Passive vs Anticipatory Industrial Policies - Coursework Example

INDUSTRY POLICIES Institutions Name Name Introduction Industry policies can be defined as the policies that a nation uses in order to guide the total strategic effort of the country. The policies are aimed at guiding the development of different sectors of the economy hence creating a stronger portfolio of national industry. Most countries prefer to use industrial policies as a way of promoting the growth of their manufacturing industries. The governments will mostly come up with some strategies that improve the competition of domestic firms and consequently encouraging structural transformation (Wade, 2003). Most industrial policies assume an intervention style as opposed to laissez faire economies. The common elements in many industrial policies are trade and fiscal policies. For example, a country may decide to impose barriers to some key sectors of its manufacturing companies by imposing heavy taxes on imports and denying importers licenses of trade. Such actions have been used as industrial policies. However, there has been a sharp divide on whether passive industrial policies are more effective compared to anticipatory industrial policies. Passive vs Anticipatory Industrial Policies The recent global economic meltdown in 2008 has left many countries strategizing on whether to use passive or anticipatory industrial policies in order to avoid cases of economic crunches (Blundell-Wignal et al., 2009). The European Union has also been in the forefront championing for its member’s states to shield themselves from any looming cases of financial crisis. After the global recession in 2008, many countries were faced with difficulties as industrial competitions become stronger limiting access to resources that dictated effective management. After the recession most of the countries have also learned that the environment does not limit growth since greener development solutions are becoming more plausible. According to Stephen Bell, some comparative research in industry policies has shown that industrial policies have been employed even with non-interventionist’s countries like the US (Bell, 2012). For example, the US has been able to employ some wide ranging industrial policies. The author also feels that countries that are engaging in industry policies must diversify their policy goals. According to Atkinson and Coleman’s model of anticipatory industry policies, countries such as the US must categorize and analyze their national styles of policy regulations. The two authors propose three dimensions with anticipatory policies that have been used with different countries to try and avoid economic crisis. The first category is policy objectives. After the 2008 economic recessions, many countries decided to protect their industries from competition mostly resulting from foreign countries. On the other hand, countries have also contemplated combining anticipatory and passive industrial policies as a way of averting economic crisis. However, it is considered that anticipatory industrial policies are not the best since they only react after the economic crisis has occurred. For this reason, many economists prefer to use passive industrial policies that act as a shield to potential looming economic crisis. Atkinson and Coleman also propose the degree of state intrusiveness when it comes to anticipatory policy regulations. The authors also point out that anticipatory approaches aim at structural intervention while passive industrial policies aim at environmental intervention. With anticipatory industrial policies, the rationale is based on attaining national economic goals hence; preparations for intervention are targeted and selective in consideration to industries that are strategically important for industrial change (Tybout, 2000). Atkinson and Coleman also propose policy integration as a way of dealing with anticipatory policies integration. Anticipatory policies require that the country react to the financial crisis especially those that seem like are electorally relevant. For this reason, the method is not preferable as it produces a patchwork of incoherent results. On the other hand, researchers believe that passive policies if planned and coordinated according to industry policies may prove productive in the long run (Peek, 2000). The current crisis in Ukraine can act as an example of anticipatory industrial policies. The recent crisis in Ukraine proved to be a hard nut to crack for Russian economy. Moreover, the shooting of the Malaysian airline in Ukraine added to the already high political temperatures (Pan Pylas, 2014). US had warned that if Russia was involved or backed the separatists involved in the shooting of the flight MH17, then Russian energy industries would face sanctions said a CBS reporter (Bruce Kennedy, 2014). The report further indicates that Russian energy economy is struggling because of sanctions from the western countries. However, most countries are reluctant to apply the sanctions since they depend on Russia as a source of energy. Russia also supplies about one fourth of overall gas and oil for countries within the European Union. It is also reported that such sanctions may not apply since European Union is still trying to recover from the recent global recession. For this reason, Russians have been reluctant to employ any anticipatory industry policies as they know that such policies are not better for the current situation in global economy. In addition to this, any financial breakdown in Russia is likely to affect the US as they also depend largely on Russia for energy (Tom Pfeiffer, 2014). Despite the recent crisis in Ukraine, Russia has been struggling economically mainly because of poor reforms after the breaking of the Soviet Union. Many economists say that the recent developments in Russia and Ukraine are important lessons that must be learnt by European countries that depend on Russia as their main source of energy. For this reason, passive industrial policies must be embraced in order avert any form of a looming financial crisis. Passive industrial policies are mainly focusing on horizontal measures as well as reduction of the role of the state and antitrust policies. However, economists have noted with concerns that passive industrial policies are not enough in order to attain economic growth. While comparing passive industrial policies to anticipatory industrial policies, the former is preferred since government’s role is reduced (Altenburg, 2011). Government interventions have been found to contribute negatively in industrial firms as forces of demand and supply are not obeyed. Once the forces of demand and supply have been bent it becomes for most companies to attain maximum profits and revenues. Passive industrial polices have been found to depend largely on the State’s strength and its power. For example, a country like the US has a lot of control over its financial resources hence centralizing most of its operations. Consequently, countries with weak traditions and structure are likely to suffer from economic crisis (Cimoli, Dosi, & Stiglitz, 2009). The same can be applied to the recent crisis in Ukraine. Despite Russia being a large exporter of energy in Europe, the country still suffers from economic crisis. Such challenges have been tied to weaknesses in power structure possibly resulting from the breakdown of the Soviet Union in 1991. 18 states under the Eurozone have been experiencing economic crisis especially after Russia advanced its troops in Ukraine. Stocks have been melting and business was low said one German investor. Germany is the largest economy under the European Union. However, when Vladimir Putin announced that it was recalling its troops from advancing in Ukraine the news was welcomed whole heartedly with the share index in European Stocks increases. Under such circumstances most of the countries under the European Union have been forced to employ anticipatory industrial policies in order to protect against any economic challenge. On the other hand, according to Westminster model of parliamentary government and federalism, anticipatory industry policies should be discouraged as they weaken the state. The model argues that anticipatory policies only weaken the state and encourage rapid diffusion of political power and hence giving few options of erect consensus building institutions (Bell, 2012). The model can be used to compare Russian government. The weakened economic status is rooted in its institutions that have proved to be so porous. Russia must learn to protect its economy from exploitation. The country must also ensure that its economy is diversified in such a manner that it is not dependent on energy as the main source of income. Under such circumstances, Russia must be able to distinguish the extent at which economic exigencies shape the patterns of the Russian actions (Bruce Kennedy, 2014). Countries like the US and UK use passive industrial policies as they rely on company led, market based ways of industrial developments that are less controlled by the government. However, countries that are just beginning an era of industrialization are likely to face an uphill task especially due to a lot of completion and may be forced to utilize the anticipatory industry policies. Conclusion The recent global economic crisis in addition with the current Ukraine crisis is a good lesson that economists ought to learn while dealing with industrial policies. Passive industrial policies have been found to be better than anticipatory industrial policies. Early industrialists like the US and the UK have been found to be enjoying passive industrial policies as they rely more on industry based economies compared to countries like Russia that have weak economic institutions. Governments of countries that operate under passive industrial policies have been found to have very little government involvement. However, researchers also indicate that combined effort of anticipatory and passive industrial policies is important if a country is to attain economic growth. References Altenburg, T. (2011). Industrial Policy in Developing Countries: Overview and lessons from seven country cases. German Development Institute, 27 (5): 483–502. Bell, S. (2012). Australian Manufacturing and the State. New York: Cambridge University Press. Blundell-Wignal et al. (2009). Dealing with financial crisis and thinking about the exit strategy. OECD Financial Market Trends , Vol 2009/1. . Bruce Kennedy. (2014, July 18). Flaring Ukraine crisis could affect global economy. Retrieved 2014, from CBS News: http://www.cbsnews.com/news/flaring-ukraine-crisis-could-affect-global-economy/ Cimoli, M., Dosi, G., & Stiglitz, J. E. (2009). Industrial Policy and Development: The Political Economy of Capabilities Accumulation. Oxford: Oxford University Press. Pan Pylas. (2014, September 3). Measuring impact of Ukraine crisis on European economy. Retrieved 2014, from CTV News: http://www.ctvnews.ca/business/measuring-impact-of-ukraine-crisis-on-european-economy-1.1989071 Peek, J. a. (2000). Collateral Damage: Effects of the Japanese Bank Crisis on Real Activity in the United States. American Economic Review , 90, 30-45. Tom Pfeiffer. (2014, August 21). FACTBOX -The effect of Russia sanctions on European companies. Retrieved 2014, from Reuters: http://uk.reuters.com/article/2014/08/21/ukraine-crisis-companies-idUKL6N0QE4MZ20140821 Tybout, J. R. (2000). Manufacturing firms in developing countries. How well do they do, and why? Journal of Economic Literature , 38,11-44. Wade, R. (2003). Wade, Robert (2003). Governing the Market: Economic Theory and the Role of Government in East Asian Industrialization. Princeton, NJ: Princeton University Press. Read More