Listener. March 20, 1993

Back in the 1960s, different disciplines at the University of Sussex made a commitment to work together. The more advanced social statistics course was taught to all social scientists, psychology tutorials were taken by an economist and economics students were taught by a psychometrician, To this multidisciplinary environment came a young New Zealand economics graduate who wanted to study anthropology. Afterwards Robert Wade joined the Institute of Development Studies (IDS) on the Sussex campus as an economist; he has been there since with occasional secondments to other research institutions, and field work in Italy, India, South Korea and Taiwan.

His anthropological training means Wade spends considerable time on site, rather than – as many economists do – imposing prejudices following a quick survey. In recent years his focus has been the experience of the East Asian ‘dragons’, those newly industrialising countries (NICs) with outstanding growth records. The outcome, Governing the Market is making a major contribution to the debate on industrialization strategies. is a major contribution Here is a list of 10 prescriptions from analysing the practical experiences of successful NICs.

1. Use national policies to promote industrial investment into industries whose growth is important for the economy’s future growth.

2. Use protection to help create internationally competitive industries.

3. If the wider strategy calls for heavy reliance on trade, give the high priority to export-promotion policies.

4. Welcome multinational companies, but direct them towards exports.

5. Promote bank-based financial system under close government control.

6. Carry out trade and financial liberalisation gradually, step by step.

7. Establish a ‘pilot agency’ or ‘economic general staff’ within the central bureaucracy whose policy heartland is the industrial and trade profile of the economy and its future growth.

8. Develop effective institutions of political authority before the system is democratised.

9. Develop corporatist institutions before the system is democratised.

10. Make piecemeal reforms so as to create an institutional configuration better able to support a modest industrial policy.

Perhaps the last three are not relevant to us, but in recent years our economic policy has ben largely opposed to the first seven.

Wade’s is not just another economist’s opinion. The book has been written in the context of the robust multidisciplinary debate of places like the IDS, which cannot impose any ideological line. He has had to confront alternative analyses – especially from the advocates of the ‘free market’ – and the book constitutes a dialogue.

The author favours the ‘governed market’ – one where the government consciously uses the market to attain strategic ends. The market becomes an instrument of economic policy, not the policy itself. Instead of asking – as New Zealand has in recent years – how to make the market competitive with the assumption (or hope) that the resulting outcome will be beneficial, the approach of market governance is to ask whether this of that market arrangement can assist the wider strategy. ‘Wider strategy’? Is that not picking winners? Wade says the NICs have, and their economies have succeeded as a result.

Free-market accounts of successful NICs tend to ignore their widespread interventions, which make Rob Muldoon appear an economic liberal. In which case why did Muldoon’s New Zealand do so badly? One answer is that our interventions were inward-looking, more concerned with protection than exports. That is partly true, but increasingly the effort was going into exports.

A second answer is that New Zealand was adapting to a fall in the terms of trade (the relative price of exports) so that a successful industrialisation strategy was obscured by problems in the pastoral sector. There is certainly some truth in this. New Zealand’s relatively high income in the past was partly because of the favourable export prices we received. When they collapsed in 1966, the economy had to go through an enormous adjustment.

A third answer is that from the late 1970s to 1985 the New Zealand economy was growing faster than the OECD. That is right, our growth record was above average, until the Rogernomic policies were implemented. Moreover the evidence suggests that part of the reason for the success was the expansion of industrial exports. This my be contrary to the conventional wisdom but it is more consistent with the facts.

Wade’s book is not an isolated challenge to the free market. There is a wide-ranging international debate about the role of industrial policy – with market governance sometimes called the ‘new interventionism’. However some of its advocates are simply old-style interventionists trying to justify protection for self-interred. This is particularly so in the United States.

But this bandwagon-hopping should not stop us from learning from the debate. Otherwise will continue with a poorly performing economy unable to cope with the challenges the world poses, because we are unwilling to learn from the lessons the world presents.