The state and the private sector—partners in transformation

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From the 1960s to the early 1980s governments in many Sub-Saharan countries pursued overly state-led development, often regarding markets and private businesses with suspicion and at times even trying to suppress them. Then from the 1980s through the 2000s the pendulum swung to the other extreme. Under reforms inspired and financed by the International Monetary Fund, World Bank, and some donors, the state was seen as the impediment to economic efficiency and growth. The goal was to roll it back and give room to markets and to business, which thus unshackled would propel growth and structural change while the state confined itself to setting the rules of the game, acting as an impartial umpire and supplying such public goods as education and health care. Neither approach transformed Africa’s economies, and the failure has engendered a search for new approaches, including a reconsideration of the two previous extremes.

Domestic firms in late-developing countries face difficult challenges in learning about and introducing new technologies, processes, products, and services—and breaking into foreign markets. A favorable business environment helps but seldom is sufficient. The experiences of almost all successful transformers show that the state can help business meet these challenges. But history also shows that state involvement in the economy can block private initiative, introduce inefficiencies, and retard economic progress.

Economic transformation thus requires getting the balance right between the state and private enterprise—and having effective mechanisms for the two to collaborate and support each other in the pursuit of economic and technological learning while paying sufficient attention to economic efficiency. This chapter looks at “market-oriented industrial policy” to promote economic transformation, interpreted broadly as a set of policies that promote the efficient production and export of a diverse range of technologically upgraded goods and services, whether from agriculture, industry, or services.

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