Lahore School of Economics

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The Political Economy of Industrial Policy: A Comparative Study of the Textile Industry in Pakistan
March 27, 2014

Dr. Matthew McCartney, University of Oxford

It is commonly accepted that industrial policy was crucial for forcing structural change and technological upgrading within industrial sectors (as well as export growth) within the successful Asian economies between the 1950s and 1990s (Khan. Amsedn, Wade, Chang). It is also argued, but less commonly that such a practice characterised the now developed econonies of Western Europe and North America (Chang, Bairoch). Whether such industrial policy provides a lesson that can be learned by other contemporary developing countries is dismissed by the World Bank (1993) who argued that the very demanding organisational and institutional pre-requisites for successful industrial policies do not exist in most developing countries. Very widespread is the argument that tighter rules from the WTo do not allow developing countries to follow the pro-active industrial policies of earlier eras and that such actions amount to a 'kicking away of the ladder' by the WTO at the behest of developed countries fearful of potential competition from newly industrialising developing countries. Other arguments have focused on the impact of trade and capital account liberalisation reducing the scope for activist policy intervention by the state.

This paper will seek to examine those last two hypotheses. It will argue that there does exist space for industrial policy to promote technological upgrading even under contemporary WTO rules and globalisation, but that the requirements are still very demanding of state capacity. The argument will examine the case study of textiles in Pakistan and make a comparison to the experiences of Bangladesh, Malaysia and Thailand. These make useful comparisons in being politically unstable democracies so have more in common with Pakistan than do more common comparisons (South Korea, China). The paper will draw on the comparative perspective to offer suggestions for policy reform.

About the presenter:

Matthew McCartney is the Director of South Asian Studies; Associate Professor in the Political Economy and Human Development of India. He has studied for a BA in Economics at King’s College, Cambridge (1993-1996) followed by an MPhil in Economics at Keble College, Oxford (1996-1998). After spending two years (1998-2000) in Zambia working in the Ministry of Finance under an ODI Fellowship he returned to academia doing a PhD under Mushtaq Khan at SOAS, London. He remained at SOAS for eleven years, graduating from PhD student to a Lecturer in the Economic Development of South Asia. He then returned to Oxford in September 2011 to take over from Barbara Harriss-White as Director of the South Asia Programme.

Dr. McCartney describes himself as a political-economy macro-economist. His research interests include the role of the state and late industrialisation; He developed an original framework for analysing the state and applied it to books on India (2009) and Pakistan (2011). In preparation and due for publication is something much broader, looking at the distinction between the proximate (investment, population, productivity) and deeper determinants (institutions, culture, geography, history and openness) of economic growth in the context of the world economy over the last five hundred years.