The document discusses perspectives on developing an industrial policy for CARICOM states. It notes that traditionally these states relied on agriculture but now face challenges from globalization. A regional industrial policy could help states pursue common objectives like cross-border cooperation, promoting competitive regional enterprises, and sustainable development. The policy should establish a framework for national industrial goals like productivity growth and employment while being guided by macroeconomic considerations and supporting key sectors through infrastructure development.

1. DISCUSSION PAPER:
INDUSTRIAL POLICY - PERSPECTIVES AND ISSUES
Industrial Policy Unit - 26 October 2009

2. Discussion Paper: Industrial Policy, Perspectives and Issues
Background
One of the underlining features of the last two decades with respect to the economies of
Member States is their dependence on agriculturally based activities. Agricultural development
was predicated on the availability of large estates particularly located in rural communities;
availability of relatively cheap labour; and the notion that their export markets would always
provide some form of protective regime. The option for economic diversity was constrained by
inward looking economic policies, poorly educated workforce, and under developed and in some
cases nonexistent infrastructure to support industrial development. Protectionist policies of
former colonial powers in support of export trade from the territories they once governed hardly
provided any incentive for the development of the industrial sector. Succeeding years have
engendered unprecedented paradigm shift in the international market. This has forced some
Member States to reassess their position in respect of what was happening globally and the
challenges they face. It was evident that Member States had to radically overhaul their
economic and industrial policies to address the challenges of the global market.
In several Member States, one main export crop successively gave way to another as market
demand and trade conditions change. Within the last decade or so, there has been
considerable change in market conditions as a consequence of liberalised trade dictated by the
World Trade Organisation (WTO). This has engendered the removal of major trade protection
regimes and the establishment of new protocols for some commodities. The impact of such
decisions has created enormous challenges for small developing states of the CARICOM
community. Other traditional industries such as sugar, rum, rice, etc. have struggled to survive
in the face of aggressive and dynamic global competition. As a consequence, regional
governments had to reprioritise and develop new strategies to support industrial activities and
strengthen those that will now form the engine of economic growth for the future. In this
context, it is imperative that new policy framework be devised within which timely interventions
can be made to strengthen existing industries and encourage new developments in the sector
taking advantage of regional production and available resources.
CARICOM’s Agenda
A regional industrial policy is not intended to impose policies on Member States, but must rather
reflect national interest that feeds into a regional policy. This must be done in a manner that
conveys the philosophy that functional cooperation on issues of mutual interest would be
beneficial to all Member States. The converse would have deleterious effects if Member States
pursue their individual agendas in a global environment that does not recognise the importance
of small and micro states. A harmonised policy will advance CARICOM’s own position as
mandated by the Treaty of Chaguaramas in promoting a regional industrial agenda on behalf of
the Member States. Article 52 of the Treaty states that, “The goal of the Community Industrial
policy shall be market-led, internationally competitive and sustainable production of goods and
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3. services for the promotion of the Region’s economic and social development.” Against this
background, the policy will pursue the following objectives:
 cross border employment of natural resources, human resources, capital, technology
and management capabilities, for the production of goods and services on a sustainable
basis;
 linkages among economic sectors and enterprises within and among the Member States
of the CSME;
 promotion of regional economic enterprises capable of achieving scales of production to
facilitate successful competition in domestic and extra-regional markets;
 establishment of a viable micro and small economic enterprise sector;
 enhanced and diversified production of goods and services for both export and domestic
markets;
 sustained public and private sector collaboration in order to secure market-led
production of goods and services;
 enhanced industrial production on an environmentally sustainable basis;
 balanced economic and social development in CSME bearing in mind the special need
of disadvantaged countries, regions and sectors;
 stable industrial relations.
CARICOM does not intend to take ownership of Member States’ industrial agenda. However,
as the main regional umbrella organisation, it must create a framework for healthy dialogue on
the issues. That dialogue must address the way forward in respect of industrial policy
development within Member States. The modalities for facilitating the process of achieving
competitiveness could be facilitated in part by the CSME.
Framework for Industrial Policy Development
The overall goal of a national industrial policy is to increase a country’s production capacity and
thereby the export potential of selected products as well as to increase the competitiveness
among major industries. A regional industrial policy will provide the opportunity for CARICOM to
capture and promote those common features imbued in the policies of Member States in a
harmonised manner and to make technical and other interventions where practicable and
feasible. A national industrial policy should have the following objectives:
 Facilitate, foster and maintain sustained growth in productivity
 Provide opportunities for gainful employment
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4.  Achieve optimal utilisation of resources
 Enabling manufacturing enterprises to attain world class status
 Attaining the level of international competitiveness
In light of the discussion in question, it would be useful to define an Industrial Policy. An
Industrial Policy can be defined as a set of actions or interventions by the state in order to affect
the way factors of production are being distributed across national industries. In shaping an
industrial policy for the region, cognisance must be taken of the overall competitive status of
manufacturing enterprises vis a vis technology transfer policies, labour cost, the productivity
gap, the impact of past and existing policies, current market dynamics, etc. The traditional
framework for the analysis of industrial policy is based on the notion that government
interventions may be desirable in the face of significant failures. That is, where markets lead to
misallocations of resources, corrective government actions can, sometimes improve economic
efficiency. Market failure is not of course seen as a sufficient condition for intervention, but as a
screening criterion to identify areas where such interventions may be beneficial and where
further analysis of feasible policy options would typically be justified. In such circumstances the
role of government’s intervention is to correct such failure and to put the market on a freely
competitive track. The rationale for industrial policy is based on the notion that market forces
by themselves without the support of the state, cannot suffice to bring about sustained
development of the productive base of the economy.
Macroeconomic Policies
Industrial policy initiatives must take cognisance of the macroeconomic policies and the
existential economic circumstance of Member States. Such macroeconomic policy goals should
include:
 Sustained economic growth
 High employment
 Stable price (low inflation)
 Rising living standards
 High productivity
Today, most industrial policies are subordinated to tax, tariffs and trade rules of the WTO and
the General Agreements of Tariffs and Trade. Government’s intervention through its fiscal,
monetary and supply side policies must be geared towards stimulating the market and making
the investment and production climate more enabling. These policies are designed to influence
taxation, promote government’s spending and borrowing which would impact on industrial
activities with respect to investment and government spending. Its supply side policies are
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5. designed to make industries more efficient and thereby stimulate the growth of the national and
regional output.
Sectoral Policy
Several aspects of industrial development would impact or have some relationship with other
sectors of the economy. Hence, industrial policy needs to be cross sectoral in scope and
provide the contextual framework for synergies and complementarity. It must therefore address
issues such as intellectual property rights, competitiveness, energy and the environment,
information and communication technology (ICT), technology transfer, standards and quality,
etc.
Policy initiatives should address the issue of Infrastructure development which will provide the
framework for aligning sectoral policies, designing national development plans, harmonising
regulatory regimes and investment codes, attracting seed capital, and mobilising investment
resources. It must also speak to initiatives to integrate transport, communications, and energy
infrastructure and services across the Region. Such policy initiatives must focus primarily on
reducing the cost of conducting business within the Region and facilitating cross border mobility,
which will redound to increase investment and competitiveness.
An industry policy should delineate the need for sustainable infrastructure systems that meet
economic demand and provide basic services for Small and Medium Enterprises (SME)
development. These infrastructure systems must be reliable, efficient, affordable and
environmentally sound and should provide the opportunity for growth that will enable all
enterprises to compete in regional and international markets. To meet these requirements,
policies must outline appropriate regulatory framework for monitoring performance and
liberalising access to infrastructure service markets.
The natural endowment and peculiarities of Member States should be recognised in crafting an
industrial policy. Moreover, there must be provision for cross border cooperation and
integration. An industrial policy must also establish linkages to important sectors like the
agriculture, services and energy. It must provide the framework for state intervention
particularly in infrastructure development to address extant concerns and facilitate growth in the
sector.
Traditional Approach
It would be useful to develop an industrial strategy which should accompany an industrial policy.
The strategy requires a creative and innovative approach, and close public sector and private
sector partnership and participation. The overall goal of the strategy should focus on enhancing
the productivity and efficiency of manufacturing firms, diversifying export products and markets,
identifying new markets for niche products with a higher processing and value-added content
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6. than the commodities currently being exported. It should consist of the following elements: (i)
prioritisation of key industries (ii) budgetary allocation to foster rapid manufacturing growth; (iii)
investment to support physical infrastructure and allied industries (iv) improvement of
macroeconomic, business and legal environments; (iv) emphasis on private sector-led growth,
export-oriented manufacturing production and foreign direct investment or any other policies
that will provide the impetus for sustainable growth in export trade.
Traditionally, industrial policy positions have been accentuated in position papers (white, green
papers, etc.). Several sectoral studies have been conducted in selected areas to determine the
competitive status of selected commodities. Except in the case of Jamaica and Trinidad and
Tobago, there have not been comprehensive industrial policy documents in Member States. In
the past, industrial policy was dictated primarily by government with little input from the private
sector. Most policy positions have largely been reactive, inward looking (driven by import
substitution policies), bureaucratic and demand side based. The introduction of new policy
measures has engendered little institutional change except for regulatory capacity. Issues such
as capacity building and institutional strengthening were ignored for the most part. This was
because such policy changes have primarily based on price interventions through taxes, import
tariffs or subsidies. Modern industrial policy requires pro-active intervention on key
developmental issues including adding value to primary products as well as relevant changes
for its implementation. Change which supports institutional repositioning and strengthening
should reflect new policy direction. Policies require continuous monitoring of the operating
environment in order to identify and address policy bottlenecks that would stymie its
effectiveness. Inhibiting factors and constraints within the framework of the implementation of
the policy must be identified and removed to achieve sustainable and competitive development.
Lessons to be learned
There are lessons that small developing countries like those of Member States of CARICOM
can learn from the experience of the South East Asian countries (Newly Industrialised
Countries) (NIC) like Singapore, Taiwan, Malaysia and Hong Kong. These countries are all
relatively small, with little endowment in natural resources. All of them had a colonial past. Their
industrial policies were basically inward looking. They initiated export oriented policies and
domestic utilisation of resources for the creation of an efficient modern infrastructure conducive
to foreign investment. Most of them have undergone very rapid economic restructuring
changing from export-oriented industrialisation of traditional labour intensive products to more
complex and sophisticated export-oriented industrialisation based on the export of capital and
technology intensive manufactured products. These governments prioritised the promotion and
development of advanced technologies and innovation to enable them to maintain their
competitiveness in the face of competition from their industrialised neighbours. These countries
also made significant investments in the human resource capital especially in the field of
engineering and science to pursue their sophisticated export oriented industrialisation.
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