![]() This means that governments should “let markets work unless it is demonstrably better to step in … it is usually a mistake for the state to carry out physical production, or to protect the domestic production of a good that can be imported more cheaply and whose local production offers few spillover benefits”( Ibid.). What then are the conditions under which government intervention is likely to help, rather than hinder? Economic theory and practical experience suggest that interventions are likely to help provided they are market friendly (World Bank 1991, p. In several respects, government intervention is essential for development. The World Development Report (WDR) 1991 puts it this way: To start with, the Bank has never rejected industrial policy under all circumstances, although its distaste for it has always been evident. As is often the case, on closer inspection the situation turns out be to more nuanced. If Lin’s ideas were adopted by the Bank as official policy, it was suggested it would be tantamount to a major turnaround. Therefore development scholars and practitioners greeted a series of papers by then Bank chief economist Justin Yifu Lin with some excitement, as he appeared to put forward a different, more positive view of industrial policy as a tool for development. Industrial policy, which is by definition a non-neutral governmental intervention aimed at altering market price signals in order to steer investment in desired directions, would appear to be excluded in this approach. The World Bank has long been singled out as leading the criticism of industrial policy, mainly because of its overall approach to development policy, which involves a limited role for the state in the economy: to allow markets to function well (Singh 2011). ![]() In a 2002 article, economics Nobel laureate Joseph Stiglitz pointed out that industrial policies had obtained a bad reputation 1: “As my predecessor at the Council of Economic Advisers put it, it makes no difference whether the economy produces potato chips or computer chips-the economy should produce whatever maximises GDP, and the market is in the best place to make those decisions.” Former deputy secretary general of UNCTAD Carlos Fortin, of the Institute of Development Studies, examines the Bank’s record on industrial policy over the last 20 years and shows that the Bank’s position is more nuanced. The World Bank has become known as a leading critic of industrial policy because it favours a limited role for state involvement in development policy, preferring well-functioning markets. A fully-formatted PDF version of this briefing is also available. ![]()
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