Demands over the last decade for a shrinking role for the state as provider of public services raise some critical questions. If the state must intervene only selectively, what should the new priorities and policies be? What type of relationship between state and private enterprise is most appropriate in the industrial sector? How can earlier mistakes be avoided? Following investigations into textile and garment industries in India, Sri Lanka and Ghana and Zimbabwe researchers from Birmingham University found that economic reform programmes that are implemented according to a standard formula may not always be the best path to long term industrial development.

Despite expansion in Sri Lanka's garment exports, strategic state intervention and support is required to ensure investment for its future survival. In Ghana, economic reform programme adversely affected textile production. It was particularly hard hit by a huge expansion of imported second-hand clothing from the West. Economic reform in India has brought a number of benefits, but new competition has dramatically reduced the number of mill operations which were previously protected. Regional variations are wide, but in Maharashtra state 40 percent of yarn mills have closed, creating over three million unemployed. Weavers seek government intervention to reduce price fluctuations.

Although the state may cease to be a direct producer, regulation of trade, taxes and other factors of the market will still affect industrial performance. There have been some benefits from privatisation, but results have been mixed. It is difficult to apply trade interventions to protect any one sector. Economic reform and liberalisation do not cure all the problems of the market and need to be implemented differently in different countries. Inefficiencies and inequalities - market failures - continue to exist and strategic intervention by the state is still necessary. However, one major difficulty is the high level of skills required by state personnel and policy makers to implement these new-style interventions. Other key observations in the study report are that:

• strategic intervention by the state cannot be abandoned because market failure continues to exist
• selective interventions require high levels of skills and capabilities from government personnel
• privatisation has brought some benefits but has proved difficult to implement in some countries
• finance regulation and stimulation of investment requires complex trade-offs and subtle policy skills
• states seek to boost competitiveness by balancing wage/cost restraint and long-term skills development
• states can help industry develop sector plans, investment programmes, and infrastructure/technology.

The main policymaking implications are that:

• standard liberalisation packages may not be the best path to long-term development
• roles the state can play in supporting industrial development are not yet easy to identify or separate out
• to work, interventionist liberalising policies require of the state a range of new skills and capacities which are often lacking
• policies to boost labour skills and win cost advantage by curbing labour costs must be finely balanced
• states can help to strengthen the labour market by assisting in the democratisation of labour institutions.

Source(s):
The Role of Government in Adjusting Economies, Paper No. 8: The State and Economic Management: A Policy Framework for Industrial Development, by Richard Slater and Paul Jackson (1996)

Funded by: ESCOR (DFID), UK (1995-1996)

id21 Research Highlight: 1998-June-19

Further Information:
Richard Slater or Paul Jackson
International Development Department (IDD)
School of Public Policy
The University of Birmingham
Edgbaston
Birmingham
B15 2TT
UK

Tel: +44 ( 0)121 414 4985
Fax: +44 ( 0)121 4147164
Contact the contributor: SLATERRP@spp2.bham.ac.uk

The International Development Department of the School of Public Policy, University of Birmingham, UK