This is an approach that prioritizes the dissemination of productive economic opportunities throughout all regions of the economy and segments of the labor force. It differs from what immediately preceded it (“neoliberalism”) in that it gives governments (and civil society) a significant role in achieving that goal. It puts less faith in markets and is suspicious of large corporations. It emphasizes production and investment over finance, and revitalizing local communities over globalization. It also departs from the Keynesian welfare state – the paradigm that “neoliberalism” replaced -- in that it focuses less on redistribution, social transfers, and macroeconomic management and more on creating economic opportunity by working on the supply side of the economy to create good, productive jobs for everyone. And productivism diverges from both of its antecedents by exhibiting greater skepticism towards technocrats and being less instinctively hostile to populism in the economic sphere.
The fundamental idea is that all economic activities generate externalities, which are not addressed because of co-ordination failures.
Our core economic problems – poverty, inequality, exclusion, and insecurity – have many roots. But they are reproduced and reinforced on a daily basis in the course of production, as an immediate by-product of firms’ employment, investment, and innovation decisions. In the language of economists, these decisions are rife with externalities for society, i.e., they have consequences that spill over to many people, firms, and other parts of the economy... these externalities are broader and also include what may be called “good jobs” externalities. “Good jobs” are a pathway to the middle class. They pay sufficiently well to allow for a reasonable living standard with some security and savings, are relatively stable and with safe working conditions, and offer some career progression. Firms that generate “good jobs” contribute to the vitality of their communities... Firms’ decisions on how many workers to employ, how much to pay, what kind of technologies to deploy, and how to organize work affect not just the bottom line, but the life chances of prospective employees and their communities. When a company decides to automate its production line or outsource part of its production to another country, society may suffer long-term damage that is not “internalized” by its managers or shareholders.
He points to the re-emergence of a dualism in the economies of developed countries (the original dualism of agriculture and productive manufacturing, and informal and formal, had dissolved over the years in developed countries). Automation, unbundling of supply chains, and globalisation have led to loss of manufacturing jobs, and preference for certain technologies and reduction in labour protections have resulted in winners and losers. Its consequences - poverty, unemployment, blighted areas, social tensions etc - are features of traditional development economics that grappled with issues facing developing countries.
Rodrik uses a framework that categorises policies based on the stage of the economy (pre-production, production, and post-production) and which segment of the economy is targeted (low, middle, and high productivity). Traditional welfare state targets the pre-production (education and other endowments of workers etc) and post-production (redistributive taxes and social security), and the low productivity segment. The traditional growth strategies target the most productive segments and all three stages (IPR, trade agreements; R&D, export incentives; tax incentives). The former presumes that good jobs will become available to everyone with requisite skills, and the latter presumes that it will support high growth which will pull everyone up.
But with the current circumstances, neither work well. Bad jobs - low and stagnant pay, poor benefits and protections, high insecurity, limited career progression, sudden layoffs etc - have become the problem. Firms need to be made to internalise the economic and social spillovers of their actions. This calls for policies that target directly production and middle-productivity SME segment - employer linked trainings, customised business incentives and services like for firm's management capacity building, labour friendly innovation and other policies etc. As he says, "we must change what we produce, how we produce it, and who gets a say in these decisions."
In terms of what it means for industrial policy, he writes,
The most effective industrial policies are those that entail close, collaborative interaction between government agencies private firms, whereby firms receive critical public inputs – financial support, skilled workers, or technological assistance – in return for meeting soft and evolving targets on investment and employment. This kind of industrial policy is likely to work much better – whether in promoting local economic development or in directing major national technological efforts – than open-ended subsidies or tax incentives... Advanced and developing nations alike will need a new breed of coordinated policies aimed at the supply and demand sides of labor markets, combining skill training programs with support for firms... Active labor market policies designed to increase skills and employability have to broaden into partnerships with firms explicitly targeting the creation of good jobs. Industrial and regional policies that currently center on tax incentives and investment subsidies have to be replaced by customized business services and amenities to facilitate maximum employment creation. National innovation systems have to be redesigned to orient investments in new technologies in a more employment-friendly direction. Policies tackling climate change, such as the European Green Deal, have to be explicitly linked to programs of job creation in lagging communities. And in recognition that prosperity will have to rely in the future much more on services and on smaller and medium-sized enterprises, the focus of industrial policy will have to be reoriented away from manufactures and “national champions.”
Some thoughts
1. Productivism verges on the microeconomic side - customised policies to actively and directly address problems on the supply and demand sides of the labour market and the productive capacity of the firms. The preference is for bespoke and decentralised action. I don't think there's a problem with the prescription here, and I think developed countries should embrace this and they also have the capabilities to execute them if they go ahead.
But this kinds of policies become extremely challenging for capacity constrained local governments in developing countries to executive effectively. Imagine implementing management capacity building extension services for SMEs in a typical low capability environment. Apart from the state capability constraint, there's also the supply side constraint on the private sector side.
2. Even on industrial policies, the preference in productivism is for targeted provisioning of incentives, instead of open-ended subsidies and incentives. Such targeting creates its set of problems, and this also requires high level of state capability.
3. There may be a case that unlike the developed countries, the developing countries need to engage on both the large "national champion" companies and manufacturing, as well as SMEs. The former is required to create the ecosystems which generate spillovers that are essential for technology diffusion and productivity improvements.
For example, developing countries need large contract manufacturers in textiles, footwear, electronics etc, as well as large automobile and heavy equipment manufacturers with their respective suppliers and ancillaries. These provide the ecosystem for the emergence of SMEs.
4. I think the simpler macro-policy would be to have the default policy that limits incentives to productive jobs creation. All investment support will have to become conditional on good jobs creation. Simultaneously, certain kinds of investments (eg. robots for routine tasks) will have to be deeply disincentivized.
5. Finally, I think the time has come to make the distinction between good and bad R&D. The former promotes productivity enhancement while creating jobs (or at least without destroying jobs), whereas the latter is pure efficiency-enhancing and profits maximising automation. For sure, categorisation and identification will create a set of problems. But it's important to address this dimension, and target fiscal and other incentives towards good R&D. Investment subsidies, tax exemptions, and tax deductions on interest expenses (incurred to borrow and invest in R&D) should be limited to the good R&D, or taper outwards from the good R&D. The agenda on automation has to be set by governments and not corporates for their private interests.
I'm reading Daron Acemoglu and Simon Johnson's latest book, Power and Progress, where they underline the importance of political and social choices in determining the path technologies take in shaping progress and society itself. This is a powerful and very important conclusion
A thousand years of history and contemporary evidence make one thing abundantly clear: there is nothing automatic about new technologies bringing widespread prosperity. Whether they do or not is an economic, social, and political choice.
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