Institutional Framework for Industrial Policy

2. Institutional Framework for Industrial Policy By Dr. Ohan S.Balian May 6-9, 2012 Jordan, AMMAN

3. Outline • Introduction • Rationale for industrial policy • Design elements • Proposed structure of framework • Concluding remarks

4. Introduction • Diversification strategies • Industrial policy defined as government intervention in the form of support programs to the private sector • Market failures • Principle Agent vs Embedded Autonomy • 13 best practice design elements

5. Rationale for industrial policy • Informational Failures: Government support to investors is necessary because when entrepreneurs explore new business opportunities, they incur high discovery costs with no guarantees of success. • Coordination Failures: Governments also intervene because for some industries to succeed, other industries must also be established simultaneously.

6. Design elements • Embedded autonomy: Industrial policy making is embedded within a network of linkages with the private sector without any loss of autonomy. • Generic design elements: (1) High-level government support; (2) Coordination and Deliberation Councils within which information exchange takes place; (3) Industrial policies should have both an incentive and a conditionality structure.

7. Design elements (contd…) • Top 10 design principles • Provide support only to ‘new’ activities • Prepare criteria/benchmarks for success and failure • Use built-in ‘sunset’ clauses • Target activities, not sectors • Support activities that generate spillover and demonstration effects

8. Design elements (contd…) • Choose competent implementing agencies • Monitor implementing agencies closely • Maintain channels of communication • Minimize the cost of ‘picking losers’ • Adopt programs with a capacity to renew themselves

9. Proposed structure of framework • Description of existing structures • Generic components: (1) Ownership; (2) Coordination Councils; (3) Carrots-and-Sticks • Other components: (1) Formulation; (2) Monitoring and Evaluation; (3) Deployment

10. Concluding remarks • The recent turmoil in the global economy has reinforced the role of the government as an indispensable provider of support the private sector • Must be more effective in conveying policies on-the-books to policy makers on-the-ground.