Foster and Azmeh (2020), “Latecomer Economies and National Digital Policy: An Industrial Policy Perspective,” The Journal of Development Studies, 56:7, 1247-1262

The digital economy and digitalisation are becoming an ever more important element of production, including in developing and emerging countries. This process leads to questions about the emergence of industrial policy focussed on digital economies and digitalisation.

Recently, there has been a growth in interventionist digital policy in developing and emerging economies but research has so far made a limited analysis of how this might fulfil economic objectives and support technological catch-up. This paper examines the growth of national digital policies and argues that industrial policy objectives are important drivers of digital strategies. This work is significant in that it unpacks national digital policies more comprehensively in order to provide insights on their potential value and limitations from an industrial policy perspective.

The authors find that digital industrial policy encompasses policy tools that align with well-known industrial policy, as well as new approaches that are relevant to digital technologies and the new business models that are common in the digital economy. They also find that national digital policies have not always been discussed in terms of economic goals (or industrial policy). For example, they are often linked to broader agendas of ‘sovereignty’, national security or personal data protection. The economic objectives have either been hidden or emerged as a spillover effect. Where national digital policies have been undertaken, the focus has been in a number of areas. Firstly, policy emphasis on nurturing domestic markets, and ensuring domestic firms are part of these markets, are key objectives. Secondly, national digital policy also looks to shape the activities of foreign digital firms through attempts (not always successfully) to control data flows or shape rules of interactions. Finally, national digital policy is emerging with more emphasis on digitalisation and particularly the opportunities and challenges of the digitalisation of industry.

Perspectives diverge in the literature on industrial policy. There are those who, while agreeing that industrial policy can be important, tend to advocate for relatively soft actions by government, particularly by supporting integration into global value chains. Others see the decline of space for industrial policy through binding trade rules as a serious limitation on the ability of states to pursue developmental policies and structural transformation for developing countries. The authors find that, at least at this early stage, neither of these positions appears to have precedence in terms of national digital policy.

The paper argues that an interventionist industrial policy may play a crucial role in driving forward the expansion of digital economies and domestic digital firms and shaping the activities of foreign firms. In particular, the highly uneven global nature of digital and the importance of winner-takes-all ‘network effects’ on platforms is an important consideration. In the longer term, there is the risk that leading global digital firms can expand and take an almost infrastructural position in sectors. In addition, the risks of hoarding of data may limit entrance in future data-driven sectors such as AI. The authors find that more interventionist approaches can be vital in countering structural challenges, such as the power of digital platforms, limitations of domestic digital firms, and limited ability to leverage digitalisation for broad-based national development.