1. Role of state in inclusive development Robert H. Wade London School of Economics 29 August 2011

2. Chile’s dualism/trilism Sunkel: “Chile: towards inclusive devt”, 2009 One of most unequal Y distributions in world. 26% of popn < 60% average income “Chilean economy, & thus Chilean socy, divided into differentiated & largely unconnected worlds”. “[I]ntersectoral relationships characterized by very incomplete intermediate production linkages”

3. Sunkel (contd) Imperative to diversify production structure away from mining, ag, forestry, fish, & raise productivity of SMEs. Need overarching long-term (15-20 yrs) program of structural transformation.

4. How to diversify: lessons from E Asia Abandon dichotomy b/w export-led growth & import substituting industn.; emphasise complementarity b/w growth of domestic demand & export demand. BWIs based devt strategy on (1) neoclassical growth theory, (2) export-led growth theory (EOI) Neoclass devt ecsts held up EAsia as proof that EOI > ISI; ignored domestic demand. In fact, EAs combined EOI with ISI simultaneously, to boost both export demand & domestic demand.

5. Diversification & domestic demand Supply side: how EAs states accelerated diversification. Economy-wide indicative planning at top; industrial extension service at bottom. At top: Taiwan: Council for Econ Planning (K. T. Li) Science & Technology Advisory Group (STAG)

6. Diversification & domestic demand (contd) At bottom: Industrial Development Bureau 180 staff (mid 80s), mostly engineers (3 economists) Motto: “The most important thing in life is to have a goal, & the determination to achieve it”. Cf. UK civil servants Acted as industrial extension service Acted as “arranged marriage bureau” b/w FDI and domestic firms. Eg Philips

7. Diversification & domestic demand (contd) Trade policy: As EAs became richer, liberalized trade. But trade regime managed: high inter- sectoral variability of protection; protection given against performance conditions.

8. Diversification & domestic demand (contd) Domestic demand side: Measures to curb growth of income/wealth inequality: land reform; limits on wealth accumulation in form of real estate; taxes on luxury consumption (eg foreign cars); financial sector kept under tight control. These measures helped (a) to sustain domestic demand, (b) channel wealth accumulation into “productive economy”

9. World Bank policy norms: rethinking? Chief economist Justin Yifu Lin – “new structural economics”. Cautiously endorses state efforts to accelerate upgrading & diversification. Rejected by most self-respecting Bank economists “For every Korea there are a hundred failures. Who would you put your money on? “The best industrial policy is none at all” (Gary Becker, 1985)

10. WB policy norms: rethinking? But Lin’s ideas being operationalized in Finance & Private Sector Devt VP (Janamitra Devan) “Competitive Industries Program” Piloted in: Jordan; Kenya; Kazahkstan; India; VN Chile?