Chapter 4

Policy Procedure and Organization for
Executing High Priority Industrial
Strategies∗

Success in industrial policy formulation depends not only on the proper choice ofpolicy measures but also, more fundamentally, on policy procedure and organizationfrom which good policies are produced and executed.

This chapter will look at

institutional aspects of policy making which is an essential background for effective
policy learning.

The purpose of studying various international best practices inpolicy procedure and organization is basically the same as studying alternative
policy measures.

Rich foreign examples are to be regarded as building blocks

from which a policy package most suitable for the country in question should becreated through the principles of selectivity, modification, combination, andimprovement.

As always, haphazard adoption of foreign models without

systematic survey of Ethiopian local contexts should be avoided.

4-1. Leadership
Our discussion starts with national leaders.

High-quality leadership is the mostvital ingredient of national development, a fact that can hardly be overemphasized.
A good leader is crucial because he or she is the primary source of national
development that can create all other conditions of industrialization if they are
initially missing. Major reforms are not possible by bottom-up processes alone
unless the top leader takes up the main responsibility.

This principle applies

generally to all organizations including a nation, local governments, political parties,*

This chapter, prepared for the Seventh High Level Forum of Ethiopia-Japan Industrial Policy
Dialogue in Addis Ababa on January 20, 2011, is based on the draft chapter 4 of Kenich Ohno’s
forthcoming book, Learning to Industrialize: From Given Growth to Policy-aided Value Creation(tentative title, 2011), with adaptation to the Ethiopian context.

67

CHAPTER 4

private firms, universities, research institutions, and nonprofit organizations(NPOs).
There are two aspects of national leadership worthy of attention.

The first is thequality of the leader or the leading group, and the second is the dynamics ofcoalition formation among contesting leaders and leading groups.
A national leader must be equipped with strong will and passion as well as genuine
belief in productivity and excellence for the country instead of being interested inpersonal influence or wealth accumulation.

He or she must have sufficient

political savvy and networks, personal integrity and discipline, intellectual ability,and pragmatism.

A top leader must be personally committed to a nation’s priority

policies and use his or her full power and authority to push them to completion.
expect that the reader will find these obvious but convincing.

I

National leadershipcomes in different forms including personal leadership of a charismatic figure,organizational leadership among multiple ministries and agencies, and inheritedleadership by one political party with changing heads.

In either case, successdepends on the existence of an outstanding human personality who can effectively
lead the government, ministry, agency, or party as the case may be.
One evident problem with installing a good national leader is that no one canconsistently select such a leader in the complex political process of any country
whether it is democracy or otherwise.

Who will be the next prime minister orpresident and how effective that person will be as a national leader is highly
uncertain even among candidates, let alone for individual citizens, officials, orbusiness persons.

Yet there are indirect ways to influence the quality of national

leaders in the long run.

These include leadership and elite education, comparative

studies in development politics, systematic and concrete analysis of effective policy
making (to which this chapter hopes to contribute), regional contagion of good
leadership through imitation and competition, and publishing biographies ofadmirable national leaders.

Humans are driven by both reason and emotion.

While social sciences should do much to reveal the anatomy of strong and wise
leadership, intimate knowledge of what excellent leaders in different countries andperiods did, presented vividly and concretely, is certain to raise the consciousness of68

Policy Procedure and Organization for Executing High Priority Industrial Strategies

what needs to be done among voters and political candidates.
The second issue that needs to be examined is formal and informal coalition forming
among leaders and leading groups, which is a crucial political process that drives
development in any political regimes, and especially under democracy.

Coalitions

here are not confined to the alliance of political parties to form a government but
covers broader cooperation among individuals or organizations involving
bureaucrats, businesses, labor, military, regional and ethnic groups, academics,
professionals, local residents, consumers, and so on. In most cases—this includes
even so-called dictatorship and one-party dominance—a single political entity is
unable to pursue its aim unless it forms a coalition with other persons ororganizations through negotiation, compromise, and sharing of benefits.

The

importance of politics in development has been recognized in general but thesystematic analysis of how this “black box” works and how its operational
implications can be used in policy formulation remain rudimentary.
One of the attempts in this unexploited area is the Developmental Leadership
Program (DLP) organized by Adrian Leftwich of the University of York and Chris
Wheeler of AusAid (Leftwich, 2009, 2011).

DLP aims to collect and analyze

concrete cases of developmental coalition dynamics from all over the world to
extract policy implications and concrete operational guidelines for development
partners and civil society organizations.

It stands on the premise that the good

governance approach by the World Bank has failed to produce any significant
results and a different approach to developing country politics is required.

Forbilateral and multilateral aid organizations, “working politically” in developing
countries should not mean conspiring a regime change or imposing a Western modelin total disregard of local context.

Since any aid action will influence power

relation and coalition formation among political, official and civil organizations in
the host country, aid providers must fully understand their influence and work
consciously but subtly and quietly to become enabling agents for desired changewith deep local knowledge and judicious choice of entry points and counterparts.
In the first phase of DLP, the importance of context specificity, brokering andconvening functions of donors, and the role of secondary and tertiary education,
among others, were highlighted from the case studies of Botswana, China, Egypt,69

CHAPTER 4

India, Indonesia, Jordan, Mauritius, South Africa, Uganda, Yemen, Zimbabwe andothers.1
Additionally, interaction between agential and structural factors (relative weight
between producing high-quality leaders and institutionalization of good policies)
must be borne in mind.

An outstanding leader may rise to propel the nation toward

development for a while but he or she will not stay forever.

If progress depends

solely on effective personal leadership, the whole thing may collapse when a next
leader of average quality or less arrives.

In the worst case, the next head of thestate may revoke whatever the previous one did for political revenge orself-expression.

In order to reduce this risk, good policies started by an excellent

leader must be institutionalized.

That is to say, staffing, budgeting, policy

procedures, and policy organizations must be cemented as much as possible by laws,
decrees, and agreed practices among multiple stakeholders.

On the part of anincumbent national leader, it is necessary to delegate sufficient authority to various
people and organizations as well as work early on the succession problem.
Oftentimes, this turns out to be difficult for an “excellent” leader because of his or
her self-confidence and desire for continued monopoly of power often outweigh theneed for institutionalization of good policy practices.

4-2. National movement for mindset change
Some policies require a fundamental change in popular mindset before sustained
results are obtained.

Good policy alone may not induce dynamic growth if the

public is generally content with passivity, short-terminism, and foreign productworship (see Malaysia’s limited success with Bumiputra policy in chapter 3).

If

mindset change is not forthcoming spontaneously from the private sector, the state
may have to force it from the top until it becomes part of national culture.

Whilepermanent state guidance detached from market force or popular sentiment isinconsistent with the long-term development of a market economy, temporary use of1

From East Asia, Banno and Ohno (2010) contributed a detailed analysis of coalition formation andre-formation among political leaders in Meiji Japan, which we called the flexible structure of politics,
for the period of 1858-1881.

70

Policy Procedure and Organization for Executing High Priority Industrial Strategies

such an approach is not only permissible but even highly recommendable in an earlystage of economic take-off.

Such top-down persuasion has produced significant

lasting performance in some countries as well as failure in others—as seen incollective farming and state-owned factories under socialism which relied on central
orders without appropriate incentive mechanisms for managers, workers andfarmers to work better and harder.

National movement is a double-edged sword.

If it is to be adopted, systematic policy learning is essential to avoid mistakes.
National movement usually aims at elevation of productivity and competitivenessby instilling the spirit of activism and cooperation into the public.

Successful

examples from East Asia include Japan’s Rural Life Improvement Movement(1948-) and factory kaizen (improvement) movement (1950s-), Singapore’s
Productivity Movement (1960s-), and Korea’s Saemaul (new village) Movement(1970s-).

These movements usually evolve from pilot projects to full-scale

mobilization, institutionalization, broadening and shifting of scope, and end withsharing lessons with other countries.

Some movements initiated decades ago arestill practiced and disseminated in advanced forms.

For this reason, the end pointof a successful national movement is more difficult to identify than the starting
point.
Mindset change requires a national movement and not just collection of individual
projects.

Policy will bear no fruit if its spirit and goals are shared only within anarrow circle of political leaders, state officials, and experts and specialists.

To besuccessful, a comprehensive and self-sustaining system of philosophy, principles,
implementing mechanisms, and resources backed by state’s will and popular passion
are required.

In Singapore’s productivity movement, even taxi drivers were madefully aware of importance of improving productivity—and that is really the way it
should be.
As an example, we take up South Korea’s Saemaul Movement which was launched
in 1970 as a response to an emerging gap between rapid urban industrialization andpersistent rural poverty and backwardness.

It was driven by President Park

Chung-hee’s personal interest in rural development through mass campaigns.

Itsobjectives included not just improvement of rural life and income but, more71

CHAPTER 4

fundamentally, achievement of these through a value shift of farmers from passivity
to activism.

In September 1971, President Park defined the movement as “afundamental concept of national development, one in which economic development
and spiritual enlightenment go together hand-in-hand” (Park, 1979, pp.83-84).

The

three slogans of diligence, self-help, and cooperation were hammered into all rural
residents.
The Saemaul Movement, as a goal-oriented top-down rural development program,started with an experimental free distribution of 335 bags (13.4 tons) of cement toevery village of the country from October 1970 to June 1971 with the condition thatthey should be used only for communal projects. President Park ordered thatgovernment funds be directed toward those who demonstrated the right spirit.

By

1973, all villages were ranked into three categories: 18,415 basic villages, 13,943
self-helping villages, and 2,307 self-sufficient villages.

Assistance was continued

to be given mainly to the last two categories while “lazy” villages and villagers were
repudiated or removed from further assistance (Kim, 2004, pp.134-35).
The Saemaul Movement was most vigorously pursued in the 1970s and in several
stages.

After experimentation with free cement distribution in 1970-71, the years

1972-73 were spent on institutionalization and full-scale implementation supported
by a hierarchical administration, guidelines which included standardized procedure
for project selection and evaluation, and training programs.

The period from 1974

focused on self-development, enrichment, and broadening of the movement
including the introduction of Urban Saemaul Movement.
The Saemaul Movement was guided by the Central Consultative Council chaired by
the Minister of Home Affairs.

Under the Council, there were five administrative

layers consisting of central government, provinces, counties, townships, and villages.
Through this vertical mechanism the central government provided in-kind andfinancial aid and technical advice on management, farming technology, and project
preparation and execution to worthy villages.

At the bottom the Village

Development Committee in each village, chaired by a Saemaul leader and with 15
elected villagers as members, proposed communal projects which were to beapproved by the general assembly of the village as well as at the township level.
72

Policy Procedure and Organization for Executing High Priority Industrial Strategies

For education and training, the Saemaul Leaders Training Institute was opened in1972 providing one- to two-week intensive courses to village leaders.

Eventually

85 such institutes were established across the country with the Institute in Suwon
assuming the model role.

In 1974 the scope of trainee was expanded to include

those in managerial positions in all sectors such as cabinet ministers, religious
leaders, university presidents, and media executives.

Its standardized curriculum

covered Saemaul philosophy, national security and economy, project planning, casestudies, field tours, and group discussion.

All trainees stayed on the premise andslept in the dormitory during the course, which numbered 822,900 in the first ten
years of 1972-1981.

In addition, short-term training without lodging was offeredextensively.
Some criticize the Saemaul Movement as President Park’s political device to fortify
his dictatorial rule under the so-called Yushin Reform and inculcate the entire
population in support of it.

Others argue that the movement benefited wealthy

farmers more than poor ones (Han, 1987, p.48).

There was protestation against

homogeneous Saemaul leader training which emphasized military-like disciplineand morning jogging over specialized knowledge (Kim, 2004, p.136).

These areprobably all valid criticisms, but the Saemaul Movement should also be judged by
the enormous progress that South Korean villages made in income and living
standards, along with urban residents, in sharp contrast to the dismal state of North
Korea which also adopted similar top-down popular movements under Kim Il-sung.
As average income per capita grew 1.7 times from 1971 to 1981 in South Korea, theper capita income ratio between the richest urban area and the poorest provinceremained almost unchanged at 2.01-2.05 and subsequently declined to 1.75 by
1991.2Farmers were not left behind in Korea’s economic miracle.

Spectacular

economic performance may not completely justify forced national movement, but toa large degree it does.

2

Due to data problems, Korea’s provincial incomes prior to 1985 are difficult to estimate consistently.
The gap data cited in the text is calculated by Huh (1995). Some of the income gap indicators using
provincial data and reported by Huh, which support regional income conversion, are as follows:
max/min ratio, 2.0471 (1971), 2.0143 (1981), 1.7531 (1991); coefficient of variation weighted byeconomic size, 0.2873 (1971), 0.1643 (1981), 0.1572 (1991); Gini coefficient, 0.1597 (1971), 0.0846(1981), 0.0644 (1991).

73

CHAPTER 4

From Korea’s Saemaul Movement and experiences for productivity improvement inother countries, the following factors can be distilled for successful execution of anational movement for mindset change.
First, the movement must be launched and sustained by strong personal interest andcommitment of the top leader.

Second, the movement must start with top-down

instruction for grassroots participation.

This may sound contradictory, but

contradiction will evaporate if the movement “catches” and begins to attract genuineinterest of private participants because they see the benefits of the movement insteadof their reluctant obedience.

While elements of coercion cannot be eliminatedentirely in national movement, it should be regarded as success if intended
economic performance is attained even with a certain amount of compulsion.
Third, performance-based rewards should be given to villages, firms or workers that
produce good results according to transparent criteria. Highly visible incentive andrecognition mechanisms should also be installed at the national and local levels.
Fourth, supporting institutions must be created.

This includes establishment of anational council or committee presided by the top leader; a central ministry oragency as the lead organization and the secretariat to the national council orcommittee; regional, district, and community level offices; and staffing andbudgetary arrangements.

Fifth, authorized and well-designed training programsmust be created to educate government officials in charge as well as private leadersand participants of the movement in the frontline of implementation.

Sixth, themovement must continue for a sufficiently long time, typically over a decade or
more, with evolving emphasis.

A project lasting only for a few years will not beenough.

4-3. Policy procedure
In policy formulation, the procedure by which policy is made is often more
important than the final document which is drafted and approved.

While all policy

documents must be revised and updated as time passes, the process that does therevision can remain and continue to be fortified as experiences accumulate.

This

process should not be improvised for each occasion or left to a small group of74

Policy Procedure and Organization for Executing High Priority Industrial Strategies

drafters which happen to be assigned to the task.

The process must be owned andinstitutionalized by the policy makers even though background studies and drafting
can be outsourced after basic goals and directions are laid out.
Policy formulation must begin with the vision produced by the top leader that guides
the national development strategy.

This vision, which must come from the deep

personal conviction of the top leader, needs to be communicated to the people andeventually win their approval through election or other means.
by which his or her government is judged.

It is also the vision

The existence of a seriously committed

policy vision is the prerequisite for making any high priority strategy without which
policy tends to be ad hoc, reactive, and scattered.
When the leader’s vision is provided, the two crucial procedural requirements areinter-ministerial coordination and stakeholder involvement.
Any industrial policy in developing countries—whether it is small and medium
enterprise (SME) promotion, industrial human resource, quality and productivity
movement, or industrial cluster development—normally covers multi-sectoral issues
managed by more than one ministry or agency.

Thus intra-government

coordination becomes imperative if the policy is to be effectively designed andimplemented.

A lead ministry or agency must be designated and given a clear

mandate to formulate the policy.

While the ministry in charge of industry usuallytakes main responsibility, other ministries in charge of finance, official development
assistance (ODA) and foreign direct investment (FDI), education and training,
scienceandtechnology,transportation,

infrastructure,development, and so on, must also be made to cooperate.

agriculture,urban

Since one ministry oragency is unable to direct or overrule other ministries and agencies, there should bea higher mechanism that supervises the whole process, gives full authority to thelead ministry or agency, and provides a forum in which multi-sectoral issues aredeliberated and solved.

Concrete organizational arrangements that ensure this willbe the topic of the next section.
Besides cooperation among ministries and agencies, policy making must receive
active participation of non-government players.
75

For the purpose of industrial

CHAPTER 4

policy formulation, by far the most important players are domestic and foreign
enterprises that carry out investment and production as well as their businessassociations.

Without their willing participation, any industrial policy is doomed

to fail. Since not all enterprises share the same business interests or sectoral goals, amechanism must also be in place to coordinate various voices among them. In
addition, domestic and foreign academics, industrial experts, and consultants should
be mobilized for conducting necessary surveys, analysis, and international
comparison, as well as drafting and commenting on policy documents as needed.
Depending on the issue at hand, local residents, user firms, consumers, NPOs, andother stakeholders may also be involved.
It should be stressed that mobilization of non-government stakeholders must be
substantial with sufficient time and opportunities provided for contact and input.
Nominal participation, such as hearings in which official views are unilaterally
communicated or a large-scale symposium where little time is allocated forinteraction with the floor, does not contribute much to the betterment of policy
formulation.

Public-Private Dialogue (PPD) will become an important policy

mechanism only when it goes beyond setting a formal framework and begins toincorporate private opinions seriously and effectively into policies.
Manygovernments

in

East

Asia

succeededininstitutionalizing

government-business interactions for information sharing and policy coordination(Weiss, 1998; Weiss and Hobson, 1995; Kondo, 2005).

Large flows ofhigh-quality information between the two parties contributed to building mutual
confidence, credible commitments, and predictability between the public and private
sectors.

The nature and intensity of government-business coordination have

evolved over time as the private sector has improved its capability and graduatedfrom direct public intervention.
Through strong inter-ministerial coordination and stakeholder involvement, allmajor parties inside and outside the government participate in policy formulation
leading to a growing sense of shared ownership and responsibility as well as
willingness to cooperate in implementation.

This fact is far more important than

producing documents which may be comprehensive and theoretically advanced but
76Policy Procedure and Organization for Executing High Priority Industrial Strategies

are not supported by concerned organizations.

In the early stage of policy learning,

agreed policy may be relatively simple with only a small number of specified
actions.

Even in that case, if the drafting process reflects existing policy capability

and local context, the resulting policy will be unique, ambitious, and at the sametime feasible for the country in question.
policy making is learned.

Indeed, this is the very process in which

If the process is outsourced in its entirety to a group of

domestic or foreign consultants, little learning will take place within thegovernment.
This also has an implication for appropriate speed with which policy should be
drafted.

Some governments set unreasonably short deadlines for policy documents.

This compels the ministry in charge to contract out the drafting work to experts andconsultants, which militates against the policy learning described above.

While thesituation varies across countries, if proper internal and external consultation isconducted, a realistic amount of time needed to revise an existing policy is about
one year, and creating a new policy may take two to three years.

This includes

time lost due to administrative delays and political cycles which are often inevitable
in policy formulation.
making.

Quality, not speed, should be the main objective of policy

Quality here means that, based on sufficient information and analysis, all

key aspects of the policy have been agreed among major stakeholders throughdiscussion and compromise so that the policy, once adopted, will be strongly
supported and willingly implemented.

Figure 4-1 illustrates the standard policy

making procedure observed generally in East Asian high-performing economies.
Five elements are important here: top leader’s vision, consensus building,stakeholder participation, documentation, and the designation of a lead ministry oragency with clear mandate and responsibility.

77CHAPTER 4

Figure 4-1. Standard Policy Making Procedure

Note: The entire process is coordinated by a lead ministry or agency.

An example is given from Thailand. The Thai automotive industry boasts the largest
production volume in Southeast Asia and has expanded strongly despite two serious
regional and global economic crises in 1997-98 and 2008-09. Its policy making iscompetently coordinated by the Thailand Automotive Institute (TAI), one of the ten
sector-specific non-profit organizations established by the Thai government which arerequired to be financially autonomous from the government budget (see section
4-4-(iv)). The structure of the Thai automotive policy is given succinctly in the
Executive Summary of the Automotive Master Plan 2007-2011 which emanates from
Vision 20113 and branches out to four objectives, five strategies, and 12 action plans.
The most important part of the Master Plan is the exposition of the 12 action plans.
Drafting of the Thai automotive master plan takes about a year which is a genuinely
joint process between private firms and the Ministry of Industry. Close-knit
networking among all stakeholders is ensured by TAI. The drafting process begins
with the “CEO Forum,” an informal discussion forum among foreign and domestic

3

Vision 2011 states that “Thailand is the automotive production base in Asia which creates more value
added to the country with strong automotive parts industry.” This vision remained unchanged fromthe previous Master Plan 2002-2006.

78

Policy Procedure and Organization for Executing High Priority Industrial Strategies

firms, government officials, and academics, that agrees on basic directions andidentifies key areas (in the current automotive policy, they are human resource,
productivity, marketing, engineering, and investment and linkage).

Production andexport targets are proposed collectively by the industry, not the government.

Aftera broad consensus is formed, the Automotive Master Plan Steering Committee willcommission studies on the identified key areas to “focus groups.”

Finally, themaster plan is drafted by TAI staff after all major aspects of policy revisions havebeen agreed among stakeholders and necessary studies have been conducted.

TAI

serves as a secretariat throughout the entire process and provides administrative andlogistic support.

Mr. Vallop Tiasiri, President of TAI, meets foreign and local

producers at least twice a month formally and meets them more often informally.
From the perspective of effective policy making, common mistakes include: (i) thelack of a clear vision of the leader; (ii) policy drafting by a few dedicated officials
without building consensus or facilitating interaction among all stakeholders; (iii)
outsourcing of the entire policy drafting to outsiders (local or foreign experts) withthe role of policy makers limited to making comments and revisions; (iv) bottom-up
collection of subdocuments drafted by various ministries which ends up in
unconnected chapters with too many priorities for implementation.

These negative

practices must be avoided as a first step toward policy learning.

4-4. Policy organization
What organizational arrangements are necessary to realize inter-ministerial
coordination and stakeholder involvement discussed above? International comparisonof policy making points to different policy organizations that can equally attain good
policy results.

The choice should fundamentally depend on the uniquecharacteristics and existing policy capability of the country in question. Below, fivealternative policy organizations for conducting high priority development policies are
explained with examples. Again, the intention here is to provide raw materials fromwhich policy organization for each country can be constructed under the principles of
selectivity, modification, combination, and improvement.

79

CHAPTER 4

It should be noted that these organizational arrangements are not mutually exclusive.
There are countries that adopt more than one arrangement to execute different
national strategies.

It is also important to recognize that high-performing

economies in East Asia did not possess strong institutional bases at the beginning of
their rapid growth.

Policy procedure and organization were strengthened during,and not before, their high growth periods.

State-building is a dynamic process inwhich the government has to build up industrial policy capability through concretehands-on efforts and trial-and-error in the actual process of industrialization.

4-4-1.

A technocrat team supporting the top leader

One of the key ingredients of the “East Asian Miracle” was strong alliance between
the top leader and the technocrat team (Campos and Root, 1996; Ohno andShimamura, 2007).

Many countries in East Asia established a semi-permanent

technocrat group that directly supported the prime minister or the president inexecuting his priority national programs.

Examples include Korea’s Economic

Planning Board (EPB), Malaysia’s Economic Planning Unit (EPU), Taiwan’s
Kuomintang elites, Indonesia’s Berkeley Mafia, and Thailand’s National Economic
and Social Development Board (NESDB).4 Among these, Malaysia’s EPU and
Thailand’s NESDB still exist while others have been disbanded as income andprivate sector dynamism rose and new policy organization replaced the old.
Figure 4-2. Technocrat Team Supporting Top Leader

4

In Latin America, policy support in Chile was provided by Chicago Boys, or Chilean economists
trained at the University of Chicago under Milton Friedman and Arnold Harberger, to the military
junta to carry out free-market reforms starting in 1973.

80

Policy Procedure and Organization for Executing High Priority Industrial Strategies

These technocrat groups were created by convening well-educated and/or highly
experienced officials, scholars, and business leaders to act as a policy-making brainof the country.

Many of them had high degrees from foreign universities or had

been summoned from prominent positions in foreign countries.

These elites had

full trust of the top leader while ministries were placed under them as implementing
agencies.

Their authority and directives constituted central coordination

mechanisms for formulating, implementing, and monitoring development policies(Kondo, 2005).
This policy organization model works best under a strong and wise leader who
exercises power for a relatively long time.

Korea’s EPB and Malaysia’s EPU were

the supporting arms of their charismatic leaders, namely, President Park Chung-hee(in power 1961–79) and Prime Minister Mahathir bin Mohamad (in power
1981–2003).
Figure 4-3. South Korea 1960s-70s: Economic Planning Board{

President(Blue House)Economic
Secretariats{

State Council

Five-year plan

KDI

Chaired by Deputy PM{

Economic Minister’sCouncil

EPB
Deputy PM- Development planning- Public investment planning- Budget- Monitoring- Aid management

MTI

Govt.-BusinessMeetings:- Export promotion- Economic briefs- HCI drive, etc.

{{

Direct presidential
control overeconomic policies
EPB as superministry
Research institute(KDI, etc.),
providing analysis
for MLT economic
policies
Govt.-business:very close &cooperative
relations
Performancebased rewards &penalties

Business Finance

Ministries/Agencies

4-4-2. A national council or committee
A national council of committee—the precise name does not matter—is a lesspermanent policy making arrangement that can replicate strong coordinating
functions of the technocrat team in the previous model.
81

This approach may be

CHAPTER 4

adopted by a strong, long-serving leader but it can also work effectively in a country
where no such charismatic leader exists or where the head of the state must change
every few to several years.

In this model, the task of policy formulation is taken

up by a national council or committee presided by the top leader himself, a near-top
leader such as vice president or deputy prime minister, or someone trusted andappointed by the top leader.

Its members are selected from a broad base including

businesses, scholars, ministers and retired officials, civil society leaders, media, andso on.

The council or committee is supported by a secretariat staffed by seconded

officials from related ministries which does administrative and logistic works.

The

council also has working groups (or task forces) under it that prepare studies, reports,
and draft chapters in specialized fields.

Unlike technocrat teams, these councils orcommittees are normally organized around a specific issue and are terminated when
the policy objective is achieved or there is a change of government.
Figure 4-4. National Council or Committee

In this model, concerned ministries and agencies can participate in the policy
process in three ways: (i) through the minister’s membership in the national council
or committee; (ii) as official experts in working groups or task forces; and (iii) as
implementing bodies.

Compared with the technocrat model explained above, thisconfiguration may be more acceptable for ministries and agencies wanting toparticipate in policy formulation extensively rather than receiving top-down
instructions from the elite group and being confined to policy implementation.
82

Policy Procedure and Organization for Executing High Priority Industrial Strategies

The national council and committee approach is used widely with different
variations.

Three examples are given below from Singapore, Malaysia and Korea.

This approach is adopted to carry out a small number—usually up to several—of toppriority programs in each country.5
In Singapore, productivity has long been a top national agenda.

In recent years

productivity began to receive renewed attention in the context of lagging
productivity of aged or foreign migrant workers, the rise of China and India, and theaftermath of global economic crisis.

To propose basic policy directions, theEconomic Strategies Committee (ESC) chaired by the finance minister published areport in January 2010.

It recommended a drastic shift from factor-driven to

productivity-driven growth and set an annual productivity growth target of 2-3%
and an average GDP growth target of 3-5% in the next ten years.

The main thrustof the ESC Report was endorsed by the Prime Minister and reflected in the fiscal
year 2010 budget.
One of the key recommendations of the ESC Report was establishment of the
National Productivity and Continuing Education Council (NPCEC).

NPCEC wasformed in April 2010 as a policy making body for realizing a productivity-led
economy.

It is chaired by the Deputy Prime Minister with its members comingfrom government, business community, and labor unions. The Ministry of Trade andIndustry (MTI) and the Ministry of Manpower (MOM) jointly act as the secretariat.
Under NPCEC, two layers of organizations are created: (i) the Working Committee
for Productivity and Continuing Education (WCPCE) led by the Permanent
Secretaries of MTI and MOM; and (ii) sectoral working groups and horizontal
thematic working groups.

Three financial mechanisms fund incentives andsubsidies to firms and individuals based on their action and performance.

5

Following the Korean model of the 1960s and 70s, Ethiopia has established a monthly Export
Steering Committee presided by the prime minister and attended by relevant ministers and officials.
The Committee seems to work well in monitoring export performance and solving problems that may
arise. However, the Ethiopian Committee is narrower in operational scope than the original Koreanmodel or other approaches explained in this section as it is not accompanied by designation of thelead ministry and agencies, the secretariat, and working groups or task forces that perform various
functions. Moreover, it remains an implementing body rather than a policy making body.

83CHAPTER 4

NPCEC has selected 12 priority sectors that have large contribution to employment
and GDP and high potential for productivity gain.

Each sector group is required to

draw up a productivity roadmap for the next ten years.
WCPCE and submitted to NPCEC for approval.
assigned to oversee each priority sector.

They are reviewed by

A ministry or an agency is

In addition, horizontal working groups

work on cross-cutting issues such as low-wage workers, research and benchmarking,and infocomm (ITC) and logistics.

In all of these working groups, tripartite

representation of government, businesses, and unions is ensured.
Figure 4-5. Singapore: National Productivity and Continuing Education
Council

The Malaysian government puts high priority on SME development as a policy
instrument to shift the growth engine from large multinational corporations toautonomous and innovative indigenous firms (Preface of the SME Annual Report,
2008).

SMEs are to play key roles in job and income creation as well as moving

the country out of the middle income trap and into high income.

The National

SME Development Council was established in 2004 as a leading body that sets thepolicy direction for cohesive SME development.

It is chaired by the prime

minister and brings together 15 ministries and more than 60 government agencies to84

Policy Procedure and Organization for Executing High Priority Industrial Strategies

work together toward this goal.

Initially, Bank Negara Malaysia (central bank)served as the secretariat of the Council which set three policy pillars (enabling
infrastructure, capacity building, and financial access), five-year targets, andcommon SME definition, and published the Annual SME Integrated Plan of Action
and the SME Annual Report.

The Council also improved National SME Databaseand SME training and marketing, and introduced new financial products for SMEs.
In 2009 the SME Corporation Malaysia (SME Corp.) was created as a central
coordinating agency at the operational level by upgrading the previous functions of
the Small and Medium Industries Development Corporation (SMIDEC) which
belonged to the Ministry of International Trade and Industry (MITI), a lead ministry
for SME development.

As the new secretariat to the Council, SME Corp. serves asa central reference point for all SME matters and undertakes impact studies on SME
policies and programs across all economic sectors.

Malaysia has many

SME-related ministries, agencies, and private sector partners whose activities are
now brought under the vertical policy organization consisting of the Council, MITI,
and SME Corp.
Figure 4-6. Malaysia: National SME Development Council
National SME Development Council

14 Other
Ministries
MITI’s key departments
Strategic Planning
Entrepreneurship
Development
Sectoral Policy &Industrial Service
Investment Policy &Trade Facilitation

Est. 2004,
chaired by PM

Ministry of Int’l Trade and Industry(MITI, lead ministry for SMEs)
Implementing agencies under MITI
-SME Corp. Malaysia (lead agency for SMEs
and secretariat to National SME Dev. Council)-Malaysian Ind. Dev. Authority (investment)-Malaysia Productivity Corp (research,training, consultation)-SME Bank (finance)-Malaysian Ind. Dev. Finance (finance)-MATRADE (trade)
Private sector partners
Service & training providers (private
consultants & companies)

Services Sector
Development

Note: Bank Negara Malaysia (central bank) served as a secretariat to the National SME Dev.
Council until the establishment of SME Corp. Malaysia in 2009.

85

CHAPTER 4

In present Korea, presidential committees serve as a key instrument for economic
policy making.

Upon assuming power, every president establishes a small numberof presidential committees as a vehicle to concretize, implement, and monitor thepriority agenda during his five- year term.

Each presidential committee is headed

by a person who has expertise in the chosen subject and enjoys strong confidence ofthe president as well as secretarial support by staff seconded from various
ministries.
President Lee Myung-bak, who assumed office in February 2008, established four
Presidential Committees for Future and Vision, Green Growth, National
Competitiveness, and Nation Branding.

The most important among them is the

Presidential Council for Future and Vision (PCFV), established in May 2008, which
advises the president for designing overall national strategies and setting policy
priorities.

It is chaired by Prof.

Seung Jun-kwak, Dean of Korea University, andhas 26 members drawn from academia, non governmental organizations (NGOs),
legal experts, and business leaders.

Vice ministers also attend the Council.

Council meets on a need basis without any fixed schedule.

The

PCFV is supported by

the Executive Office of the Council, a secretariat of about 30 staff comprised of
seconded officials from various government ministries and agencies.

The

secretariat is charged with drafting of policy documents, inter-ministerial
coordination, and related administrative works. In addition to four presidentialcommittees mentioned above, a temporary (one-year) presidential committee wascreated to host the G20 Summit which took place in Seoul in November 2010.

86

Policy Procedure and Organization for Executing High Priority Industrial Strategies

Figure 4-7. Korea: Presidential Committees
Vision & Priority
AgendaPresident of the Republic of Korea

Chairman
Co-chaired byPrime Minister

Chairman

Chairman

ChairmanPC.
Green Growth

PC.
Future & Vision

PC. National
CompetitivenessPC. Nation
Branding(Feb. 2009)(May 2008)(Feb. 2008)(Jan. 2009)

Secretariat

Secretariat

Secretariat

Secretariat

about 60 staff(seconded officials
from various govt.
agencies

about 30 staff(seconded officials
from various govt.
agencies)

PolicyMinistry A

Staffing

Drafting, Inter-ministerial coordination, etc.

Ministry B

Ministry C

Ministry D

Ministry E

Ministry F

Implementation

4-4-3. A super-ministry
Another way to secure dynamism and consistency in industrial policy is to givebroad responsibility to one ministry and let this ministry do the designing andimplementation of industrial strategies as well as additional works such as interface
with political parties, interaction with non-government stakeholders, preparation ofnecessary laws and regulations, and dissemination of policy objectives and outcome.
While this ministry is just one among many ministries in legal standing, it has
sufficient authorities and policy tools to become a one-stop house for initiating andcarrying out industrial strategies.

As long as the importance of industrialization is

generally agreed, this approach may not even require a strong and wise national
leader to constantly supervise the process since the ministry can internally andautonomously produce coherent visions and strategies with its highly motivatedofficials and extensive information network.
Japanese industrial policy making from the late 1950s to the early 1970s was theprime example of this model.

The Ministry of International Trade and Industry(MITI) was created in 1949 by merging the Ministry of Trade and Industry, the Coal
87

CHAPTER 4

Agency, and the International Trade Agency to become the lead ministry forpost-WW2 industrial catch-up.6

MITI had broad authority over creation of visions

and strategies; individual industrial sectors such as textiles, steel, machinery, andelectronics; technology and productivity; trade promotion and negotiation; product,
quality, and safety standards; intellectual property rights; competition andanti-monopoly policy; SME development; policy finance; restructuring of sunset
industries; and energy and environment.

Legal frameworks and policy tools

needed to promote these policy areas were created during the 1950s.
According to Okimoto (1989), MITI was the de facto super-ministry for Japaneseindustrial policy.

Compared with the fragmented industrial policy making

mechanism in the United States, MITI was distinctive in having broad jurisdiction
over many industrial sectors and functional issues as described above, as well as
having both vertical (industry-based) and horizontal (cross-sectoral) bureaus in its
organizational structure (Figure 4-8).
As the lead ministry for industrialization, MITI worked closely with the Economic
Planning Agency (EPA) under the Prime Minister’s Office and the Ministry of
Finance (MOF).

The former was in charge of national economic planning andassessment and the latter was responsible for budgeting and financial issues.

Thetripartite consisting of MITI, EPA, and MOF collectively assumed the primary rolein formulating and executing medium- and long-term national visions and economic
plans.

In addition, EPA and, subsequently, the Land Agency (established in 1974)

under the Prime Minister’s Office, formulated spatial plans that included corridors,
industrial zones, and land and regional development plans.

6

Subsequently, in 2001, MITI was renamed to the Ministry of Economy, Trade, and Industry (METI).

88

Policy Procedure and Organization for Executing High Priority Industrial Strategies

Figure 4-8. Japan: Organizational Structure of MITIMITI
Minister
Politically appointed VM
Administrative VM
Deputy VMs
Special assistants

Attached Organizations
and External Bureaus

Main Bureau
Minister’s Secretariat(incl. Research & Statistics)
Int’l Trade Policy Bureau
Int’l Trade Admin. Bureau
Industrial Policy Bureau
Industrial Location &Environment Protection Bureau
Basic Industries Bureau
Machinery & Information Industries
BureauConsumer Goods Industries Bureau

Deliberation Councils
Industrial Structure
Export Insurance
TextilePetroleum
Electrical Works.........

Agency of National Resources＆Energy
Patent Office
SME Enterprise Agency
Agency of Industrial Science& Technology
Trade & Investment Training
Other(*) Industrial Structure Council:
influential in the 60s (18 special
committees): industrial pollution,
int’l economy, consumer economy,
heavy industry, chemical industry, etc.

Int’l Trade Transaction
Industrial Location & Water
Product Safety & Household Goods Quality Indication
Aircraft & Machinery Industry
Traditional Crafts Industry...................

Source: Adapted from Okimoto (1989), p.117, Figure 3.2.

In Japan, deliberation councils functioned as the key instrument for vision making,policy consultation and coordination, and information sharing within and outside thegovernment.

Deliberation councils were extensively used by MITI.

They

provided a forum in which government and businesses met and discussed policy
issues and business trends, and built consensus (World Bank, 1993).

They weresimilar to national councils and committees discussed above but they wereorganized and managed by a super-ministry rather than the top leader, and MITI
served as the secretariat.

Members of a deliberation council included

representatives from related ministries, business leaders, experts, and academicians.
Additionally, the structure of deliberation councils reflected both vertical andhorizontal bureaus within MITI.

This contributed to enhancing MITI’s capacity toaggregate diverse interests (Okimoto, 1989).
Among deliberation councils, the Industrial Structure Council, established in 1964,
was most influential as it oversaw industrial policy in its entirety with the89CHAPTER 4

participation of representatives from the public and private sectors (Johnson, 1982).
The Industrial Structure Council drafted a vision for industrial policies in each
decade.

It published the vision of Heavy and Chemical Industry (HCI) in the

1960s, the vision of knowledge-intensive industries in the 1970s, the vision ofcreativity and knowledge-based industries in the 1980s, and the vision of better
quality of life in the 1990s (Kawakita, 1991).

The Industrial Structure Council also

discussed measures to support pioneer industries and ensure the transition of sunset
industries.
Japanese policy making process was bottom-up.

It started with MITI’s juniorofficials gathering and analyzing data and conducting intensive hearings fromvarious stakeholders, especially the business community (Figure 4-9).

Information

thus collected served as the basic input for subsequent discussions in thesubcommittee and the deliberation council, which respectively drafted and finalized
policy recommendations.

Throughout the process, deputy division directors(officials in their mid-thirties) were at the center of communication flows both
inside MITI and between MITI and the private sector and thus had a considerable
voice in determining the policy direction (Okimoto, 1989).
Figure 4-9. Japan: MITI’s Policy Formulation (late 1950s-early 1970s)
Conduct survey;
compile data

MITI junior staff
study group(Prepare draft)

MITI Research group(subcommittee)(Feedback)

Hearing:
Learned individuals
Interested parties
Overseas employees
Local representatives
Others
Outside lecturers(Briefings, subcommittees’ reports)

Deliberation council(Report)Source: Ono (1992).

90

Public relations:Publications
Explanatory meetings
Lectures
OthersPolicy Procedure and Organization for Executing High Priority Industrial Strategies

Akira Suehiro, a leading expert on East Asian development, stresses the Fiscal
Investment Loan Program (FILP) and close linkage between technical and financial
support to SMEs as Japan’s two most successful policy instruments for high growthin the post WW2 period.

FILP was a mechanism in which funds from postal

savings and pension contributions from the private sector were mobilized to conduct
investment and loans having public nature (typically infrastructure and businesssupport) through state institutions and credit mechanisms.

Its financial resource

was at times as large as half the size of the central government’s general budget.
Part of FILP was combined with MITI’s industrial policy, whereby policy
formulation and technical support were provided to SMEs by MITI and financial
support was provided to the same SMEs by the Japan Development Bank (JDB)
under MOF using FILP funds.

Shindanshi (state-certified SME management

consultants) played a key role in linking management and technical support to
SMEs with loans by JDB and commercial banks (Ohno, 2010).
During Japan’s high growth period from the late 1950s to the early 1970s, there wasno charismatic leader who ruled for a long time.

Under the leadership of MITI,

key economic ministries and agencies worked in close collaboration, with close
contact with political leaders, to formulate visions and concretize them into various
plans and policy measures.

4-4-4. A specialized institute as a policy making hub
While industrial visions and broad direction should be set by the government,
detailed plans, master plan drafting, and daily contact and consensus building
among stakeholders for any particular sector or issue can be delegated to a
specialized, neutral, and non-profit organization.

Thailand adopts such an

approach together with other approaches for industrial policy formulation.
The Asian financial crisis of 1997-1998 prompted the Thai government to conduct acomprehensive industry review.

The Industrial Restructuring Plan (IRP) was

quickly formulated for enhancing industrial competitiveness with due attention tosocial conditions (this was conducted by the national council approach discussed
above).

IRP consisted of the Master Plan, the Strategic Plan, and the Action Plan
91

CHAPTER 4

for industrial restructuring, and included as its objectives upgrading labor skills intarget industries, supporting SMEs, relocating high pollution industries, andpromoting clean technology.

The MOI was the lead ministry, which facilitatedinvolvement of various stakeholders such as the public sector, businesses andacademicians.

Although IRP was formulated and implemented within theframeworks of structural adjustment loans from the World Bank and the AsianDevelopment Bank, the Thai government took full initiative in developing its
content.
To implement proposed plans, ten specialized institutes were established or
re-created to design concrete measures for targeted industries and issues and to copewith problems arising in the implementation process.

They were initially operated

jointly by the public and private sectors, each with its own staff and board.

They

acted as a hub of information sharing and consultation between government andbusinesses and in some cases formulated industry-specific master plans.

Someinstitutes were created by the Industry Promotion Department of MOI while others
were transformed from existing agencies or established with donor assistance.

Asshown in Table 4-1, they included six industry-specific institutes (textile, food,automobiles, electrical and electronics, cane and sugar research, and iron and steel)and four thematic institutes (productivity, technical training, management andcertification, and SME development).

After five years of establishment, these

institutes were required to become financially independent from the government
budget.

92

Policy Procedure and Organization for Executing High Priority Industrial Strategies

Table 4-1. Thailand: Specialized Institutes
NameStart-up Date
Thailand Productivity June 1995
InstituteThai-German Institute Nov. 1995

Thailand Textile
InstituteJune 1997

National Food Institute Oct. 1996
(NFI)
Management Systems March 1999
Certification Institute(MSCI)
Thailand Automotive April 1999
Institute (TAI)
Feb. 1999
Electrical &Electronics Institute(EEI)
Foundation for Cane & April 1999
Sugar ResearchInstitute
Institute for SME
June 1999
Development
The Iron & SteelInstitute of Thailand

Dec. 1998(cabinet approval)

Organizations
Originated from MOI industry promotion
dept. 20 Board members, 161 staff.
Financial cooperation from KfW, GDC.
Technical training (CNC, CAM/CAD, etc.),
12 Board members, 79 staff, 5 German
experts.
Based on MOI industry promotion dept. andindustry association. 20 Board members,
27 staff.
Based on MOI industry promotion dept. andindustry association. 20 Board members,
27 staff.
Originated from Thai Industrial Standard
Institute (TISI). 14 Board members, 55
staff.
Supporting industry development.
20 Board members, 28 staff
Supporting industry development.
29 Board members, 28 staff.
Originated from Cane & Sugar ResearchInstitute. 13 Board members.
Modeled on Japan’s SME Univ. Operatedby Thammasat Univ. in cooperation with 8
local universities. 21 Board members.
Aimed at joint marketing promotion of four
steel companies (oversupply)

Source: Higashi (2000).

Among these institutes, the Thailand Automotive Institute (TAI) has been among themost successful as a policy making and implementation hub connecting the Thai
tripartite of government, businesses, and experts.

TAI conducts policy study andadvice, supports clustering of auto parts makers, and promotes export.

It provides

training for factory engineers and workers, runs an automotive testing laboratory,
and serves as the secretariat for consensus building and drafting policy documents.
TAI cooperates with MOI, MOF, the Ministry of Commerce, and the Ministry of
Science and Technology (MOST) as well as researchers from ten universities inThailand.

It provides research and information services and manages an

APEC-supported website for automotive part makers.

At the beginning it was

financed jointly by the government and the private sector.

By now it has become a93CHAPTER 4

self-financing organization.

As of November 2009, half of its 91 staff were at thetesting laboratory and the remaining half were in policy research and training.
As the secretariat of master plan drafting, TAI supplies not only administrative
support but, more fundamentally, key ideas for policy direction, selectivity andconcentration, and coordination of different interests between government andbusinesses as well as among businesses.

The idea of subsidizing Eco-Car

production was one of such ideas emanating from TAI and accepted by thegovernment and the industry in the current automotive master plan.

The process

by which TAI drafts the master plan was already explained in section 4-3 above.
Figure 4-10 depicts Thai policy making for specific policy areas adopted underPrime Minister Thaksin Shinawatra, a strong leader who served the country from2001 to 2006.

The prime minister produced highly vague visions, such as

becoming the “Detroit of Asia” or the “Hub of Tropical Fashion,” for relevant
ministries to concretize and implement.

A specialized institute functioned as apolicy hub among the tripartite at the operational level while an industry-specificcommittee approved and adjusted policies at a higher level.

The private sector

could influence policy through these institutes and committees, and it also had directaccess to the prime minister.

Even after the strong leader was removed in 2006,

the Thai policy system continues to function basically in the same way as before
because these specialized institutes are already “institutionalized.”
does not hinge critically on the existence of a strong leader.

94

Its operation

Policy Procedure and Organization for Executing High Priority Industrial Strategies

Figure 4-10. Thailand: Specialized Institute Approach(Under Thaksin Government 2001-2006)
Visions to be
concretized

Prime Minister

DirectaccessPrivateSectorThailand should become:-“Detroit of Asia”-“Hub of Tropical Fashion”-“Kitchen of the World”

Order

Relevant
Ministry

Industry-specificCommittees
High level

Specialized
Institute
Operational level

Experts

The institutional hub approach works well in the case of the Thai automotive sector
because there is deep trust among all stakeholders, because TAI has build solid
relations with them, and because Thai policy making is pragmatic and flexible
without too many bureaucratic requirements.

According to Thai MOI officials, theThai automotive sector is already sufficiently developed and becoming large in size,
and the role of government has shifted from direct support to the industry to generalpolicy making.

Thus managerial, technical, and financial support for managers,

engineers, and workers is to be conducted by private service providers and private
financial institutions.

However, in a country where the private sector is weak,where mutual trust between government and businesses does not exist, or where
policy making is highly rigid and hierarchical, assignment of policy making
authority to a neutral non-profit organization may not work as effectively as inThailand.

4-4-5. A strong top leader as a policy driver without
institutionalization
A very different type of policy making is possible with the existence of a strong andeconomically enlightened leader without institutionalization.

In this case, the headof the state (or a similarly high-level key actor) plays the instrumental role in all95

CHAPTER 4

policy making functions.

This includes vision and strategy making, coordination

among ministries and agencies, implementation and monitoring, solving problems
and coping with shocks, mobilizing the private sector, and dealing with foreign
investors and development partners.

Policies become action-oriented and coherent

if the leader’s mind is lucid and dynamic.

Actions of different ministries become

mutually consistent even though ministers do not talk to each other.

The private

sector and foreign investors will know where the country is headed and international
cooperation will be made to align with the national development plan.

All this ispossible because the top leader personally directs every player in the game.
This type of policy making depends heavily on the personal capacity and dynamism
of one particular individual and, for that reason, can be quickly realized if such aleader assumes power.

In the early stage of economic take-off, a leader who sets

everything right is highly welcome since the nation has no time or resource to build
strong enough systems quickly for sustainable growth.
approach are also clear.

But the risks of thisWithout institutionalization, the exit of a capable leader

will stagnate and even reverse economic growth and no policy learning among otherpolicy makers will take place.

To avoid this fate, the capable leader must work

even harder not only to conduct good policies but also to create new laws, systems,
and organizations that cement the way of policy making which he or she has started.
This is indeed an enormous demand on the wise leader.

4-5. Policy structure7
While policy documents such as industrial master plans and strategies do not haveone “correct” format applicable to all countries, structural variation must come fromconscious choice based on local context and policy purpose at hand rather than bychance.

If a policy document is produced without serious consideration of overalldesign, it may end up reflecting the whims of particular drafters—ministerial
officials, academics, or foreign consultants—that happened to be assigned to thetask.
7

As argued in section 4-3 above, basic visions and policy direction must be

For more discussion on policy document structure, see chapter 9 in this volume.

96

Policy Procedure and Organization for Executing High Priority Industrial Strategies

established through a consensus building process involving major stakeholders
before the drafting of a policy document is commissioned.
Figure 4-11. Standard Ingredients of an Industrial Master Plan
VisionImportance, role, orientation, and positioning of industry in national
development

Targets

Long- and medium-term numerical and/or qualitative targets

Situation analysis

Current status, potentials and obstacles of the domestic industry in
the national, regional and global context; tables and graphics for
data, surveys, international comparisons, etc.

Policy issues

A small number of selected issues should be identified, prioritized,
and analyzed in preparation for designing policy action

Action plan or
action mechanism

A large matrix that pre-specifies actions, sub-actions, expected
output, success criteria, deadlines, and responsible organizations;procedure for monitoring and reporting should also be specified.
Alternatively, a monthly high-level committee chaired by top
leader, or a well-focused and well-coordinated budgeting andproject approval process may substitute the action plan matrix.

The standard components of an industrial master plan are illustrated in Figure 4-11
and discussed individually below.

Each of these components may occupy either

one chapter or a number of chapters.

Selection and order of these components are

somewhat flexible.

For example, targets may be inserted after situation analysis

and policy issues.

However, the vision should most properly be stated at the outset

and the action plan matrix should come at the end (unless specified in anotherdocument or mechanism).

Terminology is also flexible and substitutable by otherphrases of similar connotations.

In addition to these basic components, there may

be additional materials such as preface, table of contents, list of tables and figures,executive summary, introduction, drafting procedure and organization, appendices,and so on.
(i)Vision—a master plan must clarify the purpose of industrial promotion.
This includes why a particular industry is important in national development,
what role it should play in stimulating other sectors, what positioning it

97

CHAPTER 4

should take in the global, regional, and national economies, and so on.

Ifthese purposes are already presented in other documents and widely shared
among stakeholders (such as Agricultural Development Led Industrialization(ADLI) and the Industrial Development Strategy (IDS) in the case of
Ethiopia), they can be mentioned only briefly without spilling much ink.
On the other hand, if these are not yet sufficiently expressed, the masterplan should clearly and concisely state the importance of the sector inquestion.

This section should be no more than a few pages.

Vision issometimes stated in a layered structure consisting of vision, missions, andobjectives.

This is acceptable but not obligatory.

(ii) Targets—long- and medium-term targets, quantitative or qualitative, should
be presented with a clear time frame, which should normally extend over a
few to several years.8

These targets should be ambitious but realistic.

Numerical targets should be higher than simple extrapolation of the present
course but also reachable with serious exertion of cooperative efforts byboth government and businesses.

The appropriate number and levels ofthese targets, including how many numerical targets should be set with howmuch detail, depend critically on the characteristics of the sector in question
as well as the capability of the government and the private sector of thatcountry. For this reason, there is no fixed formula applicable to all masterplans for all countries.

Generally speaking, there should be fewer(numerical) targets if the industry is not capital-intensive, markets and prices
are unpredictable, the industry produces final consumer goods, the domestic
private sector is mature, policy capability is weak, or the private sector does
not trust the government. Before setting any targets, policy makers shouldhave a thorough discussion with all stakeholders, including businesses andexperts, for the proper configuration of such targets.
(iii) Situation analysis—the master plan must analyze the current status,
potentials, and obstacles of the domestic industry in question. Data should
8

Targets are also called goals, objectives, strategies, action plans (different from “action plans” in (v)below), and so forth. We regard all of these as “targets” as long as they set some qualitative or
quantitative aims to be achieved.

98Policy Procedure and Organization for Executing High Priority Industrial Strategies

be presented in tables and graphics, and the results of surveys andbenchmarking should be reported (if available and relevant). Information
should not be thrown in randomly but must be inserted with a clear purposeof making certain points.

Routinely reviewed issues include the past

performance of output, capacity, demand, export and import, andlocalization; product mix and producer profiles; regional distribution of
production; labor quality and market; productivity and competitiveness;
demand forecasts; and global, regional or domestic market trends that may
impinge on the development of the industry.

The appropriate selectionof these analyses depends on the degree of understanding and consensus
among stakeholders.

If businesses, policy makers and experts generally

agree on the current position of the domestic industry, situation analysis
can be brief or even skipped.

If, on he other hand, policy formulation is inan early stage and stakeholders do not yet share basic information, situation
analysis becomes an integral part of the master plan.
(iv) Policy issues—after the industry situation is reviewed comprehensively in(iii), specific aspects that need to be fortified by policy to realize vision (i)and targets (ii) above must be identified and analyzed.

The issues may

call for removal of negatives or strengthening of positives.

Obviously,

which issues are most important cannot be prejudged because circumstances
differ from one industry to another and from one country to another. Here,some of the common focal issues are listed by way of examples: skills andtechnology, cost reduction, quality improvement, product design anddevelopment, input procurement (localization and supplier policy),marketing, export promotion, infrastructure, financing, labor supply andworkers, and so on. The most relevant topics for the industry in question
should be identified and agreed among stakeholders, and studies should be
conducted for each of them.

It is important to work on prioritized issues

only rather than cover all issues broadly and superficially.

Issues raised

here should be given concrete solutions in the following action plan section.
(v) Action plan or action mechanism—an action plan matrix or an action
mechanism is essential for ensuring implementation. An action plan matrix
99

CHAPTER 4

is a large table that translates analyses and proposals conducted in previous
chapters into concrete actions.

It may be included in the master plan text

or prepared in a separate document.

Either way, it is crucial that its

progress is monitored and reported to the government at regular intervals
and any problems are attended to as they arise.

The action plan matrix

typically contains the following cells: actions, sub-actions, deadlines,
expected output, performance criteria (success indicators), main responsibleorganizations, and other cooperative organizations. One sample format
from Zambia is presented in Table 4-2.

The implementation procedure,such as who will report what to whom by when, must also be specified
alongside the action plan matrix.
Table 4-2. Zambia: Action Plan Matrix Format for the Triangle of Hope Project (Example)
Recommendation
Activities
Status Expected Status
Activity Respons Monitoring(action)(sub-action)
outputperiodibilityindicator
Promote investment 1. Identify land Little
Land forNot yet Jun. 2007 MACO
Monthlyin cotton production
to be held in progress cotton
started(main), reportby allocating land to
MACO trust
production
MoL
appropriate(sub)
2. Write to MoL Not yet identified
producers
for title deed started andsecured3. DevelopDoneadmmechanismfor farm
blocksNote: Extracted and edited by the author.
an industrial zone.

The Triangle of Hope Project aims at improving investment climate and establishment of

Alternatively, an action mechanism, such as a high-level monthly committee
chaired by a top leader or minister, or a well-focused budgeting and projectapproval process coordinated by an effective hub organization, can be
adopted. Compared with the action plan matrix approach which stipulates
all actions in advance, these process-oriented approaches are more flexible
in coping with shifting circumstances.

However, their success requires

strong and effective guidance by the leader or the designated hub organization.
In cases where political and administrative support for policy execution is
weak, the action plan matrix approach may be preferable.

100Policy Procedure and Organization for Executing High Priority Industrial Strategies

An industrial master plan must be implemented and supported by all stakeholders. A
policy document, however excellently written, is just paper if it is not implementable.
As we close this section, a few general features that must be satisfied throughout
chapters can be reiterated.

These can be attained more easily if proper policy

procedure and organization discussed in the previous sections are already in place.
First, relevance and conciseness should be the criteria for including any informationin policy documents.

All text and data should support the main arguments andproposals of the master plan. Statistics that add little informational value, abstract
words with no concrete implication such as “improve,” “strengthen,” and “level up,”and general statements applicable to any industry in any country should be removed
as much as possible.

If all chapters are logically connected, it is possible tosummarize relations among key targets, strategies, and actions in one diagram ortable—as done in Thailand’s supporting industry master plan in 1995 andautomotive industry master plan 2007-2011.
Second, flexibility and adaptability must be ensured across countries, sectors and time.
Since all industries are different and countries face different challenges, cookie-cuttermolds cannot be applied to the making of master plans. Even for the same industry
in the same country, shifting circumstances will call for policy revisions over time. In
particular, the relative scope of government intervention must be set properly. The
optimal borderline between state and market must continue to be re-drawn for eachindustrial master plan. Industry’s characteristics such as capital intensity, gestation
period, product type, and market volatility should influence the appropriate weight ofstate intervention. In addition, the maturity and dynamism of the private sector andgovernment’s policy capability should also be taken into account.

Creativity isneeded to fit policy documents to the changing reality of the industry in question.
Third,

properbalancebetweenpre-determinedactionsandflexibility

in

implementation must be pursued. In general, the higher is policy capability, the more
flexibility should be given to policy makers. In the early stages of policy learning, it isa good idea to regularly and strictly monitor the progress of each pre-agreed action.
This will increase the percentage of actions implemented, but at the cost of agility as
situations change. As implementation is generally assured and policy response to101

CHAPTER 4

shocks is learned, rigid policy matrices should give way to the improvise-as-you-go
approach. For this reason, low-income countries usually spell out proposed actions
in large tables while advanced countries prefer to state strategies generally or even doaway with master plans completely, and leave annual project formulation, budgetingand institutional revisions to a competent organization in charge.
Mr. Vallop Tiasiri, President of the Thailand Automotive Institute which drafts theautomotive master plan, prefers the process-oriented approach in ensuring
implementation.

Although the first automotive master plan of Thailand(2002–2006) had a large action plan matrix, the second automotive master plan(2007–2011) has only a small action summary table and relies heavily on ongoingproject-based implementation toward agreed goals.

If in any given year greater

budgetary resources and more projects are available, policy implementation isaccelerated and vice versa. In the case of the Thai automotive industry, strong
leadership exercised by Mr. Vallop and his institute, and deep trust and information
sharing among industry, government and donors, enable such an approach.9

4-6. Suggestions for Ethiopia
In the course of the Ethiopia-Japan Industrial Policy Dialogue conducted quarterly
since June 2009, the Japanese side has identified the following three methodologicalproblems which are mutually related.

They are problems common to many of theindustry-related issues in Ethiopia that the Japan International Cooperation Agency(JICA) and Japanese experts have observed or assisted with, including the quick
survey of the basic metal and engineering sector, planning for kaizen
institutionalization, revision of the micro and small enterprise (MSE) development
strategy, and preparation for the industrial cluster strategy.

4-6-1. Quality over speed in policy making
In Ethiopia, priority policies are often formulated in great haste at the cost of quality
9

Interview with Mr. Vallop, November 5, 2009.

102

Policy Procedure and Organization for Executing High Priority Industrial Strategies

and implementability.

We understand that there is an urgent need to industrialize

Ethiopia during the Growth and Transformation Plan (GTP) period, and the top
leader is monitoring the progress of priority strategies.

However, Ethiopia is trying

to achieve great reforms in its mindset and economic structure at much faster speed
than other, more advanced economies—Singapore, Korea, Malaysia, Thailand, andso on—which usually spend about one year to revise an existing industrial strategy
and two to three years to draft a new one.
hurry, take a roundabout way.”

A Japanese proverb says, “When in a

It is better to tread a steady path with sufficient

preparation instead of taking shortcuts which often delays final achievement.
Quality must be the main concern over speed in the formulation of priority
industrial strategies.

New policy must be drafted in proper steps, as shown in

Figure 4-1 above, over a few years as in most other countries.

The prime

minister’s vision, however clear and appropriate, cannot be put directly into thewords and numbers of master plans and action plans without the intervening processof consensus building among all government and non-government stakeholders.
This “missing middle” process must be consciously created by MOI (or any otherlead ministry of any priority issue).

Drafting work may be done internally or

subcontracted to external consultants or academics but only after main policy
contents and document structure have been agreed.

4-6-2. Establishment of inter-ministerial cooperation
mechanisms
Many of the industrial challenges, including kaizen, MSEs, and industrial clusters,
are multi-sectoral issues.

The lead ministry should properly be the MOI, but MOI

alone cannot design and implement comprehensive measures covering trade,investment, technology, quality and safety standards, agro inputs, marketing,education and training, labor, environment, logistics and connectivity, regional
development, ODA, and so forth. MOE, MOUDC, MOFED, MOARD, MOST, etc.
must also be brought in.

However, a lead ministry cannot direct or intervene inother ministries horizontally.

For multi-sectoral issues, a supervisory mechanism

above all ministries must be created for facilitating inter-ministerial cooperation andsolving any problems that may arise.
103

CHAPTER 4

In Ethiopia, one option for this purpose is to establish a national council headed by
the Prime Minister which supervises and coordinates several key industrial
strategies as shown in Figure 4-12.

Under the strong leadership and vision of theprime minister, policy planning should be supervised by the National
Competitiveness Council (the precise name does not matter) supported by issue- andsector-based working groups.

The Council and each of the working groups musthave a responsible ministry which will serve as the secretariat. Members of theCouncil should include heads of concerned ministries and agencies, business leaders
and associations, and academics and experts.

Ministries and agencies participate

in this mechanism in two functions: participation in planning and as implementing
bodies. Inter-ministerial issues and conflicts will be solved at the level of theCouncil with the ultimate decision resting with the prime minister.10
groups shown in Figure 4-12 are for illustrations only.
should select most appropriate working groups.

Five working

The Ethiopian government

However, the total number of such

issue- or sector-specific working groups should not greatly exceed four or five.
Figure 4-12. Ethiopia: A Suggested National Council Approach
Prime Minister
Direct, give mandate

Plan

National Competitiveness Council

Commission
studies, reports

Chaired by PM
Secretariat: PM Office
Concerned ministers,
business leaders, academics

Support, report

Working groups for specific issues or sectors

MSEs

KaizenClusters

TVET

Eng. Educ.

Secretariat:
MoUDC

Secretariat:
MOI

Secretariat:
MOI

Secretariat:
MOE

Secretariat:
MOE

Ministries,
businesses,
academics

Ministries,
businesses,
academics

Ministries,
businesses,
academics

Ministries,
businesses,
academics

Ministries,
businesses,
academics

Ministries and agencies
10

Implement

A similar idea of the National Competitiveness Council is proposed for Vietnam by Professor
Michael Porter of Harvard University in the November 2010 launching seminar of Vietnam
Competitiveness Report 2010 published by the Central Institute for Economic Management ofVietnam and Lee Kuan Yew School of Public Policy of Singapore (Ketels, et al. 2010).

104

Policy Procedure and Organization for Executing High Priority Industrial Strategies

Ethiopia already has the Export Steering Committee presided by the prime minister.
However, as discussed earlier (footnote 5), this Committee is different from andsmaller in scope than the proposed Council as it is an implementing mechanism
mainly for export promotion without policy making authority such as consensus
building and master plan drafting.

One option is to upgrade and expand the scopeof the Export Steering Committee to function as the National Competitive Council
as described above with the designation of new secretariats, lead ministries andworking groups.

4-6-3. Ownership and speed of kaizen institutionalization
On the issue of the proposed institutionalization of kaizen and establishment of theEthiopian Kaizen Institute (EKI), common understanding on who will take theresponsibility for the entire process and what must be done now remains somewhat
unclear.11

Details of the roadmap will be designed by the Kaizen Unit under MOI

beginning in 2011.

But it should be agreed clearly from the outset that policy

substance is to be decided and owned by the Ethiopian side with foreign experts
only filling information and knowledge gaps from the sideline. In some workshops,
we have witnessed the situation where the Ethiopian side asks for concrete
implementable strategies and action plans from foreign experts.

But these must be

prepared by MOI, and the very process of drafting them will constitute policy
learning by which policy skills are internalized.
The roadmap drafting for kaizen institutionalization should not be rushed.

Asargued above, a good roadmap cannot be created within months for such important
issues as national movement for kaizen.

This is especially true for Ethiopia, acountry that only recently began to systematically learn industrial policy making.
Even in Singapore, it took a few decades for its Productivity Movement to produce
clear results. 1211

12

The Productivity Unit was established within the Economic

This statement is based on the situation as of January 2011. Subsequently, the basic modality of
EKI was discussed and agreed between Ethiopia and Japan, and JICA is assisting the design of EKI
to be followed up by further assistance for kaizen institutionalization.
Details of Singapore’s Productivity Movement were reported by Professor Daniel Kitaw of Addis
Ababa University and Professor Izumi Ohno of GRIPS in the Sixth High Level Forum of
Ethiopia-Japan Industrial Policy Dialogue held in Addis Ababa on October 7, 2010.

105

CHAPTER 4

Development Board in 1964, which was upgraded to the National Productivity
Center in 1967 and the National Productivity Board in 1972. The JICA-supported
Productivity Development Project was conducted from 1983 to 1990 in steps withthe awareness stage (1981-85), the action stage (1986-88), and the follow-up stage(1989-).

Only in the 1990s, Singapore felt confident enough to delegate remaining

tasks to the private sector and initiate international cooperation programs to help
other countries in productivity enhancement.
Ethiopia’s current effort at kaizen, which started in July 2009 when Prime Minister
Meles asked for Japanese cooperation, is in its early stage and on track.

In less

than two years, a number of policy discussions and dissemination seminars havebeen held, the Pilot Project supported by JICA is in place, the outcome of its firstbatch has been reviewed, reports are being drafted, and standardization tools such as
manuals and videos are being prepared.

JICA will dispatch another expert for

designing EKI in early 2011, who will work with the Kaizen Unit to initiate aroadmap drafting for kaizen institutionalization.

This is a relatively fast progresseven by East Asian standards and we feel that the groundwork for kaizen
institutionalization has been laid.
When a roadmap for kaizen institutionalization is agreed and when aninter-ministerial coordination mechanism, as proposed above or otherwise, isestablished, MOI as the lead ministry can—and should—mobilize active
participation of all related ministries and agencies toward the ultimate goal of kaizen
institutionalization.

But this will take some time to materialize. In the mean time,

initiating big actions on kaizen before such a roadmap is agreed runs the risk ofbeing ineffective in the long run.

106