Good Development Policy Matters, But So Do The Public Servants That Do It

“Does it work, fine, let’s continue it. If it doesn’t work, toss it out, try another one.”
Lee Kuan Yew, Former Prime Minister of Singapore, September 2007

 “… one key advantage over other countries [is]—a clean, competent civil service.”
Minister Teo Chee Hean, Singapore, March 2007

The above quotes of a former Singaporean Prime Minister and Minister capture important dimensions of the reason for the country’s success, which has seen  GDP per capita rise in constant dollars from $2,250 in 1965 to $36,900 in 2013.

This reflects a truly remarkable journey from being one of the poorest countries in the world to one of the richest today.

Lee Kuan Yew’s quote expresses one of the government’s approaches to the proactive, pragmatic industrial policy (IP) that the country has successfully deployed since independence in 1965 and which has driven the country’s sustained economic growth and structural transformation over the decades.

A key to effective IP is policy experimentation in identifying the binding constraints to achieving development objectives and in  designing  effective promotional instruments to achieve the objective among the many potential instruments that are available. However, successful experimentation  demands an ability  to recognize a failed policy or instrument (some might say the ability  “pick losers”), avoid “capture” by special rent-seeking interests and thereby adjust accordingly to try again as long as the objective remains a priority.

That leads us to the quote by Minister Teo.

In order to be able to identify objectives, binding constraints, policy instruments, evaluate their effectiveness and toss out those that do not work and try again, a country’s government  needs a motivated, well-paid,  professional, technically competent civil service organized in a framework that facilitates transparency, flexibility, delegation of authority and accountability.

Indeed, historically  no country has succeeded in economic catch-up with rich countries without strong “state capacity”,  which in fact constitutes an international  comparative advantage for those countries which achieve it. Moreover, this capacity has not been a monopoly of “paternalistic” states like Singapore, but also of very open successful societies that have caught up with rich countries such as Finland and Ireland.

Industrial policy is now back in fashion after an ideological hiatus (“the best IP is no IP”) during the Washington Consensus era. The new IP has modern characteristics that are different from many of the practices in the second half of the twentieth century.   Contemporary discussion of industrial policy mostly centers on a long list of proactive government policy interventions that a country should pursue for structural transformation.

Much less discussion is about building state capacity to do industrial policy right. This is unfortunate since public civil services of many developing countries lack a professional, merit-based organization and pay sufficient to recruit and maintain the best and the brightest into government.

Moreover, the ministries and public executing agencies in developing countries which typically engage the private sector at the microeconomic level (in support of innovation, education, FDI attraction, SME upscaling, etc.)  also  often are the weakest in organization and human and financial resources. In contrast, central banks and ministries of finance have developed much capacity, in part because of pressures channeled through the Washington Consensus’ great focus on macroeconomic stability.

So while good development policy matters so do the people who are responsible for selecting and implementing policy. Of particular importance are the public executing agencies and their staff since they must be the front line “work horses” of industrial  policy.

Hence, governments must tax and invest sufficiently to build a world class public civil service and donors should be complementing these home-grown efforts by aggressively supporting institutional modernization and staff training  in the microeconomic areas of government that directly support the economic transformation of the private sector.

By Robert Devlin      

Suggested Further Reading:

• Ravi Menon, Permanent Secretary, Ministry of Trade and Industry of Singapore (2010), “Markets and Government: Striking a Balance in Singapore”, 22 October.
• Robert Devlin and Graciela Moguillansky (2011), Breeding Latin American Tigers: Operational Principles for Rehabilitating Industrial Policies, Washington D.C., World Bank Publishers.
• Inter-American Development Bank (2014), “The Hard Part: Building Public-Sector Capabilities” in Rethinking Productive Development, edited by Gustavo Crespi, Eduardo Fernandez-Arias and Ernesto Stein, Washington D.C., Chapter 10
• Dani Rodrik (2006), “Goodbye Washington Consensus, Hello Washington Confusion”,  Journal of Economic Literature, Vol. XLIV,  December.