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The Politics and Policies of Industrial Upgrading in Taiwan and Thailand - a comparision”

Faculty of Economics Thammasat University Laurids S. Lauridsen Roskilde University, Denmark

Introduction (1)

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Monograph: ”STATE, INSTITUTIONS AND INDUSTRIAL DEVELOPMENT. Industrial deepening and upgrading policies in Taiwan and Thailand Volume I-III (1002 pages) Thailand during the period 1991-2001 (plus appendix 2001-2005) compared with Taiwan mostly in the 1980s Thailand compared with Taiwan in the 1980s and early 1990s Policy domains:

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Sectoral: Upstream petrochemical industry

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Sectoral: Downstream plastic (parts) industry Sectoral: Side-stream mould & die industry

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Cross-sectoral: SME- and linkage policy Cross-sectoral: Industrial technology policy ”The middle income trap”

Introduction (2)

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‘But even as the region celebrates recovery, new challenges loom, which could slow or even derail growth if not properly handled find themselves in a – economies could ‘middle income trap’ and struggle to climb onwards to higher income levels. History shows that while many economies can reach middle income status quickly – often quite – few pass through it because the policy and institutional complex and changes more politically and socially.

’ needed challenging are more technically,

(World Bank. April 2007. East Asia & Pacific Update, 10 Years After the Crisis, The World Bank, East Asia and Pacific Region).

Introduction (3)

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Research focus: the ability and willingness of the

state to design and implement an adequate and coherent set of strategic industrial policies, and the likely impact of such policies on industrial deepening and upgrading

Policy process analysis: agenda setting - policy formulation - policy implementation - (likely) policy impact The starting points:

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Historical institutionalism - institutional arrangements and path dependence

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The development state debate - developmental governance

The ”Good governance” approach

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”Good governance” (rule of law, control of corruption, accountability etc.) = market sustaining governance that leads to market efficiency (low transaction costs) which in turn results to economic growth and poverty reduction Strong influence in development studies and donor practices Advanced countries have pretty ”good governance” Neither high-growth or low growth developing countries have particular ”good governance” Differences in good governance weakly explain differences in economic performance (sustainable economic development) Introduces institutional mono-culture (if possible) Good governance might be desirable on its own - but difficult to implement in developing countries

The ”Developmental Governance” approach

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Governance that allows for firmly state response to changing circumstances through effective implementation of adequate strategies (policy decisiveness) Growth-enhancing strategies productivity) – productive investments, investments in growth sectors, accumulation of technological capabilities, technological upgrading (higher Developmental governance

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Implemented by heterodox institutions (formal or informal)

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Different strategies and institutional pluralism Learning and experimenting Specific historical and political context

Dynamic and sustainable industries Design and implementation of strategic industrial policies Institutional Capacity Internal organisation of the bureaucracy State-industry linkages Regime orientation Geo-politics, Leadership, State elite challenges, Political institutions, Political conflicts, Political exchange relations, Coalitional politics and Legitimacy

Strategic industrial policy

Nine basic characteristics: 1.

Pro-investment 2.

3.

4.

5.

6.

Pro-technology Pro-competition Pro-export orientation Strategic integration in the world economy Anticipatory (’making winners) 7.

8.

9.

Mixture of support and discipline Activity-specific and situation specific Coherent and coordinated

Industrial deepening and upgrading.

INDU STRIAL DEEPE NING INDUSTRIAL UDGRA DING

Basic SME Linkage Supplier development industry policy policy policy Industrial technology

policy

policy Upstream olefin- plastic enterprises Plastic parts processors Mould and die manufacturers

Main findings (1)

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Industrial development before 1990 (1980)

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TW: SOE. Private conglomerates, SMEs + ISI-cum-EOI TH: Private conglomerates + prolonged ISI State intervention before 1990 (1980)

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TW: comprehensive industrial policy, protect domestic learning processes, selective policies, TNC guiding and regulation, domestic inputs, domestic savings, organisational and technical learning, human capital

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TH: modest, ad-hoc, accommodating industrial policy, certain structural change intervention, trade policy guided by revenue consideration and protecting vested interests, little TNC regulation, weak technological base and inadequate education system

Main findings (2) - Petrochemicals (olefin – plastic resins)

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More similarities than expected

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State control and state leadership - PTT and CPC Large (well connected) domestic conglomerates Policy – coherent and fairly effective implementation.

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Entry control: Restricted access and favourable incentives Managed trade (plus guided prices in TW) Feedstock pricing: give-way-rents versus reciprocal subsidies Liberalisation (1990s) but financial discipline in TW Institutional arrangements

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Pilot agencies – bureaucratic expertise Particularistic state-business interaction Local world class producers in TW

Main findings (3) – SME-, linkage- and supplier development policies

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Deepening of import-intensive ISI/EOI assembly industries More similarities than expected

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No comprehensive linkage and supplier development policy policy

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No comprehensive and coherent SME policy But differences in relation to

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Financial assistance Technical assistance

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Plastic parts Mould & Die Other relevant policies and incentives in Taiwan

Main findings (4) – Industrial technology policy

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Importing foreign technology- technology acquisition Promoting and financing private sector technology efforts Public sector R&D - innovation related and service-related infrastructural support (MSTQ) S&T manpower policy - human resources for technology development Demand side technology policies - direct and indirect

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Main findings (5) – macro-institutional arrangements and socio-political underpinnings

Developmental orientation and urgency The internal organisation of the state

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A single party-based authoritarian state versus short-lived coalition governments

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Fiscal and monetary control Coherent and strong versus fragmented and weak industrial policy institutions Public-private sector interaction

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The economic organisation of the private sector Institutional strength of business associations Institutionalised versus particularistic public-private links Broader state-business relations The broader pattern of political competition and coalition-building