As-delivered Valedictory Address for the Second CSEP Conference
Arsenio M. Balisacan, PhD
Secretary
National Economic and Development Authority
Neemrana Fort-Palace, India
March 3, 2024

Good day, everyone.

With profound gratitude, I address you today, deeply honored by the opportunity to deliver the valedictory address at the culmination of the second conference, “India in Asia: Deeper Engagement.” I sincerely thank Vikram Nehru for recommending my participation to the conference organizers and Rakesh Mohan for graciously extending the invitation to deliver the valedictory address.

I commend the Centre for Social and Economic Progress for leading this annual conference, which serves as a crucial platform for academics, former and current policymakers, influencers, and movers to engage in insightful discussions and exchange knowledge on the evolving role of India in Asia.

The conversations we have engaged in over the past two days and this morning have been enlightening, deep-diving, and forward-looking. Amid dynamic geo-economic and geopolitical shifts, including climate change and energy transition issues, these discussions have become both timely and imperative. As we navigate through the altered circumstances of our times, it is evident that our collective efforts in understanding and shaping industrial policies for development are more crucial than ever.

Notice that my phrasing is industrial policies FOR development to stress the point made at this conference that industrial policy (IP)—whether referring to the old IP or the new IP—is broadly understood to serve development, not to stifle development, in the sense of improving overall economic welfare.

Indeed, these discussions hold immense significance beyond India and China for the economic development and policy frameworks of smaller, emerging economies across Asia. The aftermath of the COVID-19 pandemic, geopolitical tensions, border conflicts such as the South China Sea issue in Southeast Asia, and the climate change crisis have helped shape public opinion regarding the necessity for strategic industrial policy and nuanced alliances.

For example, although the Philippines had more than its fair share of failed industrial policies in its postwar economic history, it recognizes the imperative for strategic policy responses to the challenges of the times, particularly maritime conflict in the South China Sea, global food supply chain disruptions, health security, energy transition, and the impact of climate change.

What can make an Industrial Policy work for development? The five conference sessions—including the tea break or offside conversations—provide glimpses of the elements that make an IP a force for development. As has been made abundantly clear in this conference, IP is just that – a policy that can be designed, applied, and reformulated, applying the lessons that history has taught us. Let me characterize these elements as follows:

First, we define what IP is (or is not), specifically. This involves specifying the IP’s objective, area, or sectoral target. An IP with many objectives—e.g., high-quality employment generation, inclusion and poverty reduction, environmental sustainability, industrial leapfrogging, national security, and energy transition—risks costly economic and social tradeoffs, crowding out, mismatches, or resource conflicts and misallocations, especially for emerging economies.

Second, we identify the costs and benefits ex-ante, mindful of the opportunity costs of scarce resources, especially in the context of developing countries where tradeoffs across critical areas for development are likely severe and where fiscal consolidation following the COVID-19 pandemic has been a priority on the development agenda. Not losing sight of the lessons learned from past IP initiatives is—or must be—part of the ex-ante evaluation. For example, globalization has tended to result in faster and sustained growth in countries that have, to begin with, market policies and institutions, particularly governance structures that enable efficient resource allocation, fair competition, human capital formation, and innovation.

Third, we choose the most appropriate policy instrument or process to achieve the IP objective or target. For example, a well-designed carbon tax or an emission trading system is arguably a sharp instrument to achieve the decarbonization goal. But context, including political economy, is critical.

Across countries, even among emerging economies, there’s no one-size-fitsall system for an IP, even if the objective is the same. Further, in countries with relatively underdeveloped mechanisms for economic governance, there is significant risk of rent seeking where lobbyists, under the guise of promoting the common good, are able to successfully push for interventions that are ill-suited to address a particular objective, resulting in significant economic waste. Worse, we know that once they become accustomed to enjoying such benefits, it becomes an uphill battle to change or remove such interventions.

Fourth, we design a credible implementation governance and institutional platform for IP. Cooperation and coordination within and between governments are currencies of success, especially IP initiatives responding to new challenges (e.g., climate change crisis and global supply chain disruptions). I know that this is far easier said than done, considering that each actor in this coordination game may be considering a host of other objectives and scenarios playing out. Still, I believe that it is still the better way forward.

Fifth, we mobilize support for IP for development. This involves identifying the winners and losers and mobilizing the champions or influencers for the influence-peddling game. Many of us at this conference know that a wellinformed development policy reform is never a free lunch and that there are always losers or sacrifices to be made, especially in the immediate or short run. In theory, in such reform, the winners can compensate the losers. Too often, the winners – for example, the consumers hurt by import-substituting protectionist regime – are not necessarily the most effective in mobilizing resources in the influence-peddling game. Social media and artificial intelligence, increasingly, are now part of the currency that can shape the game’s outcome.

And sixth, we monitor and measure performance and evaluate the policy’s impact vis-à-vis stated goals and overall economic welfare. A clear performance metric and credible carrot-and-stick policy are crucial elements of IP architecture, enabling the government to contain costs if IP is not succeeding or moving to the next level if it is meeting expectations. Where strong government intervention is present, so must an equally robust check on such interventions be applied. There must be mechanisms that allow for consistent and transparent evaluation.

Let me turn to another observation. Amidst the resurgence of industrial policies, it is noteworthy to observe the repositioning of Competition Policy (CP), which, after making significant strides in Asia over the past two and a half decades, is now taking a backseat. Curiously, not once did I hear CP in the conversations at this conference (or maybe I might have just missed it). By CP, we mean the administrative and judicial measures ensuring that markets are not restricted in ways that reduce economic welfare and stifle economic development. Of course, we note the observation (and criticism) that CP is often perceived to be a policy ‘imported’ from more developed jurisdictions and economies. It has also been argued that competition policy was not a major policy lever that was utilized during the period of rapid economic growth for many of the rich economies we observe today.

The challenge lies in striking a delicate balance – how do we mainstream Industrial Policy and Competition Policy within the development agenda? How can they coexist synergistically to achieve strategic objectives while advancing sustainable economic growth?

If both IP and CP are mainstreamed in the development architecture and not seen working independently, the effect of either one would be more robust. That is the emerging evidence in Asia, and that is how I see competition policy as we started crafting it in the Philippines, where our approach was to mainstream it as part of the overall development policy architecture. Broadly, the returns to the activities – the investments of a competition agency (whether enforcement or merger work) – depend on how the other policies work. For example, suppose we find critical infrastructure inadequately provided because we have not addressed the coordination between and among government and the private sector (a case for IP). In that case, we do not expect competition policy to work well in those sectors that highly depend on efficient, well-functioning infrastructure. Only when these two work together can you get the maximum outcomes from the interventions. As has been mentioned, when designed properly, IP can also harness elements of market competition to enhance its effectiveness.

Let me turn next to a topic in which, admittedly, I have little comparative advantage—politics and its art. Without geopolitical knowledge, we cannot find a lasting solution for many of today’s development issues. Arguably, geopolitical considerations are an essential part of the equation in addressing domestic economic problems facing nations, large or small. We, economists, must expand our paradigms and analytical tools from, or at least enhance collaboration with, other disciplines, as is the unique feature of this conference. For example, we can only be as responsive to evolving policy issues with a good understanding of how artificial intelligence (AI) works and how algorithmic platforms influence how we think about the world. So, our analytical tools must also expand and evolve.

The risk that the global economy will further deteriorate is on the upside. Geopolitical tensions are high. As the discussions at the conference indicate, partnership at the regional and international level is more crucial now than ever before. But leadership appears wanting. The G7 leaders and those from the less-advanced countries in Asia, including India and Indonesia, would need to work harder to stave off the crisis. What is required is coordination and cooperation—a collective action—in policy response to the global decline in trade, investment, and technology flows. Unfortunately, even within Asia, that is not less challenging. Because of these geopolitical and border tensions, trust is low, making collective action costly and more challenging to address the inadequate provision of regional or global public goods. For small economies in Southeast Asia, including the Philippines, national interests dictate that we take a careful balancing act, including not taking sides with one country or the other but diversifying and reducing the risks arising from these tensions. Of course, we are all caught up in the geopolitical struggle, but we have to find our place within that struggle so that we can maintain our progress toward better socioeconomic outcomes.

Ideally, the world would be better if we had more open trade. Still, the US decision to tighten its industrial policy to protect its industries may work as it is a big country, but it may be at the expense of many smaller countries. In the long run, it may not work for the US because the policy will force other countries, including China and India, to invest aggressively in their high-tech industries, so the gains will likely be short-lived, even for the US. Of course, for emerging economies like the Philippines, this can result in positive spillovers from knowledge generation and technology transfer – provided that we put in place the policies, physical and social infrastructure, as well as institutions that will enable us to take advantage of such spillovers while building our own capacities. There must be corresponding social investments in human capital for open trade policy to work. Questions of upskilling and even addressing the most fundamental needs must be confronted squarely in this regard.

As we reflect on the theme of this conference series, “India in Asia: Deeper Engagements,” it is imperative to ponder India’s evolving role in the region in the future. The complexities of our interconnected world demand a nuanced understanding of India’s position and its potential to influence regional dynamics positively. What is certain, at the very least, is that its actions carry much weight and will surely affect the strategic responses of its neighbors and trading partners.

In closing, I eagerly anticipate the continuation of these enriching conversations in the third conference of the series. Let us remain committed to fostering deeper engagements, transcending borders, and collectively shaping a prosperous, equitable, and sustainable future for all. It is an honor and a wonderful opportunity to have met you.

Thank you.

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