Capítulos
Special Edition 1996
The quest for a new industrial policy
SELA Permanent Secretariat
Summary
In the context of significant changes in the development strategies of the countries of the region, industrial policy also has joined in the process of adaptation. The traditional concept of «industrial policy» of the 80s, based on commercial protectionism, production incentives and export incentives, and with varying degrees of State intervention, is of little use in the present world which calls for trade liberalization, deregulation, and privatization. Industrial policy now means having to design and implement «intelligent» interventionist measures that comply with the requirements of global competitiveness and are compatible with the commitments made in multilateral and regional trade negotiations.
Competitiveness in lieu of the import substitucion model
As late as the mid-80s, industrial policy in Latin America and the Caribbean continued to be characterized by the import substitution model, which remained in force for more than three decades as a tool to protect the «emerging industries» from international competition.
The characteristics of the import substitution model were:
-controlled imports and exports,
-the granting of direct and indirect subsidies to industrial enterprises,
-price controls,
-subsidized interest rates,
-public sector participation in relations between suppliers, producers, and distribution channels, and
-preferential exchange rates for certain imports.
Other factors such as productivity, competitiveness, quality, technological innovations, and efficiency played a less important role than comparative advantages based on the abundance of natural resources managed, for the most part, by State-owned enterprises.
By the mid-80s, when the Latin American and Caribbean countries began to undertake their macroeconomic reform and trade liberalization processes, they put aside the import substitution model, replacing it with the elimination or reduction of tariffs, non-tariff barriers and subsidies, the privatization of State-owned enterprises, and, in general, conforming to the standards set by international competition.
The rise in Manufacturing value added (MVA) during the 90s has played a preponderant role in the comeback made by the global growth index, which increased 4.4 per cent and 3.2 per cent (estimates) in 1994 and 1995, respectively. Developing country participation in the global MVA accounts for less than 20%.
Systemic competitiveness: the new frame of reference
«Systemic» or «structural» competitiveness is based on the idea that industrial competitiveness is the product of the complex and dynamic interaction between the four economic and social levels of a national system: meta, macro, meso and micro.
-The META LEVEL revolves around the State's management capacity and society's organizational patterns.
-The MACRO LEVEL aims mainly at creating adequate conditions for private sector activity.
-The MESO LEVEL requires that the State and social actors design a specific environment for enterprises.
-The MICRO LEVEL essentially calls for effective management of enterprises as regards technical-organizational innovation (See Strategic Issues No. 8, November 1994: «Towards a New Productive Management Model»).
Factors that determine systemic competitiveness
META LEVEL
Sociocultural factors
Scale of values
Basic patterns for political, legal, and economic organization
Medium and long-term strategic capacity
Social consensus
MACRO LEVEL
Macroeconomic stability
Budgetary, monetary, fiscal,
competition, foreign exchange
and tade stability
MESO LEVEL
Policies concerning physical, educational, technological, and
research infrastructure, and
industrial, environmental, and regional infrastructure
Competitiveness materializes as a result of the interaction among the four levels
AT THE MICRO LEVEL
Management capacity
Integration of technological cooperation networks
Business strategies
Management of innovation
Business logistics
Improved practices in the entire production cycle
Interaction among suppliers, producers, and users
Prepared on the basis of «Systemic Competitiveness: New Challenge for enterprises and policy», Klaus Esser et al. ECLAC Magazine No. 59, August 1996.
Competitiveness does not emerge spontaneously from modifications in the macro context nor is it the exclusive responsibility of an entrepreneurial spirit at the micro level. Competitiveness is the product of complex and dynamic interactions among the State, the enterprises, intermediary institutions, and society's organizational capacity. The «newly» industrialized countries' experiences prove that, in practice, this new industrial policy model is nowhere near the notion of «more competition and free trade» and less «State» intervention. This complex organization model must be supported by extensive dialogue among the productive sector, the technological-scientific sector, intermediary institutions, and the public sector, fr the purpose of ensuring structural change.
The long road to be traveled before theory becomes industrial policy
The integral vision that characterizes the «systemic competitiveness» model has not been fully incorporated into any Latin American or Caribbean country's industrial policy, not even in those countries which already have definite and precise industrial policy guidelines.
Generally-speaking, the trend has been quite the opposite: although the model points out that new competitive advantages lie not in the exploitation of cheap labor and natural resources but instead in technology and know-how -as demonstrated by industrialized countries and the Asian Tigers-, industry in the region revolves around two sectors which focus specifically on human and natural resources, namely the maquila and commodities or semi-processed goods.
On the other hand, sectors such as textiles, furniture, footwear, non-automotive machine parts, shipbuilding, and capital goods in general are contracting.
A structural change is, however, taking root at the industrial level. The modification, evidenced regionally, is two-fold and, in both the domestic and external market, is characterized by a rise in activities stemming from the maquila or commodities (which employ natural resources, cheap labor and limited technology) coupled with a downslide in those sectors most attractive to new technologies. Hence, the industry of the region increasingly relies on comparative advantages and not on competitive ones.
On the other hand, privatizations as well as bilateral, regional, or multilateral trade negotiations are becoming «implicit» industrial policies because they set conditions, via agreements, to be dealt with by the different industrial sectors, even when no definite national strategic plan has been formulated in said respect.
The new rules of international trade: an industrial policy straight jacket?
The busy agenda for multilateral and regional trade negotiations that has developed over recent years provides a needed point of reference for defining industrial policy, since the agreements also give rise to commitments on subsidies, antidumping, investments, and intellectual property in addition to commitments stemming from para-tariff and tariff liberalization.
On the subsidy issue: The Agreement on Subsidies and Compensatory Measures of the Uruguay Round establishes a distinction between specific subsidies (targeting certain industries) and non-specific subsidies (directed at all or an important number of the country's industries), allowing for only non-specific subsidies as these are deemed to be the only ones that do not distort trade.
On the other hand, the Agreement classifies specific subsidies in the following manne: prohibited, actionable, and non-actionable. Prohibited subsidies «are those whose grant is governed by export results or the preference of use of national products over imported ones.»
Actionable subsidies are specific subsidies that may result in the use of compensatory measures when it can be proven that the first generate or threaten to generate «serious damage» to another country's production. Non-actionable subsidies are specific subsidies that call for assistance for industrial research or pre-competitive activities, aid for less favoured regions, or a certain kind of assistance aimed at adapting existing installations to meet new environmental requirements established by national legislation. When any Member State of the WTO considers that a non-actionable subsidy causes serious harm to a production branch of that country, the matter may be submitted to the WTO Subsidies Committee so that it formulates a recommendation.
The de minimis clause establishes that investigations aimed at imposing compensatory measures should be terminated when subsidies represent less than 3% of the value of the imports affected in the case of developing countries, or when imports from a developing country account for less than 4% of the value of the total imports of the product, providing that imports from all the developing countries do not exceed 9% of the total.
According to the Uruguay Round results, developing countries have eight years, counted as of 1 January 1995, to eliminate export subsidies. However, if a country becomes «export competitive» in any given product (defined in terms of a 3.25% share in world trade for two consecutive years), it must eliminate its subsidies for this given product within a two-year period. As a result, many current export subsidies and income tax exceptions are beginning to disappear. Non-specific subsidies, aimed at activities that have an indirect impact on competitiveness (e.g., via training and research) may continue.
On the antidumping issue: In comparison with the previous Uruguay Round situation, regulations have been tightened, particularly those concerning the methodology to calculate the extent of dumping, the causal relationship between dumping and the damage caused, the suspension of investigations vis-à-vis «de minimis» cases, maximum terms and the elimination of antidumping rights. All preliminary or definite antidumping measures must be notified in a prompt and detailed manner to the WTO Andtidumping Practices Committee.
On the investment issue: The Agreement on Trade-related Investment Measures (TRIMs) of the Uruguay Round prohibits measures such as those which establish certain levels for national input or that restrict the volume or value of imported goods.
On the intellectual property issue: The «Agreement on Trade-related Aspects of Intellectual Property» establishes rules for the protection of copyrights, industrial patents, trademarks, commercial technical secrets and know-how, industrial design and models, and integrated circuit design. Developing countries have been granted five years, beginning on 1/1/95, to adapt their legislation to these rules. (See Strategic Issues No. 17, September 1995, «Inventors or Plagiarists: The Intellectual Property Boundaries»).
The keys to success
Analysis and experience clearly prove that the most competitive countries are not the ones that strive only for competition among nterprises and unrestricted free trade, but instead, those that actively pursue to create advantages based on geographical location and competitiveness through adequate State action.
In a global economy characterized by new competitive patterns, new management models, and new technologies, the most efficient countries are the ones whose social actors are able to organize fast and effective learning and decision-making processes, shaping the business environment to the most innovative requirements.
Technical progress, therefore, is not achieved by trial and error, it can be planned and shaped providing that the following strategic elements are considered:
-The new systemic competitiveness pattern brings together competitive advantages based on know-how and technology, whereas comparative advantages stemming from natural resources are losing importance.
-New organizational structures, based on less hierarchy in organizational approaches, are taking a strong foothold in enterprises. Firms operate within technological networks created by these very same firms.
-New technologies lead the way to the restructuring of old industrial branches as a means to create new ones, thus making it possible to substitute processes and lower the value of traditional raw materials.
-At the level of the national economy, the new competitive pattern is accompanied by dynamic policies, aimed at structuring industrial location. These policies are based on cooperative procedures for policy formulation and implementation, which by linking business «know-how», science, and public management, complement the economy driven by market forces.
-And lastly, the «systemic» competitiveness of enterprises is based on social organization, which gives rise to competitive advantages vis-à-vis the interaction of multiple parameters.
SELA Activities: «Industrialization Forum»
In June 1991, the Regional Conference on Industrialization, held in Caracas, Venezuela, decided to create the Regional Forum on Industrial Policy at the level of Ministers of Industry of the region, thus creating a space for reflection and exchange on current issues linked to industrial and technological development. The Forum includes the participation of business persons, representatives of labor and science and technology sectors in order to widen the perspective vis-à-vis selected issues.
In October 1994, the First Meeting of the Forum was held in San José, Costa Rica. This meeting reviewed global trends in industrial policy, productive modernization, industrial development financing, technological innovation and competitiveness, and the social impact of the drive for competitiveness. This forum, organized by the SELA Permanent Secretariat, was co-sponsored by UNDP, UNIDO, ECLAC, IDB, and the Bolívar Programme.
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