New Form Of Industrial Policy We See Today Is Techno-nationalism: Alisa Di Caprio

The industrial policy comes in and out of favour, but it never really goes away. Today we can point to tariff policies and the WTO’s failure to control them as evidence that industrial policy is alive and well, said Alisa Di Caprio, Chief Economist, R3 in an interview with BW Businessworld. 

Tell us about yourself

I’m currently chief economist at R3, a blockchain platform company. In this role, I do the macroeconomic and strategic analysis for digital assets, central bank digital currencies, payments, and trade. Prior to this, I was a Senior Economist at Asian Development Bank in Tokyo and Manila. 

As the resident trade and technology economist, I spearheaded the institutional innovation program as well as trade digitisation efforts. I also calculated the global trade finance gap from 2013-2017. My PhD is in International Development with a focus on labour economics. I studied with Alice Amsden from 2001-2007 and co-authored a book with her in 2008. 

2. How do heterodox economists differentiate themselves from neo-classical economists? 

The difference is the acceptance of received knowledge. 

The Neoclassical approach to the economy is based on consumption, production and value, all driven by supply and demand. Utility maximization is the goal of individuals and firms. Most economists today have been taught these principles as the foundation of our understanding of how economies work. It’s a great starting place.

Heterodox economists fall into a range of different schools. What unites them is their questioning of the conclusions reached using neoclassical methods. Nearly all economists acknowledge that neoclassical models are not meant to fully represent reality. But in the absence of alternatives, policies are based on models that may not actually hold. 

One of the greatest (recent) upsets of neoclassical economics has been the rejection of “rational man” as a starting point. This gave rise to the entire field of behavioural economics.  The study of institutions also emerged from this diverse group of thinkers. Today, I feel like these groups are much less starkly defined than they were when I was studying economics. 

With the collapse of the Washington Consensus, what are the pathways for the heterodox approach to gain prominence? 

There was a big drama about heterodox economics in the 1980s and 1990. Today, there’s more openness to critique and a more diverse set of economists in most academic departments. 

The Washington Consensus and its critics were one of those discontinuous moments when it became impossible to ignore heterodox economists. They predicted what none of the policymakers or mainstream economists had been willing to acknowledge. The received knowledge at the time was that free trade leads to economic efficiency and growth. What we know today is that countries like South Korea and India achieved economic growth using managed trade: subsidies, export controls, import licensing and the like. 

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? 

The industrial policy comes in and out of favour, but it never really goes away. Today we can point to tariff policies and the WTO’s failure to control them as evidence that industrial policy is alive and well. 

One “new” form of industrial policy we see today is techno-nationalism. It’s the idea that technology is a form of power and countries seek to promote their technology industries while simultaneously limiting their trading partners’ ability to gain domestic market share. Often “national security” is given as the reason for this. The US relationship with China is one very clear way in which the US seeks to promote US technology and simultaneously reduce the power of Chinese technology to impact industrial growth.

What would Alice say based on your work with her on the role of the elite’s in development?

That book, The Role of Elite’s in Economic Development, edited by Alice Amsden, myself, and James Robinson was the sleeper hit of 2008 (reissued in 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 was delving into dictators, but there wasn’t a coherent set of perspectives on how elites impact economic development. 

Alice was always looking for ways to upend received wisdom with facts, and I imagine that this seemed like a good opportunity to her. It was during a time of great debate about the utility of foreign aid and whether it was helping or distorting developing country markets that were on the receiving end. 

The topic also required knitting together veins of research from several different disciplines, which was one of Alice’s favourite types of research. This meant that there was a lot of work to draw from, but also made it very difficult to find commonalities since each of them approached the topic from different assumptions and theories. 

Alice would say that this was a topic that had been ignored because it was tricky to understand given the tools that we have in economics today. Don’t back away from these topics! But also don’t expect anyone to easily accept what you find. Back it up with data, examples, stories, and preferably a powerful advocate.

Leela Lebowski

BW Reporters The author is Executive Editor of Public Policy at BW Businessworld