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(light music) - The controversy surrounding so called industrial policy has arguably been the most heated, and frankly most vicious, even by the standard of the subject. You know, well into the '80s, into early '90s there were a lot of free market economists who were trying to argue that industrial policy didn't exist in countries like Japan and South Korea which were at the time famous for their industrial policies. Bela Balassa, one of the leading free trade economists, he's saying that the Korean government really didn't do much industrial policy other than one or two sectors like steel. And basically what it did was to provide general infrastructure and good business environment. Now this was very easy to falsify. If you flip through the financial press, you know I remember reading this "Financial Times" article in the late '80s saying that South Korea is arguably the most planned economy outside the Soviet Bloc. Despite that, serious journalists were publishing articles making this kind of assertion. Only because this is ideologically more comforting for the mainstream. And there's something like, I don't know, a bunch of Korean scientists are suddenly arguing that it rarely rains in England. And some how English scientists had to take this seriously and argue against it. Some economists like Justin Lin the former chief economist of the World Bank, Dani Rodrick, Ricardo Hausmann. These economists have started to use nuclear scale theoretical tools to justify at least certain forms of industrial policy. So industrial policy has become more acceptable to the mainstream, yeah. At least since the financial crisis but even slightly before that quite a number of countries, including the US, Germany, and so on started rediscovering and strengthening their industrial policy for various reasons. So one reason was the collapse of the finance driven growth model in a number of countries which made people realize that no, you cannot build an economy on expectations. You need to make things. You need to raise productivity. In the last decade or so a lot of new technologies have emerged so it is a race now to occupy the accommodating heights before other countries do. So artificial intelligence, green technologies, bio technologies, you know. There has been a recognition that you really need to do something to cope with the rise of China. China's still, relatively speaking, a poor economy. I mean the per capita income's not even 10,000 dollars. There are many very backward parts, economically speaking. The overall level of technology is quite low but it has been rising very rapidly and in some areas like, nano technology and solar panels and so on, it is really threatening the leading countries. So a lot of countries are now waking up to the fact that actually we need to do something about this and we need more proactive government intervention, yeah. Befitting the status of the most controversial topic in economics, even the definition is subject to debate. The one debate is, what is the object of industrial policy? So a lot of people, including myself, will argue that it is a policy intended to promote the development of the manufacturing sector. But there are others who say that, no, it's industrial policy so industry is more than manufacturing, it should include mining, production of electricity and gas, and things like that. Still others argue that, no as far as it targets certain economic sectors it doesn't matter whether it's targeting manufacturing or industry, or agriculture, or services. So any sectoral intervention should be called industrial policy. Another controversial definition issue is that of selectivity. It is targeting particular sectors. They have been variously called strategic sectors. Leading sectors, key sectors, or whatever. Others believe that this should also include general or horizontal policies. Policies that benefit all industries equally. Like infrastructure investment, research and development, education. They believe that selective policies is at best ineffective and at worst harmful. I think this dichotomy between general and selective industrial policies is a false one. Because in a world with limited resources whatever policy you choose you are favoring some sectors over others. Education, okay maybe up to lower secondary level. It's pretty general so it benefits all sectors equally. But beyond that education is actually quite specific. In countries like Germany and Japan they have very developed vocational educational system. So from the age of 14 or 15 the people begin to really learn and hone their skills in particular industries. At the university level that we are specialized. If the government gives more funding to particular types of engineering departments then it's actually favoring sectors that will use those types of engineers. Infrastructure, I mean infrastructure is not something kind of amorphous and can be remolded, yeah? You either build a railway between your, I don't know, copper mine and the sea port or you build an airport for say the flour growing region. So once you have decided to build infrastructure you are committing yourself to promoting or not promoting particular sectors. Because infrastructures have particular locations and they have different host implications for different industries. I mean airports will be no good for copper mining region because you cannot export copper with airplanes. Where as if you are growing flour, you are growing fresh fruit, that could be crucial. Industrial policies always are selective. The question is, what do you choose? It's simply not true that you can have this general policy that will even handedly effect everyone. In the 18th and early 19th century Britain was the most protected economy in the world. Between the mid 19th century and the Second World War the US was the most protected economy in the world. A lot of countries that had regulations on foreign direct investment and so on, and so on. So it is not as if industrial policy ended in these countries with their economic maturity. Industrial policy continued, yes protectionism came down after the Second World War. Before the Second World War tariff levels were really high in many countries. 50% in Britain and even the relatively low figures can hide a lot of the selective protections. So for example, Belgium might have had nine, 10% average industrial tariff rate in the late 19th century but some sectors like iron were getting 60% protection. Textile was getting 80% and so on. Anyway, protection was very high until the Second World War but then it started coming down. Note that basically it was in the '70s that the levels of industrial tariff in today's rich countries reached a level that developing countries have today. Since the World Trade Organization was established in 1995 there has been quite serious trade liberalization in developing countries and today the average industrial tariff is about 10%. But that's the level that today's rich countries reached only in the 1970s, by which time they were actually a lot wealthier than your average developing country today. More over the decline in tariff protection was also accompanied by increasing the range of industrial policy measures that is used and especially between the 1950s and the 1980s many rich countries like France, Japan, Austria, Norway, Italy, Finland used strong industrial policy. So all of these countries, first of all, heavily regulated foreign direct investment in order to promote domestic firms. Especially Japan and Finland virtually banned foreign direct investment until the 1980s. All of the other mentioned countries except for Japan used state owned enterprises in strategic sectors. So until the 1980s for France and Austria had two of the largest state owned enterprise sectors in the known socialist, known oil producing world. At the time their state owned enterprises were producing 13, 14, 15% of GDP. France and Japan used planning. They had five year plans. I mean these indicative planning so it was not mandatory planning like in the Soviet Union. But this was a serious attempt to first of all, provide a vision for the future shape of the economy by announcing priority sectors, the kind of financial and other supports that the government is going to give to them. How these priority sectors are going to relate to each other and with other sectors. And yeah, it was planning in a very serious sense. Germany and actually parts of Italy had many regional governments that used industrial policy to promote small and medium sized enterprises in the region. So they used banks that they owned. Many of these regional governments had public banks to provide, offer long term finances to small and medium sized enterprises in the region. They work with local industry on decisions to promote cooperative arrangements to supply inputs that are too expensive to be provided by individual firms. Like research in development, export marketing, and worker training. When you have relatively small firms, I mean things like, especially R and D and export marketing which have a lot of fixed costs, a lot of upfront costs, are very difficult to provide. The United States pretended at least after the Second World War, it has had little industrial policy. Where actually it has had one of the strongest industrial policies in the world. Only that it is not called industrial policy it is called R and D policy. So almost all the sectors in which the US today has technological leadership were initially developed by the US government, usually US military. So computers initially developed by Pentagon. Internet later was developed by the Pentagon. Semiconductors initially almost entirely financed by US Navy. My colleague Mariana Mazzucato has become famous for writing this article showing how just about every single piece of technology, the microchips, GPS system, touch screen, and so on contained in modern mobile phones were initially developed by US military research. Especially during the cold war between the 1950s and the '80s the US federal government financed between 50 and 70% of total national R and D. Depending on the year. And the corresponding figure in state led economies of Japan and Korea were only about 20%. So who is actually state led? The US government has an enormous influence on the evolution of these industries through these research funding programs. I mean even today, the ratio has come down, but even today it's around 40%. The ratio is still 20, 25% in Japan and Korea. Other countries were slightly different because they all had different conditions. So for example Taiwan and Singapore had huge state owned enterprise sectors. I mean Korea's state owned enterprise sector wasn't small, I mean it was about 10% of GDP which is about international average but in the case of Singapore in Taiwan these were much bigger. Singapore still produces 22% of GDP through state owned enterprises. The corresponding figure for Taiwan is 16% but it was higher in the earlier period when the private sector was less developed. Like Japan, Korea, and Taiwan were overall very hostile to foreign direct investment. Although in some sectors, labor intensive but export oriented manufacturing, like garments, shoes, mainly trainers, stuffed toys and things like that, they were open to foreign investment. But in general, they regulated foreign investment very heavily. Singapore and China are a bit different because they used foreign direct investment a lot more. So in the case of Singapore they very carefully identified sectors through industrial policy planning that they want to attract foreign firms to. And then they go out and seek partners and then they talk to them and ask them, what do you want. We want you to come and run your business in our country. Recently Singapore built the second airport in a country with very little land in order to host aircraft maintenance industry. I mean this was not a random act because in Singapore 90% is owned by the government. Once they built that aircraft maintenance companies came and Rolls-Royce relocated it's aircraft engine research division to Singapore. It's a very different form of FDI attraction than we normally think is needed. China has had fewer legal restrictions on what foreign companies can do compared to Japan, Korea, or Taiwan but it very cleverly used it's strategic position to do this informal bargaining. But what it does is being, well A, one of the biggest markets in the world, and B, a country with at least considering it's level of general technology, very well trained workers and good infrastructure. It uses that attractiveness to do this informal bargaining with foreign companies. So give us more technology, train our workers. Hire more local managers. Source more locally. It's not written in the law but the attraction of the Chinese economy as a site of production and market is so large that a lot of companies have said, yes, we'll do that. Because we want to work with you. Well finally, as for the industrial policy in known east Asian developing countries. A period between the 1960s and the early '80s when developing countries used a lot of industrial policy, this is frequently condemned by mainstream economists as a period of misguided industrial policy called ISI or import, substitution, industrialization. What you have to realize is that economists in Latin America and Sub-Saharan Africa have done much worse since they adopted neo liberal policies and abandoned industrial policy in the 80s. Most countries in these regions have experienced what is called premature de-industrialization. Which means that your manufacturing industry goes into decline even before you're fully industrialized. Also, it is important to note that there have been cases of successful industrial policy at least in relation to some sectors. Brazil developed a civilian aircraft industry initially as a state owned enterprise and privatized since the 1990s. And this is now the third largest aircraft manufacturer in the world. A lot of regional airlines in the United States that fly the planes made by Embraer. Malaysia has had significant success in the electronics industry and the palm oil processing industry. The garment sector in Ethiopia in the recent period has been a bit of a success. Although it's slightly too early to tell. Very surprising that Uzbekistan has had quite a bit of success with the automobile sector by emulating Korean style industrial policies. So okay, I mean these are relatively minor examples but it is not true that everything that other countries did were failures. I mean it's not because lack of theoretical reasons why industry policy hasn't worked in many countries. So I'm going to just group them broadly into three categories. The first set of arguments I call the interdependence argument. The first one is based on this idea of demand complementarities. Basically firms, different industries, they buy from and sell to each other. How you develop different sectors is going to be different according to this pattern of mutual supply and demand. So one type of this argument was called the big push argument. When you are trying to develop an industry in a backwards economy you basically have to develop the related industries together. Otherwise they will not succeed. So for example if you are trying to build an automobile factory in a country full of rice farmers, okay, maybe you can make the car but who are you going to sell it to, you know? There are all these poor people. And where are you going to get the inputs for the car? You need steel, you need glass. Basically the idea is that yes, therefore you develop all these different complementary industries together and then they can buy and sell to each other. Workers are working in steel factory. Unlike rice farmers, will have money to buy a car. The steel factory can sell to the car company. The car company can sell trucks to the steel company and so on. So Albert Hirschman thinking along a similar line, however, had a different view. He said, it's not as if all sectors are equally impactful on other sectors. There are some industries like automobile which buys from a lot of other industries. And he called this relationship between different sectors linkages. So you build an automobile factory and then it generates a demand for steel, glass, rubber. It then also supplies to other sectors like retail, logistics, yeah. And the indicative planning exercises of France, Japan, and Korea are the best examples of industrial policy based on this logic. Because they were planning the economy on the basis of what if we want to develop this sector do we need to develop other sectors together? Develop the steel industry first before you, I don't know, develop motion tools industries. And then of course there's the familiar externality arguments. The classic example is the government promotion of activities that generate positive externalities like R and D and training. Whether through subsidies or regulations. R and D policy of the United States is the best example of industrial policy based on the externality arguments. More recently economists like Lin and Rodrick have developed this idea of information externality. Which means that when a firm enters a new industry in a country with no prior experience in that industry that firm actually generates information about that industry that can be used by other firms before they decide to move in or not to move in. It's an interesting idea but actually in a way not very original because Malaysia have used policies based on these ideas since the 1950s. They had this scheme of pioneer firms. So if you're entering a new industry you are given extra subsidies. Thirdly, you have arguments based on the need for the coordination of competing investments. This is an idea that is not really recognized in the mainstream literature but was very important in the industrial policy of especially Japan and Korea. The idea is that if competing firms are simultaneously invest without knowing the other firm's plans there could easily be over investment. Now in textbook economics this isn't a problem because if something doesn't sell you immediately switch to something else. But in reality machines are dedicated, workers are at least partly dedicated. So you cannot say invest in, I don't know making automobile and then realize that the demand is not enough. It basically means scrapping the machines and firing workers that you originally hired to make automobile. So industrial policy makers in Japan and Korea were very concerned with this, which they called excessive competition. So they did two things to deal with this, one acts anti planning. So they had this licensing system and said if you want to invest in automobile or some of the more important sectors you need to get government permission. And the government will look at the investment proposals and say, no actually there is going to be too much. You should invest, this time around, maybe five years later when we do this exercise again. We'll let you have priority. And then we move onto the capability arguments. The first of these is of course the infant industry argument. The argument that governments of a relatively backward natures need to protect and nurture young industries of their own before they can grow up and can compete with leading firms in the world market. This logic, of course, has been used by virtually all countries throughout the history of capitalism. Another class of capabilities argument is arguments for regulation of direct input of technology either through technology licensing, basically getting a license from a more advanced company to sell you the technology. Or through foreign direct investment. And basically many governments have regulated this process to ensure that once these technologies come you also develop the capabilities to use them productively and at least make incremental improvement. Unless you do something about the technological capabilities to use this technologies appropriately what happens is that you import technology basically on a so called turnkey basis where everything comes ready. You just turn the key and it runs. Unfortunately, things go wrong. Unfortunately things get outdated and you don't know what to do except for calling the original company and they'll charge a lot of money to solve your problem. Some countries are like Japan, Korea, Taiwan. They directly regulated technology licensing. So they would say things like, you cannot pay more than 3% of your revenue as the licensing fee, or they might say that this technology looks outdated you cannot import it, and so on. And finally, the policies that I said were frequently used by local governments in Germany and Italy and the national government in Taiwan to help them accumulate the capabilities. Because without R and D, with out technical consultancy provided by a government agency at the subsidized price, how are these small and medium sized enterprises are going to raise their productivity? And then we have a set of arguments which I classify under risk and uncertainty. In many countries governments that setup financial institutions to provide long term financing for investment. Typically these are known as development banks. KFW in Germany, KDB in Korea, JDB in Japan. BNDS in Brazil, but these development banks will give you very often subsidized loans for three years, five years, sometimes even 10 years. The government can also setup state owned enterprises if no one was willing to do it. The South Korean government had this idea to build a steel mill back in 1965. And it tried to get financing from foreign donors and the World Bank which was at the time advising these donors, said that this is insane. Korea has got income less than 5% than that of United States. It's got very little capital. A lot of labor. You should concentrate on labor intensive industries. And it wants to build a steel mill. The country doesn't even produce enough raw material. Please don't give money to them. You go against that recipe economic theory. You don't even produce raw materials. You want to set it up as a state owned enterprise and appoint an ex army general as the CEO. What more do you need to fail? Well, they managed to build this enterprise with the money from colonial reparations from the Japanese and by 1973 it went into production. By the mid 1980s it became one of the most efficient steel makers in the world. It was privatized in 2001 but mainly for ideological reasons. I mean, it was making a lot of money still. And yeah it is still like the fourth largest steel maker in the world. Yeah, so seen from today's point of view it is obvious that Korea should have set this up but at that time everyone said, wow, this is too risky. The future is too uncertain. So the government stepped in with it's own money. Secondly, the government can help firms and industries restructure themselves in the face of big changes beyond their control. Financial crisis, dramatic technological changes, rise of China, what have you. The 1970s Volkswagen the German auto manufacturer got into trouble, so it was nationalized. Well regionalized, if you like. It was basically taken over by the local government of the state of Lower Saxony, Niedersachsen in German. And actually the government of Niedersachsen still owns about 20% of Volkswagen because of that history. The US the country of so called free enterprise, it basically nationalized General Motors after it went bankrupt in 2008 and had restructured it to compete in the electric car market. And finally you have the policies that are intended to help workers cope with risk involved in the restructuring process through things like unemployment insurance, job surveys, and subsidized retraining. The Scandinavian countries Sweden and Finland especially have been very good with this. So the workers there are not very resistant to the introduction of new technologies and redefinition of jobs and so on because they, yeah I mean no one likes to lose their current job but it's not the end of the world, you know. If they lose their job they'll get unemployment benefit which is 65 and 75%. They'll get up to two years of that provided that they go into retraining programs and then that will have sort of personal consultant given to you by the government to plan your retraining and find your job in the new sectors. So actually the Sweden is one of the most robotized economies in the world. Swedish workers do not fear robots. Anyways, so if you use these kind of things well it can actually facilitate industry restructuring and development and even though they are not industrial policy proper they can be quite important. Yeah then let's talk about implementation issues. The fact that there are theoretical justifications for a policy doesn't mean that you will necessarily succeed with that policy in practice because the policy has to be well designed and well implemented. So let's first of all look at the policy design. Well I think the most important thing is that policies need to be realistic in order to be successfully implemented. But that doesn't mean that industrial policy makers should only try safe things, you know. This is the view of the World Bank. In this famous report on East Asian Miracle in 1993 the World Bank recommended that yes I mean some of the industrial policies used by countries like Japan and Korea even though they are highly unorthodox, are from our theoretical point of view kind of work but they work only because these countries had exceptionally capable bureaucracies. Do not try this at home, yeah. So it might have worked for some people it is not going to work for you. You shouldn't even try. Justin Lin basically recommends that you should try to imitate countries that are slightly above you. So look at countries that have per capita income twice, maybe three times higher than yours and try to emulate their industries. Well that will be safer, but that will mean that Korea would have never developed steel industry in the 1960s. Japan would have never developed auto industry in the 1950s. Now when you try difficult things there will be failures. But you know as the economist Joseph Stiglitz liked to say, if you are not failing you are not trying hard enough. So you need a portfolio of industries. So yes there are quite a few safe bets and a larger number of medium difficult things and a small number of very difficult things. But then unless you push yourself in that kind of way you will never progress beyond your current level. Also, industrial policy constantly needs to be updated and adapted to changing conditions. Conditions change all the time. The world economy changes, new competitors emerge. New technologies emerge. And also, you might have had some projection about the future development about the, let's say industries and firms receiving your support for development. But then they may have been mistaken. Maybe they are growing much more quickly than you had thought was possible and then yeah, you should curtail protection, push them more aggressively into the export market. Maybe they are not doing as well as you thought they would and then you need to look at it closely. Is it because of some unforeseen circumstances that were beyond their control or was it because these firms were getting lazy and that kind of living a comfortable life behind the walls of protection? So you have to constantly watch how things are evolving and adapt, you know. And then there's the question of the political economy. First of all successful industrial policy needs to have the right political base. It is well known that powerful landlord class as you see in Latin America, tends to be against industrialization. It's not just the landlords. There are some countries in the recent period have suffered from the excessive power of the financial class. Brazil and South Africa are the best example. Since mid 1990s for various historical and political reasons these two countries basically adopted this policy favoring the financial sector over the manufacturing sector. And they have consistently had real interest rates running into 10, 12% which makes an investment impossible. The average profit rate of a non-financial corporations across the world is between three and 7%. If you have to borrow at 10%, you cannot borrow. Because you're not going to make enough money to repay it and still have some money left. In the late 1980s depending on exactly which statistics you look at, the manufacturing sector produced somewhere between 30 and 35% of Brazilian GDP. Today it's not even 10% and falling. Because when you go and talk to capitalists in Brazil they said, how can we invest and export, you know. We have to pay 10, 12% Real rate to borrow money. Our currencies are overvalued at least by 50%. Our exports are not competitive. But that does not mean that a country's political economy is completely determined by it's history because you can always build new political coalitions. Let's talk about the United States. The northern manufacturing states and the southern agrarian states were all the time at daggers with each other about protectionism. So sometimes the northern states managed to impose higher rate of protection when the southern politicians become stronger they pull down the protection. Finally came to a head when Abraham Lincoln the first Republican president, actually. You know the Republican Party setup just before Lincoln's election. Made this bold move to offer free distribution of public land to settlers in the West. So the western states had always vacillated between the North and the South. Finally they were fully allied with the northern states and Lincoln could win this. And the war settled the thing in favor of the north. And since then, the US became even more protectionist. Started investing a lot in infrastructure, education, R and D. That was the critical turning point in the US history. In Germany when Bismarck initially ruled Prussia, Prussian politics was dominated by these landlords called Junkers. When he unified Germany he of course had to listen to these Junkers but he also realized that he needs to provide protection to these newly emerging heavy and chemical industries. The Junkers were not going to accept protection for these industries so he came up with this idea of what later became known as the marriage of iron and rye. The Junkers were mainly producing rye he wanted to protect industries like iron so he said, okay we are going to protect both of you. The Junkers get the protection from new agriculture imports from the US, Argentina, Russia which were just beginning to flow in with the development of steam ships and railways. In return we'll also protect heavy industries. That, at least for awhile, worked very well and Germany took over the UK as the supreme industrial power. In Latin American countries this period of quite impressive industrialization between the 1930s and '50s were made possible because some of these politicians like Getulio Vargas in Brazil, Juan Peron in Argentina, and Cardenas in Mexico. They built this new political coalition of urban capitalists and workers against the landlords. And for awhile they provided protection to domestic manufacturing industries and actually they achieved quite impressive levels of industrialization. That in say, for example, 1960 South Korea's per capita manufacturing value added was something like 20 dollars. That in Mexico was 140. That in Argentina was over 200. The east asian countries, Japan, Korea, Taiwan they had land reform that got rid of the landlord classes soon after the Second World War. And then they had these regimes dedicated to industrialization which basically repressed the financial sector. While it lasted basically the whole economic policy was geared towards that industrial sector rather than agriculture or finance. Well, second political economic issue is known as the issue of embedded autonomy. It is term was invented by the American sociologist, Peter Evans who compared industrial policies in Brazil, Korea, and India and came up with this conclusion that you need a state that is embedded in society. It has to have network and commitment to the society. It cannot be kind of made up of this elite who are not really interested in the developing the domestic economy and society. But this state also needs to have autonomy. It has to be able to override sectional interests or certain groups of capitalists so that they can restructure the economy, you know push it into new sectors, raise productivity. Successful industrial policy required pragmatism. It is the countries that have shown flexibilities in the tools they use that were more successful in achieving their ultimate goals. The most extreme example is Singapore. 90% of land in Singapore is owned by the government. 22% of GDP produced by state owned enterprises including the famous Singapore Airlines. 85% of housing is supplied by the government owned housing corporation called The Housing Board. So it's an extreme example of a mixture of socialism and capitalism. On the one hand you have free trade. On the other hand you have 90% public ownership of land. So I think this pragmatism is quite important because a lot of policy makers become very ideological and they try to stick to that ideology while the world is moving on and you are not adapting to the changes in the world. And then we come to the issue of implementation capabilities. Effective policy implementation requires capable people. But unlike what most people think, this doesn't mean hiring more economists. For example when the World Bank, the IMF when they do capacity building program for policy improvement in developing countries their idea is basically to send people to Harvard and Oxford to get a degree in economics. Well, let me tell you the public officials that were behind the so called East Asian Miracle were largely not economists. In Japan they were almost entirely lawyers. In Korea, yeah there were more economists but they had very proportion of lawyers and some engineers. In China, in Taiwan, they are mostly scientists and engineers. And what little economics they knew were not free market economics, not neoclassical economics. You know, especially in Japan there was a very strong influence of economists like Marx, Friedrich List, and Joseph Schumpeter. So they operated with these ideas. Basically, what makes successful policy makers is different from what makes successful economists. These people, yeah they need to know some economics but they need to have general intelligence, the ability to learn, skills to manage complex projects, and the ability to maintain organizational coherence. The qualities that are required for good policy makers is not the knowledge of economics. Also you have to remember that administrative capabilities are not simply possessed by individuals but also by organizations. So what kind of common structure do you have? What kind of institution routines you have. How you keep institutional memories that are what kind of records and archives do you have? How do you rotate people between jobs so that you do not become silos? How do interdepartmental coordination happens? These things are far more important than what economists usually think. And finally, you need to design good incentive system for the recipients of industrial policy supports. They need to be rewarded and punished according to performance. There are many cases where the government only gave support and never punished non performers. The old regime in India is a classic example. You had all these infant industries not transitioning to becoming other industries but sick industries. So you don't grow up and then you are under protection for 30, 40 years and you cannot survive without protection. So that's a clear failure of the incentive system therefore the recipients of your support. Of course you need a state with embedded autonomy. It has to be a state that is not hostile to business. It has to understand the business world. It has to have channels to discuss things with the business sector, but not beholden to it. Because sometimes you have to make a tough decisions and say, well you had all this support, nothing has changed, we are going to cut this. If you can announce the targets, if you can announce the performance indicators and if you can announce the measures that you are going to take if things fail to go in the right way in advance it becomes more difficult to manipulate them through lobbying. So that was the function of this five year plans. That was the function of so many industrial policy documents. White papers, green papers, whatever. Research outputs from government related research institute produced in countries like Japan and Korea. And I think one last comment is that the discussion in this lecture shows how the real world is much more complex than economic theories acknowledge. It also shows how economic theories are often behind real world practices. You know this supposedly new idea of information externality. I mean that had been practiced in Malaysia for the last 50 years. I mean, with some mixed success. And it also shows how real world successes in economic policies have often been made without the contribution of economists. Some may even say that because there was no contribution from economists. Now I don't want to end this lecture in a negative way by suggesting that economics is useless but looking at these real world examples and analyzing different success cases you have to recognize the limitations of abstract theories and be more humble about what you can tell other people to do.