The state has played a significant role in economic development at least since the industrial revolution. Its role was conceptualised by Friedrich List in his National System of Political Economy, which influenced policy-making in Germany and laid the foundation for an understanding of modern national innovation systems. Earlier, in France, Jean-Baptiste Colbert anticipated the dirigiste role of the state in securing competitive advantage in new technologies and skills and forcing the pace of capital accumulation. Even Charles Babbage in England highlighted the benefits of state intervention to promote manufacturing and improve the organisation of production.
While such activities have no recognised place in more recent orthodoxy, based as it is on a static equilibrium model of the economy, interest was revived with Joseph Schumpeter’s modelling of capitalism as a dynamic system, driven by innovation and technological change. Elements of this approach have found their way into modern evolutionary growth economics and into national frameworks of industry and innovation policy, whether prescriptively in ‘command’ economies or as an enabling factor in contemporary market economies.
We are now seeing industry policy becoming more rather than less relevant with the shift from large vertically integrated organisations to smaller interdependent production units with increasingly specialised functions in global markets and value chains. At the same time, commoditised occupations are being automated, offshored and devalued by low cost competition, with the result that labour markets are bifurcating between high wage, high productivity jobs in knowledge intensive sectors and those which are low paid, precarious and undervalued in personal services and the largely unregulated digital economy.
Essentially, the significance of industry policy today is that it provides a mechanism for identifying existing and potential areas of competitive advantage and developing a coordinated strategy to capitalise on these areas and build enterprise capability and performance in the context of a more coherent and effective innovation system. However, industry policy will have a better chance of succeeding if it is pursued in the context of a new ‘social contract’ which enables more collaborative approaches to research and innovation, prepares workforces and managers for future technologies and skills and which ensures that all groups are able to share in the productivity gains from structural transformation.
Roy Green is Dean of the UTS Business School at the University of Technology Sydney. Roy graduated with first class honours from the University of Adelaide and gained a PhD from the University of Cambridge, where he was also a Research Fellow. He has worked in universities, business and government in Australia and overseas, including as Dean of the Macquarie Graduate School of Management and the Business School at the National University of Ireland, Galway. Roy has advised and published widely in the areas of innovation policy and management as well as trends in business education. He has undertaken research projects with the OECD, European Commission and Enterprise