The Return of Industrial Policy and Revival of Pakistan's Economy: Possibilities of Learning, Industrial and Technology Policies

1. IntroductionAfter a long exile during which industrial policy (IP) had become unmentionable among mainstream economists, it has again become respectable. The literature extolling the case for IP has mushroomed in recent years, with a spate of publications both on its theory and practice. Justin Lin and Joe Stiglitz give the title "The Industrial Policy Revolution" to the two volumes emerging from two conferences/roundtables organized by the International Economic Association (see Stiglitz & Lin, 2013; Stiglitz, Lin, & Patel, 2013).1 In the foreword to the volumes, the then president of the association, Joseph Stiglitz, observes that "the roundtables were convened in recognition of the fact that industrial policy is a sort of lynchpin in the economics of development, that the countries that have been most successful in development have undertaken a wide variety of industrial policies and different countries can and should learn from these experiences."The IP that Stiglitz and others speak of is not confined to industry, but also pertains to other activities, particularly in which learning and technological change are important, ranging from the information technology (IT) sector to agriculture with the "Green Revolution" in India and Pakistan being, arguably, a prime example of success with IP.2 Hence, as Noman and Stiglitz (2011, 2015) propose, they are more accurately referred to as "learning, industrial and technology" (LIT) policies, which would also serve to get away from the misconceptions and knee-jerk reactions that the term "industrial policy" evokes (the terms are used interchangeably here, given the familiarity with "industrial policy").Notwithstanding this revival of LIT policies, strong objections and resistance remain from recalcitrant adherents of the neoliberal orthodoxy that was manifested in the so-called Washington Consensus. A more qualified and nuanced set of concerns have also been raised, revolving around issues of governance and rent seeking, and ones that most proponents of IP in the new literature recognize. Thus, they also focus on mitigating the risks and getting the risks-rewards ratio right. It should be noted that risks, failures, and governance challenges are no preserve of LIT policies: they arise in almost all spheres, including programs of liberalization and privatization that also can be - and have been - captured and give rise to enormous rents.In Pakistan, too, there has been a revival of the case for IP, especially at the Lahore School of Economics, with a number of recent articles on the topic in the Lahore Journal of Economics (see, for example, Amjad, 2006; Haque, 2014; Burki, 2008; McCartney, 2014; Rahim, 2012). The particularities of Pakistan today that will have a vital bearing on whether and to what degree these and the economic policy proposals advanced in this paper will be effective or desirable will depend crucially on the politics that undergirds economic management.Pakistan can be characterized as a "conflicted state", referring not only to the challenges of armed conflict and the battle against terrorism, but also to the priorities of policymakers. These refer to both conflicting priorities in economic policies and to the tension between economic and noneconomic objectives. One such type of conflict is that manifested in the form of rent seeking: some rents are more inimical to economic progress than others, and some can be good for economic growth.3 Some such conflicts are inevitable in all societies, but a modicum of consensus or coherence and consistency is essential for sustained success in the sphere of economics. What is involved in seeking and arriving at such a consensus is beyond the scope of this paper. However, it is premised on a sufficient resolution of these different types of conflicts to allow adequate implementation of at least the less challenging - in politico-institutional terms - of its recommendations.The theoretical case for LIT policies has been bolstered and nuanced in recent years by two factors: (i) the focus on externalities in learning and in discovery, which Stiglitz and Greenwald (2014) and Hausmann and Rodrik (2002), respectively, have emphasized; and (ii) the importance of economic structure, which has long been recognized (see Ocampo & Ros, 2011), but revived recently notably in Lin's "New Structural Economics" (2012) and in Ocampo's writings (see, for example, Ocampo, Rada, & Taylor, 2009). …