Industrial policy is for and against, but it never really goes away. Today, we can cite tariff policies and the WTO’s inability to control them as proof that industrial policy is alive and well, said Alisa Di Caprio, Chief Economist, R3 in an interview with BW Businessworld.
Tell us about you
I am currently Chief Economist at R3, a blockchain platform company. In this role, I do macro and strategic analysis for digital assets, central bank digital currencies, payments and commerce. Before that, I was a senior economist at the Asian Development Bank in Tokyo and Manila.
As Resident Trade and Technology Economist, I led the Institutional Innovation Program as well as efforts to digitize trade. I also calculated the global trade finance gap from 2013 to 2017. My PhD is in international development with a focus on labor economics. I studied with Alice Amsden from 2001 to 2007 and co-wrote a book with her in 2008.
2. How do heterodox economists differ from neoclassical economists?
The difference is the acceptance of the knowledge received.
The neoclassical approach to economics is based on consumption, production and value, all driven by supply and demand. Utility maximization is the goal of individuals and companies. Most economists today learned these principles as the foundation of our understanding of how economies work. It’s a great starting point.
Heterodox economists belong to different schools. What unites them is their questioning of the conclusions drawn by neoclassical methods. Almost all economists agree that neoclassical models are not meant to fully represent reality. But in the absence of alternatives, policies are based on models that may not hold.
One of the greatest (recent) upheavals in neoclassical economics has been the rejection of the “rational man” as a starting point. This gave birth to the whole field of behavioral economics. The study of institutions also emerged from this diverse group of thinkers. Today, I feel that these groups are much less clearly defined than they were when I was studying economics.
With the collapse of the Washington Consensus, what are the avenues for the heterodox approach to gain prominence?
There was great drama over heterodox economics in the 1980s and 1990s. Today there is more openness to criticism and a more diverse set of economists in most academic departments.
The Washington Consensus and its detractors were one of those discontinuous moments when it became impossible to ignore heterodox economists. They predicted what none of the mainstream policy makers or economists wanted to acknowledge. The received knowledge at the time was that free trade led to economic efficiency and growth. What we know today is that countries like South Korea and India have achieved economic growth through managed trade: subsidies, export controls, import licenses, etc.
I don’t think we’ll see a resurgence of heterodox economics, but rather an absorption into how economics is taught and theorized today.
4. What about a new industrial policy?
Industrial policy is for and against, but it never really goes away. Today, we can cite tariff policies and the inability of the WTO to control them as proof that industrial policy is alive and well.
A “new” form of industrial policy that we see today is techno-nationalism. It is the idea that technology is a form of power and that countries seek to promote their technology industries while simultaneously limiting the ability of their trading partners to gain domestic market share. Often “national security” is cited as the reason. The United States’ relationship with China is a very clear way in which the United States seeks to promote American technology and simultaneously reduce the power of Chinese technology to impact industrial growth.
What would Alice say about your work with her on the role of the elite in development?
This book, The Role of Elite’s in Economic Development, edited by Alice Amsden, myself and James Robinson was the sleeper hit of 2008 (reissued 2012). We started on this topic because no one else was really working on it. Daron Acemoglu had a book on it, and Bruce Bueno de Mesquita delved into dictators, but there wasn’t a cohesive set of perspectives on how elites impact economic development.
Alice was always looking for ways to subvert received wisdom with facts, and I imagine this sounded like a good opportunity to her. This was at a time of great debate about the usefulness of foreign aid and whether it helped or distorted the markets of the developing countries that benefited from it.
The topic also required building research connections across several different disciplines, which was one of Alice’s favorite types of research. This meant that there was a lot of work to build on, but also made it very difficult to find commonalities since each of them approached the subject from different assumptions and theories.
Alice would say it was a subject that had been ignored because it was difficult to understand given the tools we have in economics today. Don’t back down from these topics! But don’t expect anyone to readily accept what you find either. Back it up with data, examples, stories, and preferably a strong advocate.
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