In an expert column for the ‘Novoye Vremia’ media outlet Volodymyr Dubrovsky, CASE Ukraine`s senior Economist, estimates perspectives and dangers of an ‘industrial policy’, including the first successful reading of a bill, which gives tax breaks to the ‘industrial parks’.Over the past few weeks supporters of the ‘industrial policy’ (that is, active government intervention, especially such as investments, privileges, protectionism, etc., for a development of the separate industries and companies, particularly industrial ones) carry out an attack.
One has passed a first reading of the bill, which gives tax breaks to the ‘industrial parks’. The government (led by the Prime Minister`s initiative) has launched the National Committee for Industrial Development, with the ex-Party of Regions` member at the head. The Ministry for Economic Development and Trade experiences the resurrection of the notorious Department of Industrial Policy…
All this is explained by saying: ‘There are similar tools in other countries’. And, in general, ‘we also need to give impetus to the development, but how else to do it?’
As you know, every complex problem has at least one simple and obviously wrong decision – and this is the case. Being an expert on institutional and political economy, I am ready to convincingly explain to all interested, exactly why. Probably I will have to write a great and serious article about that.
But, fortunately, one could understand the crux of the problem using a simple everyday example. An industrial policy – it’s like drinking. There is no country where the government would have abstained from the temptation to ‘steer’ the economy in one form or another. And exactly in the same way, almost everybody has tried alcohol at least once, and many drink it regularly – for the same reason: whether it is useful or not, it is very difficult to resist the temptation to make myself better here and now.
In addition, please consider customs, the example of others, and so on. However, is it harmful or helpful? The main argument of the ‘industrial policy’ supporters is like ‘if all the successful countries do (did) that and there is an obvious effect, so, it is useful.’
But that is the favorite technique used by crooks, who exploit the common logical illusion known as ’bug of the survivors’. Indeed, the fact that all successful people (maybe with a few exceptions) at least at some stage of their lives consumed alcohol (and some even abused) does not mean that here lies the key to success. Even if in some cases, for example, when the musician said that he wrote a brilliant song, inspired by a bottle of brandy)).
Because many people have been drinking alcohol, but only few of them became successful. Moreover, we know a lot more people (although mostly far less known), who`s abusing alcohol has born them away, or made them incapable.
The countries are similar to that … ‘Well, if it does not work, that will be not worse! – Lovers of ‘steering’ retreat to the next position. – It is a pity that no one showed that!’
Indeed, no one has shown that in that sense, that neither industrial policy nor alcohol is not proved to be an absolute evil. It is true that the moderate amounts of alcohol do not harm to healthy adults, at least do not cause significant damage. As, perhaps, the moderate industrial policy`s ‘doses’ – to the developed countries with good levels of governance.
Whether they useful or not, we have failed to obtain clear evidences (in both cases), so the space remains for the ‘opinions’, ‘positions’ and ‘beliefs’.
Moreover, the quality of ‘drinks’ also matters: one can join the majority from drinking unlicensed (bootleg) vodka, which is popular among good-for-nothing fellows. But the noble drinks consumed by the rich ones, are clearly less harmful. I personally believe the industrial policy is an evil, but as a bona fide scholar, I admit that it is my opinion in the described case (again, in the case of the countries with the highest quality of public administration), which is not supported by sufficient irrefutable empirical evidence.
However, there are cases when alcohol is strictly contraindicated in any form: at a range of diseases and by congenital defects (in some ethnic groups, such as North American Indians, who genetically lack the necessary enzymes), children and whose, who rehabilitated from alcoholism.
Also, there are not two opinions among specialists on high alcohol doses, especially used regularly. The arguments like ‘my grandfather drank every day a liter of moonshine and lived healthily to 95 years’ show only an outstanding healthy grandfather, and nothing else.
And again consider a complete analogy of ‘industrial policy’: for countries with immature state institutions and high corruption level it is fully contraindicated. Such an approach have driven Latin America into a full… well, as it is softer to say… stagnation (and, characteristically, at that time – with the support of international financial institutions). Of course, one desires to make money – at the expense of others! – using every kind of privileges, that are distributed as a part of ‘industrial policy’. But no one wants to remember that.
But one has to look more often at such examples, because Ukraine from this point of view is a child with North American Indians roots, suffering from a severe form of pancreatitis and living after alcoholism rehabilitation. In 1990s and mid-1990s the last has almost carried Ukraine away. Now the question: Can such a child decide whether to ‘drink or not to drink’, based on the arguments of producers and alcohol ads?
P.S. The industrial policy is not the only way to achieve high growth rates. But let us talk about that next time.