Monday, July 13, 2009

The Deindustrialisation Folly

In the wake of Wall Street's debacle, Jeff Immelt, chairman and chief executive of the General Electric Company, is urging American policymakers and business leaders to "drive competitiveness" by "improving the manufacturing structure" and to "draw on 230 years of ingenuity to renew the country’s dedication to innovation, new technologies and productivity". That would indeed be a feat to fit into the shoes of iconic Jack Welch.

In short, Jeff Immelt is merely suggesting that countries do not dance to the tune of intoxicating sirens forever. Simply put, speculation-driven expansion is not sustainable. John Rose, chief executive of Rolls-Royce, made a similar call previously in Canary Wharf-obsessed England. Unlike, say Luxembourg's foundation, Singapore's foundation does not look shaky because, in typical proactive fashion, it has sought to reinvent its economic structure permanently while unleashing innovation-driven SMEs in defiant mood to conquer niche markets worldwide.

Alternatively, a sector-specific approach to policymaking ends up distorting the whole economy. It removes the incentive for innovation in other sectors and hurts overall competitiveness. Worse, it fosters a rent-seeking and too-big-to-fail culture. Mauritius will continue to pay a heavy price until it stops listening to the usual suspects.