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Putting Industries Back on the Map
Reinventing wheels does seem like our favorite pastime. As early as 300 BC, said Kautalya, ‘The State should leave the trade regime free, and invest in institution-building instead.’ We went along anyway with the wave of market protectionism in the 1980s, and then naysayingly followed its reversals in the 1990s. And here we are, nodding to Hausmann and Rodrik when they ‘discovered’ that firms are able to innovate competitively only if the State invests in institutions that help them do so. The old wisdom remains valid though: Firms are willing to compete only if there is a free market. Two sides of the same coin. Bingo.
Kautalya’s niti is down-to-earth. Don’t lock your markets especially when it’s too small to reap the benefit of economies of scale. Let it flow, or it will leak. Kautalya’s industrial niti is even more down to earth. Industry is an economy’s spoilt child who is difficult to please but impossible to let go. We’ve at least got the market right – it’s freer than ever. Yet that elusive economic growth has not followed. We blame it to the insurgency and keep counting our remittances. But there must be more to it than meets the eye. We have not seen growth even within the much pampered crisis-free zone of Kathmandu Valley. Carpet and pashmina bubbles have blasted. We are still licking our garment wounds. The luxury goods market has exacerbated inequality and made banal consumerists of us. It really is time to take stock. And what better time this than do it while the State is restructuring?
Let’s revive the industry agenda. Let’s put it back on the map. Industries are the foundations of growth and industrial changes are micro phenomena. Haussman and Rodrik’s new wisdom and Kautalya’s old wisdom both say the same thing: Industries need institution-building to be sassy and competitive.
Nepal is a classic case for the outward-orientation argument. We are so small; producing something only for ourselves does not make economic sense. We cannot compete with our giant northern and southern neighbours in scale economies. Let’s play where we can win. We have everything it takes to grip the niche markets in the big bad world. That’s increasingly where the money is. We’ve been doing this for long with our herbs and handicrafts. That our export competitiveness lies in innovation and branding is not new wisdom.
So, here’s my geist: One, let’s trade, trade, trade. Second, let’s not trade cheap and plenty. Let’s go for innovation and niche. That requires turning every stone – policies and provisions, infrastructures and institutions. How does a State make sure firms have money for research and development to exploit new markets? How does it solve the problem of collaboration for innovation – get them to cluster or put them in special zones? How does it grease up the rust in the value chain? How does it tie nuptials between FDI and knowledge transfer? Micro niti founds macro. Kautalya said so.
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