The rules of the World Trade Organisation (WTO) leave space for industrial policies, including use of subsidies, which developing countries can, should, and, in some cases do, exploit. This has been highlighted by Massachusetts Institute of Technology Political Economy Professor Alice Amsden.
Speaking in Pretoria on Wednesday, she pointed out that, under WTO rules, the entire environmental and energy sectors are not "adjudicated". That is, countries are free to employ a wide range of instruments to promote the development of these sectors, including those forbidden for other sectors under WTO rules.
She cited the example of China, which is able to use subsidies to support its automotive industry regarding the development and production of energy-saving vehicles. Similarly, East Asian countries are legally subsidising their railways, because railways save energy.
Another important fact about the WTO is that it does not forbid industrial policy at the provincial/state level. "Regional policies are kosher under WTO rules," said Amsden.
She cited the example of the State of Massachusetts in the US, which is subsidising the development of the biotechnology and film industries within its bounds. In the case of the film industry, this help comes in the form of cash handouts.
Likewise, Thailand purposely established the country's automotive industry in its poorest province, both to be able to provide it with WTO-compliant support and to bring development and increased prosperity to the region.
I don't know that I'd go quite as far as she does in terms of her specific examples, but I agree with the general idea that developing countries have a good deal of policy space to promote their development.