Jordan needs an industrial policy

(Photo: AI-Generated)

Yusuf Mansur

The writer is CEO of the Envision Consulting Group and former minister of state for economic affairs.

The debate in economics regarding the effectiveness of industrial policy is at an all-time high. An industrial policy is usually a set of actions that combine and coordinate government efforts to bolster economic activities in one or more sectors of the economy. They could include strategic protection of certain industries, government subsidies, direct public sector investments, tax holidays and breaks, supply-chain resilience, job creation, better-paying jobs, greening the economy, etc. اضافة اعلان

After having been shunned for decades due to the pervasiveness of neoliberal demagoguery, and the focus of analysis on import duties, there is currently a growing prevalence of industrial policies. Furthermore, as in the past, the pursuance of such policies is led by the countries of the global North.  It is time that Jordan devises and implements an industrial policy.

International examples
The Biden Administration issued legislation last year that would pump over a trillion dollars into the economy with a focus on innovation, technology, IT, green economy, and infrastructure. The legislation, which intends to syphon investment out of other countries, create new jobs in the US, and maintain its innovative and experiential global leadership is camouflaged in a legitimate sounding cloak of creating a greener economy.  

But the US is not alone, the European Union is introducing similarly protective legislation on semiconductors to increase the EU’s share in global chips production capacitors. China also aims to boost its high-tech manufacturing. Furthermore, the World Economic Forum believes that industrial policies will have a significant impact on the global economy in the coming years. 

Economic wars
Although industrial policies may trigger economic wars reminiscent of the 1930  Smoot-Hawley Tariff Act, a United States law that raised import duties to protect American businesses and farmers. The result was severe retaliation by many foreign governments. China is already imposing its protective measures on semiconductor sales in response to the recent US deglobalizing actions.  

There is almost a consensus among economists that industrial policies will deepen geo-economic rivalries and tension, and, if they become widespread, reduce competition in some areas as countries attempt to monopolize certain industries or products, relocate economic activity and increase sovereign debt.

However, some believe that industrial policy will also increase innovation. Moreover, the success of so many countries that adopted industrial policies underscores their effectiveness in pushing the development of economies that adopt such policies.

Jordan’s case for innovation
Jordan needs to have an industrial policy with an emphasis on innovation. Why innovation? Because innovation is the vehicle for enhancing productivity, and productivity increases the incomes of workers, business owners, and government—and they all need a boost right now. Furthermore, innovation attracts foreign investment and investors as well as domestic investment; thus investment promotion is more likely to succeed in economies where productivity is growing at a fast pace.

Alas, currently Jordan’s scores in the Global Innovation Index (GII) in 2022, ranked 78 out of 132 countries, is no cause for celebration. Jordan is weakest in infrastructure, ranked 100, and not doing so well in human capital and research, at 76th place, in business sophistication it ranked 75th, knowledge and technology outputs, 76th again, and creative outputs, 78th. Hence, the industrial policy that should be adopted must be mission-oriented with innovation enhancement being at its core. Otherwise, the necessary innovation solutions will not happen, and productivity will remain stymied.

Resources should be reallocated to funding innovation whereby the government finances research that is done by the private sector.  The success of the research can be availed to the private sector for developing and commercializing its results under special conditions that ensure its spread throughout the economy.

Yusuf Mansur is CEO of the Envision Consulting Group and former minister of state for economic affairs.

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