jmushi1
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- Nov 2, 2007
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Practically all societies at early stages of their development have viewed industrialization as the main vehicle for improving living standards. It is not surprising, therefore, that governments have played an active role in promoting industrialization. This topic attempts to throw some light on this role and evaluates the various government policies in support of industrialization in developing countries in general.
The role of government in promoting industrial development in developing countries is vital for the following reasons:
1. The government has to see the rules of the game, which define the use, owner ship, and conditions of transfer of physical, financial and intellectual assets. Irrespective of the type of economy - whether it favors private enterprise or is a command - economy - these rules impinge on economic activity. The more they are certain, well defined, and well understood, the more smoothly the economy can work and the greater the chance of success of industrialization
2. The government must play a major role in education, including providing the basic skills of literacy and numeracy that are vital in modern industrial labor force. Lack of education, rather than physical assets, is the main bottle neck in industrialization. The transition from a primarily agricultural and trading economy to an industrial economy requires, at least in the initial stages, an increase in the skills of the labor force. To use foreign technology effectively, producers must examine the choices available, make intelligent selections and adapt them to local conditions. All of this calls for education. Also, the government can help, at least in the early period of industrialization, to promote industrial research and technological change, for example by setting up demonstration factories. Education spurs the process of industrialization by imparting skills, improving health, and allowing more women to enter the labor force. Education and investment in technological knowledge go hand in hand. Countries that neglect any one of these forms of investment may not be efficient in industrializing. China, Hong Kong, Korea and Singapore have all achieved a significant level of economic growth. All adapted a balanced investment strategy that included education along with increased physical capital and technological transfer.
3. The government may have to play an important role in advancing technology which is vital to the industrialization process. Often technological knowledge is a commodity that can be traded like many others, but it has some peculiarities which sometimes make trade difficult. These are frequently used to justify government intervention. Producers of technology often face high risks, since the outcome of innovation is uncertain and technologies can sometimes be easily copied. Purchasers of technology also face risks, because they often cannot know just what they have bought until they acquired and used it.
Thus firms may expend less technological effort than desirable if they are unable to reap the outcome for themselves. Governments can deal with the externality problem in several ways.
a) The government may allow firms to register patents.
b) The government may subsidize technological effort.
c) The government may attempt to promote specialized agents for technological development, usually publicly supported research and development institutes.
d) The government may seek to establish technology information centers which could charge private users a small fee for access to their data bank.
4. The government must provide the physical infrastructure of industry; transport, communications and power systems. Although some parts of such systems can be, and are, profitably operated in the private sector in many countries, government provision of large systems in most developing countries is usually the only feasible option. Government involvement in the provision of transport, communication and power occurs for several reasons:
a) There is a public goods argument in cases where user fees are difficult to collect, although governments can sometimes levy indirect user charges-they might finance roads, for example, from the revenues derived from gasoline taxes and license fees.
b) Large projects, telecommunications, railways and electricity and gas production, for instance - may involve economies of scale. In other words, a single investment might be more efficient than a number of competing investments.
c) The preference in most countries for public enterprises may reflect a belief that control is better exercised through ownership than through regulation.
d) For large projects, underdeveloped financial markets or political risks might deter private investments.
5. Virtually all governments provide at least some commercial goods and services through state-owned enterprises. These enterprises are important producers of a broad range of industrial products such as steel, fertilizers, automobiles and petrochemicals. Governments have created them for a variety of reasons:
a) To spearhead industrialization in countries with virtually no large-scale industry.
b) To promote industries deemed to be of strategic importance.
c). to save threatened jobs.
d) To reduce the presence or prevent the entry of foreign-owned firms.
The state-owned enterprises would seem to operate efficiently when competition has been greater, when managers have had more financial autonomy, when poor performers have been removed and good ones have been rewarded, and when government interference with day-to-day operations has been reduced.
6. Governments often intervene in markets to improve economic performance, to limit abuses (such as fraud and pollution), and to protect public health.
7. The government must take steps to increase the information available to producers and to protect consumer welfare. Governments have a comparative advantage in collecting and disseminating certain kinds of information, especially in developing countries, where information is scarce and education is poor. All governments provide basic statistical and other information on their own activities and on the economy in general. The government may also play a useful role as a clearing house for information and forecasts on domestic and foreign markets and technologies.
8. Governments also need to regulate to protect welfare through various regulations such as checking weights and measures, establishing health standards for food and drugs and air, land and water pollution, requiring product safety standards and product guarantees and imposing safety standards in the work place.
9. The government may have to regulate financial markets to prevent abuses such as insider trading, to require companies to disclose more information and to require financial institutions to insure their smaller depositors. Fiscal and monetary policies are often employed to promote economic health and to achieve a variety of desirable social goals. Experience suggests that the governments of market economies which have efficiently industrialized have, by and large, observed the hierarchy of priorities described above. They have established clear rules of the game, contributed judiciously to the construction of an industrial infrastructure, and otherwise intervened sparingly and carefully. Some developing countries, however, have undermined their industrialization efforts by approaching these choices in reverse. In the more extreme cases, public intervention in markets has been heavy, but fragmented and in pursuit of conflicting objectives. The rules of the game have been uncertain: These characteristics together, in many cases alongside an inadequate infrastructure - have resulted in poorly chosen industrial investments, high costs of doing business, and the devotion of substantial private resources to getting around the rules or obtaining special economic privileges.
To be continue...
https://www.kau.edu.sa/Files/320/Researches/51518_21653.pdf
The role of government in promoting industrial development in developing countries is vital for the following reasons:
1. The government has to see the rules of the game, which define the use, owner ship, and conditions of transfer of physical, financial and intellectual assets. Irrespective of the type of economy - whether it favors private enterprise or is a command - economy - these rules impinge on economic activity. The more they are certain, well defined, and well understood, the more smoothly the economy can work and the greater the chance of success of industrialization
2. The government must play a major role in education, including providing the basic skills of literacy and numeracy that are vital in modern industrial labor force. Lack of education, rather than physical assets, is the main bottle neck in industrialization. The transition from a primarily agricultural and trading economy to an industrial economy requires, at least in the initial stages, an increase in the skills of the labor force. To use foreign technology effectively, producers must examine the choices available, make intelligent selections and adapt them to local conditions. All of this calls for education. Also, the government can help, at least in the early period of industrialization, to promote industrial research and technological change, for example by setting up demonstration factories. Education spurs the process of industrialization by imparting skills, improving health, and allowing more women to enter the labor force. Education and investment in technological knowledge go hand in hand. Countries that neglect any one of these forms of investment may not be efficient in industrializing. China, Hong Kong, Korea and Singapore have all achieved a significant level of economic growth. All adapted a balanced investment strategy that included education along with increased physical capital and technological transfer.
3. The government may have to play an important role in advancing technology which is vital to the industrialization process. Often technological knowledge is a commodity that can be traded like many others, but it has some peculiarities which sometimes make trade difficult. These are frequently used to justify government intervention. Producers of technology often face high risks, since the outcome of innovation is uncertain and technologies can sometimes be easily copied. Purchasers of technology also face risks, because they often cannot know just what they have bought until they acquired and used it.
Thus firms may expend less technological effort than desirable if they are unable to reap the outcome for themselves. Governments can deal with the externality problem in several ways.
a) The government may allow firms to register patents.
b) The government may subsidize technological effort.
c) The government may attempt to promote specialized agents for technological development, usually publicly supported research and development institutes.
d) The government may seek to establish technology information centers which could charge private users a small fee for access to their data bank.
4. The government must provide the physical infrastructure of industry; transport, communications and power systems. Although some parts of such systems can be, and are, profitably operated in the private sector in many countries, government provision of large systems in most developing countries is usually the only feasible option. Government involvement in the provision of transport, communication and power occurs for several reasons:
a) There is a public goods argument in cases where user fees are difficult to collect, although governments can sometimes levy indirect user charges-they might finance roads, for example, from the revenues derived from gasoline taxes and license fees.
b) Large projects, telecommunications, railways and electricity and gas production, for instance - may involve economies of scale. In other words, a single investment might be more efficient than a number of competing investments.
c) The preference in most countries for public enterprises may reflect a belief that control is better exercised through ownership than through regulation.
d) For large projects, underdeveloped financial markets or political risks might deter private investments.
5. Virtually all governments provide at least some commercial goods and services through state-owned enterprises. These enterprises are important producers of a broad range of industrial products such as steel, fertilizers, automobiles and petrochemicals. Governments have created them for a variety of reasons:
a) To spearhead industrialization in countries with virtually no large-scale industry.
b) To promote industries deemed to be of strategic importance.
c). to save threatened jobs.
d) To reduce the presence or prevent the entry of foreign-owned firms.
The state-owned enterprises would seem to operate efficiently when competition has been greater, when managers have had more financial autonomy, when poor performers have been removed and good ones have been rewarded, and when government interference with day-to-day operations has been reduced.
6. Governments often intervene in markets to improve economic performance, to limit abuses (such as fraud and pollution), and to protect public health.
7. The government must take steps to increase the information available to producers and to protect consumer welfare. Governments have a comparative advantage in collecting and disseminating certain kinds of information, especially in developing countries, where information is scarce and education is poor. All governments provide basic statistical and other information on their own activities and on the economy in general. The government may also play a useful role as a clearing house for information and forecasts on domestic and foreign markets and technologies.
8. Governments also need to regulate to protect welfare through various regulations such as checking weights and measures, establishing health standards for food and drugs and air, land and water pollution, requiring product safety standards and product guarantees and imposing safety standards in the work place.
9. The government may have to regulate financial markets to prevent abuses such as insider trading, to require companies to disclose more information and to require financial institutions to insure their smaller depositors. Fiscal and monetary policies are often employed to promote economic health and to achieve a variety of desirable social goals. Experience suggests that the governments of market economies which have efficiently industrialized have, by and large, observed the hierarchy of priorities described above. They have established clear rules of the game, contributed judiciously to the construction of an industrial infrastructure, and otherwise intervened sparingly and carefully. Some developing countries, however, have undermined their industrialization efforts by approaching these choices in reverse. In the more extreme cases, public intervention in markets has been heavy, but fragmented and in pursuit of conflicting objectives. The rules of the game have been uncertain: These characteristics together, in many cases alongside an inadequate infrastructure - have resulted in poorly chosen industrial investments, high costs of doing business, and the devotion of substantial private resources to getting around the rules or obtaining special economic privileges.
To be continue...
https://www.kau.edu.sa/Files/320/Researches/51518_21653.pdf
