Designing Industrial Policy in Latin America: Business-State Relations and the New Developmentalism

For a while it appeared that industrial policy had died and been buried along with the 20th century. However, by the mid 2000s, it was, zombie-like, back.¹ Early sporadic debates started among some academics, in a few multilateral agencies in Washington, and in some policy making bodies in Latin America and other developing regions. The reasons for the revival were diverse, ranging from dismay at the results of market reforms in the 1990s, to the surprising success of left-wing parties, to ongoing tinkering and pragmatism among officials in surviving development agencies, and the new developmentalism in the region (Ban 2013). The financial crisis of 2008–10 reinforced statist proclivities across the globe and gave new respectability to the interventionist BRIC model.

Outside Latin America, business-government councils are widespread and regularly associated with accelerated development. High growth Asian economies such as Korea, Taiwan, and Singapore were rife with business-government councils (Campos and Root 1996), and section III reports on the continuing centrality of business-government councils in contemporary technology policy in Korea.¹ In Japan, over 200 consultative councils (shingikai) “deliberate and report on every conceivable area of public policy” (Schwartz 1992, 218). Some councils dated from the early 20th century, but most, ironically, were imposed by the US occupation that created the framework legislation for councils in order to constrain the bureaucracy and make it more accountable. These councils performed important functions in reconciling divergent interests, coordinating expectations, and facilitating policy implementation (Schwartz 1992, 231–2). In northern Europe, councils are integral elements of “coordinated market economies” (CMEs) (Hall and Soskice 2001; see also Katzenstein 1985). Public—private “alliances” were also central to policy making in a recent diverse set of rapidly developing countries from New Zealand and the Czech Republic to Ireland, Finland, and Malaysia (Devlin and Moguillansky 2011; Ornston 2012). In other countries such as France, some attributed policy failures to the absence of institutions to promote effective collaboration between business and government (Levy 1999).²

A fundamental distinction, elaborated in Chapter 2, revolves around the difference between councils designed to change the activities of government (passive policy) and councils intended to alter the behavior of business (active industrial policy). The former are often characterized as competitiveness councils or public—private dialogue (PPD) and generally aim to reduce the cost of doing business by reforming what governments do. These passive policies are easier to negotiate and do not require monitoring or sanctioning of business. The second kind of policy and council aims to change the private sector, the realm of active industrial policy. This conceptual distinction is crucial because the expectations of private—public interaction differ so much. However, in practice some of the specific instruments and measures may look similar (e.g., port reform). This chapter examines councils engaged in both kinds of policy.

Even if governments design optimal venues and councils for interacting with business, and find, on the side of business, well-functioning business associations and supportive informal networks, the potential for business-government collaboration still depends on the larger political economic context in two fundamental ways. First, business and government do not meet in a vacuum, and businesses are simultaneously investing in many other avenues for influencing politics and government policy (Eslava, Meléndez, et al. 2012; Schneider 2010a). If the outcome of council deliberations and the resulting industrial policies do not suit powerful businesses, then they can use alternative channels to lobby to get them changed.

Comparative scholarship on business-government relations and development now constitutes a rich and diverse field. Much of this literature focuses on macro political issues of pro-growth alliances and coalitions, usually forged under conditions of threat and vulnerability (Doner, Ritchie, et al. 2005; Kohli 2004). This book has not engaged much these broader theories in part because the issues in Latin America are less visible chronic afflictions of slow growth, low investment, and laggard productivity rather than severe crisis and threat. However, it is important to remember how effective crises were in motivating business and government to work together in a range of success cases from Japan to Korea to Denmark and Finland (Ornston 2012). The challenge in the new developmentalist policies in Latin America is to encourage business-government collaboration in relatively good times (though no longer the great times of the 2000s).