This article is about industrial policy. It worked for countries like Japan, Korea, Singapore and China. Basically, they were able to put vast pools of low-cost labor to work producing things to export to markets much bigger and richer than their own economies, using technology imported from those economies. That is no a recipe for success in today’s advanced economies. The article argues for investments in education, research, and innovation as the “industrial policy” of today. One interesting thing it does is draw parallels to the migration of manufacturing from the U.S. northeast to south.

In a recent International Monetary Fund working paper, we use these past successes to identify three principles that underlie what we call a “true” industrial policy. In the Asian “miracle” economies – such as Singapore and South Korea – as well as in Japan, Germany, and the United States, the government intervened early on to support domestic firms in emerging, technologically sophisticated sectors. The successful policies placed special emphasis on export orientation, and held firms accountable for the support received. Given the strong focus on cutting-edge sectors, this “true” industrial policy is essentially a technology and innovation policy (TIP).

Technology and innovation are key to economic growth. China’s Made in China 2025 program essentially emulates the strategy used by South Korea (and Japan before it) to escape the so-called middle-income trap. Likewise, the new UK and Franco-German industrial strategies focus on the industries of the future: renewable energy, artificial intelligence, and robotics.

Project Syndicate