Impatience and Incentives: The Possibility of Industrial Policy (Wolfram Latsch)


In this paper I will outline and analyze Sanjaya Lall’s view of the development process in “latecomer countries” by discussing both the positive aspects of his vision (the nature of technological knowledge and technological capabilities) and the normative aspects of his vision (the promotion of competitiveness). I will evaluate his contributions in terms of (1) the debate on the nature of knowledge and its implications in terms of market failure and, consequently, the necessity of industrial policy, (2) the debate on the political economy of industrial policy in terms of the costs of discretionary policy interventions and, consequently, the possibility of industrial policy. The broad validity and promise of Lall’s vision of late-industrializing development depends on establishing the grounds for both the positive dimensions (necessity) and the normative dimensions (possibility) of industrial policy. The possibility of industrial policy, in turn, is circumscribed by the ability to control the potential costs of discretionary government – itself a function of the “social capital” that was a late concern of Sanjaya Lall’s.

Working Paper