Rashid Al Mohanadi & Frederic Schneider
In a world of competing economic influencers the days of isolation economics are gone. We argue here that for any economic system to truly achieve any desired policy effect, a systemic thinking approach is no longer a luxury but a necessity so that primary intra-country drivers are solid enough to withstand external pressures. We examine the need to return to fundamental industrial planning, where “direct, indirect, and induced” effects are no longer buzzwords in every economist’s mouth, but real considerations that should be thought about and factored in unison as part of any economic planning.
Smart industrial policy steers successful economic transformation:
We are living through a unique era of economic transition laying the groundwork for post-oil industries, fostering greener ways of living, and decoupling employment from the public sector. The stakes are higher than ever as these changes coincide with intractable risks of environmental, macroeconomic, geopolitical, and technological nature, which become more pronounced and critically complex as systems grow. Throughout history, and relevant to today, government steering has played a crucial role in country navigation and we put forward here its importance to the State of Qatar in the present day.
Policymaking today should take the systemic interconnectedness of all arenas into account and aspire to integrate and coordinate policies, even when that includes a focus on one or a few directions, be they sectors or companies. We outline below a couple of examples where we see the most potential for such an integrated approach to the State of Qatar.
Smallness, usually associated with weakness when assessing national capabilities, should be viewed as a superpower regarding policy formulation, implementation, and evaluation. It allows coordination between main stakeholders in ways that larger countries cannot achieve due to their size, historical institutionalism, and bureaucratic hysteresis. Similarly, those economies with abundant resources are in a better position to implement coordinated whole-system changes with their main natural capital acting as an anchor or, indeed, an enabler.
Many countries have failed in the transition away from a resource-extraction economy. The former coal mining areas in the US, UK, and Germany are stark examples of de-industrialised death zones of unemployment, crime, and poverty. These failures should remind us of what is at stake and the lessons to be heeded. We need to decide today how we want our economy to look a decade from now. This “future-back” thinking, which focuses on foresight rather than forecasting, will help identify our future industrial landscape. The pitfalls currently facing the GCC and Africa share a similar trend: proposals for replacement industries tend to be the same across the MENA region, a one-size-fits-all of tourism, construction, and various tech hypes like crypto, the metaverse, and the gig economy.
Two policies meant to flank the post-oil transition are the fostering of national champions and a venture culture that produces unique/or “niche” unicorn start-ups. Both are important components of a rounded strategy: national champions capitalize on economies of scale and serve as international flagships and cornerstones of national autonomy and security. Additionally, start-ups can be dynamic growth machines, but only if pointed and let loose in the correct direction with support. Yet betting too much on start-ups, with their staggering failure rates and often middling employment performance, is a gamble with dire odds.
Likewise, lopsided dependency on national champions (economic behemoths) runs the risk of these large enterprises becoming huge liabilities in a crisis (consider the Korean chaebol conglomerates in 1997). In isolation, these two examples create isolated pockets of vicious cycles that expand and ultimately have a macro-flaying effect on the country as a whole.
For the past 40 years or so, “economic planning” and “industrial policy” have been considered “dirigism,” or anti-competitive, inefficient meddling of the state in what should better be left to the free market. Recently, though, smart and subtle industrial policy has been seeing a renaissance as a tool to promote “infant” sectors (or entities) of an economy that can be fostered to excellence while also safeguarding those sectors that may be less competitive but are of national importance. Smart industrial steering thus equips a country with the capability to provide less self-sustaining sectors with the support required to flourish, whether for a limited time or in the longer term. Any smart Strategic Economic Transformation (SET) policy should foster the real economy by moving up the value chain, high labour productivity, value-added activities, and high-quality manufacturing while trying to find national competitive advantages that set the economy apart from its neighbours.
Whilst national industrial policy is typically known for creating and maintaining “national champions,” we propose to also create “hidden champions,” based on global role models such as the German and Swiss “Mittelstand” with firms like Bosch, Kärcher, or Schindler, global market leaders in their niches through innovation and quality, or Taiwanese manufacturing SMEs that supply the entire world with IT hardware. We could do well and seek to adapt these models to our national context, create these often overlooked SMEs, and integrate them with our aspirations for national champions and tech start-ups into a systemic strategy. The result will be a range of highly specialized small and mid-cap champions producing world-class quality products “Made in Qatar”.
Systemic policy goes beyond industry:
An integrative approach to economic strategy involves many areas of society, such as education: while our efforts to achieve homegrown excellence in academic research are seeing results, employers often struggle to make productive use of graduates as they lack essential practical and technological skills. They then need to learn these skills on the job, creating a significant bottleneck of usable human capital. Again, we can look at models that balance academic and practical skills and that we may usefully adapt to our context, with sectors or champions taking the lead.
Education systems that place a high value on vocational training and craftsmanship, like Japan, and certain European dual-track systems that integrate conventional classroom education with parallel on-the-job training in real companies produce graduates ready to be productive from day one. A holistic SET strategy needs to adapt such practice- and technology-focused models to our national context.
As part of an successful SET, and beyond any specific policy area, we also have to rethink our general approach to policymaking, including planning, implementation, and evaluation. This last part is often overlooked. Once policies are implemented, they go unscrutinized, and lessons from finished projects remain unlearned. The eagerness for new projects sometimes obscures the fact that policymaking is an iterative process. That includes the monitoring and periodic re-evaluation of policies, adapting what can be improved, and recording the experiences for the future.
A professionalized culture of integrated policy evaluation and the building of institutional memory will help to close the loop and lead to iterative improvements. Smart evaluation and adaptation should be part of any policy, but especially with industrial policy, where nimble steering is essential.
Relatedly, we have to revise our relationship with external advice. In the past, we have profited tremendously from global consulting firms bringing their expertise and international “best practices” to Qatar. But the goal has always been the transfer of knowledge and the empowerment of Qatari expertise. Yet, it seems that our reliance on outside advice is growing, not shrinking, and at times such advice is often generic and rife with potential conflicts of interest. A balanced SET therefore includes reprioritizing insourcing and localization of expertise and consulting capabilities.
Finally, we need to rekindle regional integration within and beyond the GCC. No country currently benefits from political or economic cross-border tensions or competition. Switching from ruinous competition in a few industries to economic cooperation and concentration on unique national competitive niches will benefit everybody. This might open the discussion on moving from a national to a regional SET vision.
In short, the idea of systemic integration can help us think more deeply about industrial and educational policy, a richer business ecosystem, a more iterative way of policy-making and the way we use global consulting services, and more regional economic cooperation. Balance is critical to navigating the risks and challenges ahead. We can balance the industrial mix with added-value niche or specialist industries that capitalize on national competitive advantage, national champions and unicorns with a robust layer of “hidden champion” SMEs (quality not quantity that are furthermore supported by a layer of actual mid-sized caps), academic education with integrated on-the-job training for practical skills, the drive to new projects and policies with systematic, iterative improvement on existing ones, and consulting services with in-house expertise.
