Letter IEDI n. 1132—Industrial Policy and Sustainable Development in the Post-COVID-19 World
Today's Letter IEDI addresses the recently released Industrial Development Report (IDR) of the United Nations Industrial Development Organization (UNIDO), which discusses the future of industrialization in the post-pandemic world.
In this study, UNIDO examines the megatrends of structural transformation related to the process of technological change, sociodemographic transitions and the carbon footprint of humanity that were already underway before the emergence of the COVID-19 pandemic.
Three megatrends are particularly relevant in shaping the future course of industrial development:
• Digitalization and automation of industrial production, with the introduction of advanced digital production technologies, which affect all spheres of business development and change the competitive advantages of companies and nations;
• Economic power shift to the economies of Asia, in particular China, which entails a major restructuring of trade flows and global value chains;
• Environmental conversion (greening) of industrial production, which requires radically different business models and systemic transformations, with profound effects on the positioning of emerging and developing industrial economies in the world economy.
In the shadow of these megatrends, some sectors and business models are in decline, while others are emerging and expanding, which creates opportunities and threats for all economies. The way this will unfold depends, in part, on the existing economic structures and, according to UNIDO, on the adaptation and coping strategies adopted by governments and companies.
In the institution's assessment, the megatrends, which are interrelated and interact with the impacts of the pandemic, will shape the future of the industry, creating opportunities and challenges for countries to achieve their inclusive and sustainable industrial development.
In this context, those responsible for industrial policy have, according to UNIDO, a significant role to play: in identifying these megatrends, in transforming them into new development opportunities and in assisting the transition from declining activities to more dynamic ones.
At the same time, an inclusive and environmentally sustainable industry will crucially depend on the accumulation of production capabilities at the firm-level and across national ecosystems. For UNIDO, this will require substantial investments in capital by governments and the accumulation of human resources in science and technology, as well as the development, at the enterprise level, of production and innovation skills and capabilities.
This transformation process is the backbone of the “building back better” movement, an idea popularized in the aftermath of 2004 tsunami in Asia, and which currently deals with how industrial policies can respond to the challenges aggravated by the COVID-19 crisis.
For UNIDO, the recovery from the COVID-19 crisis would allow us to go far beyond the restoration of the previous economic model, creating an opportunity to correct the fragilities and inequalities of the world economy that the pandemic made more explicit and intense.
To this end, new industrial policies will need to incorporate the sustainable development goals of the UN 2030 Agenda. According to UNIDO, the design of a post-pandemic industrial policy suitable for "building better" would include the following characteristics:
• Distinction between policies addressing short-term emergencies and those oriented to the long term, due to differences in a country's or industry's ability to manage shocks and respond to the turbulence of change;
• Solid engagement from all stakeholders, with increased levels of dialogue and cooperation between government, business, academia and civil sectors to sustain industrial policies over time;
• Taking into account the risks and opportunities brought by the megatrends that should shape industrialization in the future;
• Targeting structural and systemic changes by enhancing local production capacities and other "industrial commons," including research and development (R&D), manufacturing infrastructure and know-how;
• Contributing to strengthening multilateralism and international coordination around issues of industrial policy, resilience and global disaster risk management.
UNIDO advocates industrial policy must be a key element of strategies to build new paths for more inclusive and sustainable development, with the definition of clear priorities for the short, medium and long term and examples to promote “a recovery that leaves no one behind.”
Socially inclusive industrial policies should aim not only at creating formal jobs, but also at increasing opportunities for vulnerable workers (those currently in informal employment, young people and women) in the industrial sector, as well as reducing inequalities in terms of gender, company size or region.
As for environmental sustainability, industrial policies to stimulate more responsible production methods should prioritize, in the short term, the adoption of sustainability standards for the production of industrial goods and stimulate demand for low-carbon technologies and "green skills."
After the recovery from the crisis caused by the pandemic, UNIDO argues that the focus of industrial policies should shift to strengthening new productive and innovative capacities related to green industries, with an emphasis on “high-quality” activities.
Given the global nature of the COVID-19 economic crisis, national industrial recovery efforts alone will be insufficient to rebuild better. For this reason, UNIDO appeals to the international community to support the rebounding of the industry and to redouble its efforts to support the most vulnerable countries in the world.
For the institution, improving the international coordination of industrial policy requires:
• Strengthening the capacities of governments in developing economies for designing and implementing post-pandemic industrial policies;
• Expanding the policy space of developing countries by ensuring access to multilateral institutions’ funds and recapitalizing (regional and national) development banks;
• Reducing the digital divide by providing access to knowledge, learning and adaptation, with better mechanisms to govern knowledge creation and sharing, including advanced digital technologies and other relevant technologies;
• Upgrading international frameworks for trans-boundary disaster risk management, to ensure uninterrupted flows of essential goods;
• Putting environmental sustainability at the forefront of global recovery to achieve climate neutrality by 2050 and to mitigate the global warming trend.