Learning and Industrial Policy: Implications for Africa

Over the past thirty years, Africa has suffered from deindustrialization. The quarter century from the early 1980s was a period of declining per capita income and increasing poverty. Structural adjustment policies advocated by the IMF and the World Bank were predicated on the belief that by eliminating “distortions” in the economy, Africa would grow faster—by constructing an economy based on principles of free and unfettered markets, with the government restrained to ensuring macro-stability (which typically just meant price stability), economic performance would be increased and all would benefit. It was recognized, of course, that eliminating trade protection would result in the loss of jobs, some in agriculture, many others in industry. The strongly held belief, however, was that these workers would quickly find jobs in new industries, consistent with the country’s comparative advantage. Moving resources from inefficient protected sectors to more efficient competitive sectors would raise incomes. Little attention was paid to the distribution of income, perhaps because of an implicit belief in trickledown economics—somehow, if the economic pie grew, all would benefit. Things didn't turn out as the advocates of these policies had hoped. Rather than growth there was decline. Job creation didn't always keep pace with job destruction, and so workers moved from low productivity protected sectors to even lower productivity unemployment, open or disguised. When there was growth, the benefits often went disproportionately to those at the top, and didn't trickle down to the rest of the economy. When, in the first decade of the twenty first century growth resumed, it was largely based on the boom in commodity prices. The share of global manufacturing value added in Africa in 2008 was 1.1 percent in 2008, from 1.2 percent in 2000 (UNCTAD 2011). Even countries that achieved macroeconomic stability and evidenced reasonably good governance seemed unable to attract much investment outside of the extractive sector. It is imperative that this course of events be changed, particularly since the extractive sector typically does not give rise to many jobs, and certainly not enough jobs for the burgeoning labor force in many of the countries. (The African labor force is expected to grow --- working age Africans today comprise some 500m people; by 2040, that number will be 1.1bn