industrial policy and review the success of this policy over the past 50 years. This is placed within the context of a remarkable history of both overall economic successes and failures of the small open Irish economy. The experience of Ireland also shows that industrial policy does not operate in a vacuum and failures in macro-economic, fiscal and banking policies can undermine the success of even the best designed industrial policies.

The development of high technology (hi-tech) has been Israel’s success story: it has been the main source of economic growth in the last 20 years and there is much optimism about its future. Between 1990 and 2012 hi-tech exports rose tenfold and their share in total industrial exports rose from 30 % in 1990 to 47 % in their peak year of 2011. This chapter analyses the role of the state in this achievement.

This chapter explores the coming issues of innovation policy. It reviews three stages in the development of industrial and innovation policy, drawing ‘lessons’ from each stage. An analysis of the current driving forces and newly emerged insight results in some suggestions for future innovation policy.

In this study, we investigate the macroeconomic effects of two complementary policy environments to invigorate growth, employment, and income equality across two broadly differentiated regions in Turkey: poor and high/mid-income. With the aid of a regional computable general equilibrium model that disaggregate the production structure into 13 sectoral activities and two geographical regions, we first study the long run dynamic effects of a regional production and investment subsidization program. Second, we supplement this environment by a productivity enhancement program in the poor region.

Our results reveal that regionally differentiated productivity enhancing measures coupled with a subsidized investment program to facilitate capital accumulation and reduce the outflow of factors out of the poor region are of utmost importance in designing a sustained growth path to pull the aggregate economy from the dual traps of middle income and of poverty.

Clusters became very popular in the last decade as a development policy tool in the world. In this study, we analyzed the Turkish experience of cluster-based development policies. Following a secondary research regarding the Turkish experience, we conducted in-depth interviews with cluster experts from various state organizations, universities, and private sector companies. Our findings show even if a vast amount of resources were spent by the state organizations for the cluster development projects, the outcome is not as successful as the cluster development projects led by the private sector.

In the last decade, with an aim to stimulate economic growth, to place the growth on strong bases, and to improve the competitiveness, countries began the quest towards the appropriate development strategy. Considering the global challenges such as economic turmoil, water, and food supply crises, rising greenhouse gas (GHG) emissions, developing countries can be seen as more vulnerable to all of these risks. The concept of green growth strategy proposes a new paradigm for the countries to make the transition to a sustainable economy. This relatively new development strategy approach involves promoting growth and development while reducing pollution, GHG emissions, minimizing waste and inefficient use of natural resources, maintaining biodiversity, and strengthening energy security (OECD 2010).

In this chapter, after a historical introduction of the trajectory encompassing a broader time horizon, we focus on the question of whether consumption planning could be conceived as a macro-prudential tool in the aftermath of the global crisis. In our theorizing, consumption planning is associated with a form of strategic planning in a highly globalized world where the state capacity in production is questioned due to reservations about its success in history while the state capacity in channelling the consumption across time and goods are relatively uncultivated. To this end, after explaining what we mean by consumption planning, the case of Turkey is explored with regard to the recent unconventional monetary policy experiences of the Turkish Central Bank and the succeeding macro-prudential policies in Turkey to channel the consumption across time and to a certain extent across goods to avoid financial stability anxieties stemming from widening current account deficit and escalating debt overhang led by overflowing of hot money to the emerging markets in the aftermath of the policy reactions of central banks of the developed countries.

Until World War II, the Soviet Union was the only country regarded as a planned economy. In the aftermath of the war, many nations began utilizing economic planning in various shapes and forms as a means of development. As national economic planning gained wide popularity, centralized planning became a prominent tool for economic policy. The progress achieved by the planned economies instigated a surge of interest in planning by the post-colonial nations. Despite variations in implementation across different economies, planning became accepted as a cardinal component of the policy to be practiced in one form or another by governments aspiring to achieve rapid development.