The right industrial policies can stimulate economic and social upgrading

Increasing exports does not automatically improve conditions for everyone, according to experts: Specific policies are needed to tackle inequality, working conditions, and other aspects. And those policies must be drawn up in consultation with workers’ representatives to be truly effective.

“Firm-based negotiations often lead to high wage dispersion,” said Hansjörg Herr, professor for supranational integration at the Berlin School of Economics and Law at an expert meeting in Hanoi which he attended as author of a publication (link) on the conditions for economic and social upgrading and the role of industrial policy. “Sectoral collective bargaining should be one element of social upgrading.”

The meeting in Hanoi on 11 July was held by Friedrich-Ebert-Stiftung to discuss how industrial policy can best support social and economic upgrading, based on ongoing research in Bangladesh, Indonesia, Republic of Korea, Pakistan, the Philippines and Viet Nam (link).

Income from exports often enriches companies and their owners, or even governments, without addressing inequality, multidimensional poverty, workers’ rights or the middle-income trap.

The topic is receiving increasing attention from academics and civil society, and is starting to gain traction with policy makers. The concern is that income from exports often enriches companies and their owners, or even governments, without addressing inequality, multidimensional poverty, workers’ rights or the middle-income trap. The hope is that the right policies can counter this by supporting a development known as upgrading.

Economic upgrading means increasing productivity through new technologies and increasing skill levels, and is often associated with a country’s shift upwards in the value chain. Social upgrading means the extent to which that translates to improvements for workers in terms of quality of employment, real wages, and other less obvious metrics. 

There were positive findings from some of the delegates. In one province in Viet Nam, a carefully designed industrial policy has transformed the economy and lives of the people. Binh Duong, just north of Ho Chi Minh City, has seen per-capita income more than triple from 2000 to 2015, its industrialization overtake much of the country, and official poverty levels fall from 12 per cent in 1997 to zero today.