Emerging economies such as the Philippines are now grappling with difficult policy choices as they work to restore their public finances, which have been battered by the impacts of the COVID-19 pandemic. They must also navigate an increasingly complex international environment marked by growing protectionism, escalating geopolitical conflicts, disrupted supply chains, the swift advancement of artificial intelligence, the ongoing climate emergency, and the shift towards renewable energy sources.
In this evolving landscape, industrial policy (IP) has once again become a key topic in policy discussions.
French economist and Nobel laureate Jean Tirole describes industrial policy as "the use of government resources (or tax incentives) to support particular technologies, industries, or even individual companies" with the aim of achieving national goals that markets fail to accomplish independently. Using this description provides a straightforward framework for assessing the revived significance of IP.
Historically, intellectual property (IP) addresses particular market inefficiencies. For example, small and medium-sized businesses frequently find it difficult to obtain funding because of elevated transaction expenses and the perception of higher risk for lenders. Without governmental backing, private financiers do not have robust motivations to finance early-stage research and development (R&D), since they seldom reap all the advantages from these investments. Nonetheless, R&D continues to be vital for enhancing productivity and competitive edge.
A further justification stems from the necessity to synchronize activities across interrelated enterprises within industrial zones. By harmonizing manufacturing approaches—as seen when a steel mill procures particular types of iron ore from an adjacent quarry—the sustainability of every participant tends to increase. Additionally, the traditional "infant industry" reasoning advocates for provisional shielding or backing of emerging industries that could potentially grow into robust competitors down the line.
Today, governments use intellectual property rights not only to tackle conventional market issues but also to construct climate-resistant supply chains, promote the growth of green technologies, enable quick industrial shifts to generate high-quality jobs in more valuable industries, and ensure independence in an unstable geopolitical landscape.
Today, public-private partnerships have become essential in contemporary intellectual property strategies, harnessing the unique advantages of both governmental bodies and private enterprises in areas such as accessing technologies, designing processes, securing funding, executing projects, and overseeing operations.
Aside from financial inducements, industrial policy now frequently incorporates the use of trade strategies such as tariffs and non-tariff obstacles to protect domestic companies, industries, or innovations from outside rivalry, fostering their development simultaneously.
The past provides crucial insights. During the latter part of the 20th century, East Asian economies such as Japan, South Korea, Taiwan, China, and Singapore leveraged intellectual property with remarkable outcomes. They channeled financial resources, credits, and institutional aid towards burgeoning industries and companies purposefully. Entities that excelled gained ongoing assistance; underperformers faced termination. However, industrial policies weren’t solely responsible for their achievements. These nations also fostered robust economic conditions, solid institutions, and effective management systems.
The worldwide performance of industrial policies has been inconsistent. Decision-makers currently spend less time debating whether to implement such policies and more effort on figuring out effective strategies for designing and executing them. For developing countries facing limited financial resources, frail governmental systems, and unstable economic conditions, their approach needs to be carefully planned and thoroughly researched.
Four lessons stand out.
Initially, governments should clearly outline their intellectual property aims. Juggling efforts towards employment generation, social integration, environmental sustainability, industry enhancement, national protection, and eco-friendly shifts might lead to disarray and ineffectiveness. It’s crucial for policy makers to establish specific targets so as to prevent expensive compromises and improper distribution of limited assets.
Secondly, conducting an ex-ante evaluation is crucial. Decision-makers should assess the pros and cons at the outset, understanding the financial trade-offs involved in providing economic assistance and possible drops in income. This step becomes particularly vital for nations operating within tight budgets.
Thirdly, having a robust system for coordinating efforts—not only inside the government but also among public and private entities—is crucial to make sure different policies complement each other effectively and that governmental resources achieve their greatest possible effect.
Fourth, robust monitoring and evaluation should go hand-in-hand with implementation. Policymakers require distinct performance indicators along with an enforcement mechanism that incentivizes achievement and discourages shortcomings. Lacking these elements, intellectual property policies might turn into expensive trials subject to unproductive resource grabbing. Transparency and responsibility have to be maintained through governance measures. Objective assessments at regular intervals will help determine whether to expand, adjust, or retire initiatives.
Industrial policies have genuine potential to boost economic well-being, yet their effectiveness largely depends on strong governance, robust economic foundations, and an environment that nurtures talent and spurs innovation.
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Arsenio M. Balisacan serves as the Secretary of the Department of Economic Planning and Development (DEPD). The opinions shared here are exclusively his own and may not align with those of the organizations associated with him.
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ambalisacan@depdev.gov.ph