Resumen Ejecutivo de las modificaciones y justificaciones

Clearly, a definition of industrial policy is useful before discussing why it is needed and how it is done. It might seem obvious that industrial policy is a policy aiming to develop the industrial sector, but the concept is not as straightforward as many people think, nor do everyone apply the same definition.20 Chang (1994) uses a debate surrounding the post-WW2 Japanese development experience to illustrate how the adoption of different definitions can result in divergent interpretations of how important industrial policy is for economic development: opponents of industrial policy pointed out that subsidies and government loans to industries in Japan were relatively small, and hence claimed that industrial policy played a minor role in Japan’s growth success. Proponents of industrial policy, who usually understand industrial policy in a broader sense than just subsidies and government loans to industry, argued that the Japanese ‘administrative guidance’ system, which played a vital part in Japan’s industrialisation effort, was part of industrial policy, and hence claimed that industrial policy played a huge role.

But even among proponents of industrial policy, or at least among those who think that industrial policy plays an important part in promoting economic development, there are unresolved debates on the extent to which industrial policy should be (and/or can be) ‘horizontal’—aiming to benefit all industries equally, like public investments in education and infrastructure—rather than ‘vertical’—aiming to benefit some sector(s) more than others. For example, Ethiopia has recently invested massively in big infrastructure projects, such as the railway that connects Addis Ababa to Djibouti, and the Grand Renaissance Dam, a hydropower dam on the Nile that will stand as one of the 10 largest hydropower dams in the world when it is finished in 2017/2018. Should these infrastructure projects be considered horizontal or vertical industrial policy? Or are they industrial policy measures at all?

The European Commission’s (EC) understanding of industrial policy from 2002 is a good example of a horizontal definition: “Industrial policy is horizontal in nature and aims at securing framework conditions favourable to industrial competitiveness. Its instruments, which are those of enterprise policy, aim to provide the framework conditions in which entrepreneurs and business can take initiatives, exploit their ideas and build on their opportunities” (EC, 2002,

20 _{For a more detailed discussion on various definitions of industrial policy than the scope of this dissertation has} room for, see Chang (1994, p.58) and Warwick (2013).

p.3).21 _{The EC would most likely understand Ethiopia’s infrastructure investments as measures}

of horizontal industrial policy.

This thesis will stick more closely to a view of industrial policy as detailed in Chang et. al. (2016, p.26), which is, “A policy that deliberately favours particular industries—or even firms—over others, against market signals, usually to enhance efficiency and to promote productivity growth for the targeted industries as well as for the whole economy, but also to manage the industries’ decline smoothly”. Because most policy choices have some discriminatory effects that lead to implicit targeting, this definition tries to mend a problem with the horizontal view of industrial policy. For example, when we educate engineers, we do not produce generic engineers but rather engineers in a specialised area. Likewise, physical infrastructure (like railways) is location-specific, so it affects different sectors in different ways.22 With this definition of industrial policy, the Ethiopian infrastructure projects would again be considered industrial policy, but the implicit targeting is taken into account. This is not to say that all policies inevitably target. Policies that concern basic education and health should not be considered industrial policy. One could arguably make a case that in some way or another, basic health and education policies target a sector—for example, a government programme to distribute mosquito nets in a Tanzanian mining community with the intended effect of reducing malaria death rates could potentially benefit the mining industry in the country—but then the term industrial policy would practically be synonymous with ‘development’ policy, losing its meaning and usefulness. The line has to be drawn somewhere. Policies that clearly have no intention of targeting industrial development or favoring one industry over another, although it could, like the above example of mosquito nets, should not be considered industrial policy.

Oqubay (2015) criticises the definition in Chang (1994) for omitting structural transformation and the various stages of catching up (this criticism is being addressed here because the definition in this thesis is a refined version of the one set out in Chang (1994)). Oqubay defines industrial policy as, “A strategy that includes a range of implicit or explicit policy instruments selectively focused on specific industrial sectors for the purpose of shaping structural change in line with a broader national vision and strategy” (Oqubay, 2015, p.18). Similarly, Wade (2015) calls for making production transformation clearly formulated in the

21 _{Admittedly, the EC underlines the importance of needs and characteristics of individual sectors, and concludes} that industrial policy “brings together a horizontal basis and sectoral applications” (EC, 2002, p.3).

22 _{See Chang et. al. (2016, 27) for more examples of how some industrial policies that are traditionally thought of} as horizontal inevitably target specific sectors.

definition of industrial policy. He argues that because industrial policy is understood as targeted efforts to change the production structure of an economy in order to accelerate economic development, it should more accurately be called “production transformation policy” (Wade, 2015, p.68). However, in the definition this thesis will stick to, the process of structural change (or production transformation if you will) is implicit in the wording ‘enhance efficiency’ and ‘promote productivity’. Thus seen, the definitions in Chang et. al. (2016), Oqubay (2015) and Wade (2015) don’t differ in any significant way, although the two latter ones make the goal of structural/production transformation more explicit.