1 Introduction

Twenty-eight years after the first ‘Rio Summit’, the world capitalist economy continues to face the twin challenge of expanding economic opportunities for an increasing global population and addressing mounting environmental pressures. This twin challenge gave birth to the contemporary concept of ‘green growth’, which meant to take full account of the complex consequences of greening the growth dynamics of modern economies. Green growth means ensuring economies continue to grow while simultaneously creating a sustainable pathway so that those ecological assets that human being relies upon are there well into the future. Subsequently, the notion of ‘green economy’ has been accepted as a key driver in reducing pollution, tackling climate change, dealing with poverty and income inequality, improving public health, and pursuing a number of critical goals to improve life for this planet and its people.

Indeed, the green aspect, mainly natural capital, is the most constrained asset owed to modern economic growth patterns. But since 2008, due to the focus on the environment-economy nexus by green growth, the term has been extensively utilized as the policy response to various global crises. During the Global Financial Crisis (GFC) of 2007–2009, the United Nations Environment Programme (UNEP) “championed the idea of ‘green stimulus packages’ and identified specific areas where large-scale public investment could kick-start a ‘green economy’” (United Nations, n.d.).

This notion inspired international institutions as well as several national governments around the world to formulate and employ significant ‘green stimulus’ frameworks bringing economic, social, environmental, technological, and development aspects into comprehensive policy packages to aid in their economic recovery. Subsequently, the concept of green economic growth has now entered the collective conscience of every organization from the largest nations to the smallest communities.

  • In 2008, UNEP led the ‘Green Economy Initiative’.

  • In 2010, S. Korean President Lee Myung-bak launched the Global Green Growth Institute (GGGI) as a think tank. The 2012 ‘Rio+20 Summit’ in Brazil would later transform it into an international treaty-based organization.

  • In 2011, the International Chamber of Commerce’s (ICC) Task Force on Green Economy examined what it would take for the global economy to become green and published a series of ten different conditions that would need to be met (Bacher 2015).

  • In 2011, the OECD published a green growth strategy.

  • In January 2012, the Global Green Growth Institute, OECD, UNEP, and World Bank formally launched the Green Growth Knowledge Platform (GGKP). The mission of the GGKP “is to enhance and expand efforts to identify and address major knowledge gaps in green growth theory and practice, and to help countries design and implement policies to move towards a green economy” (GGKP 2013: 4).

  • In 2012, the World Bank published Inclusive Green Growth: The Pathway to Sustainable Development.

  • In 2012, the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) released Low Carbon Green Growth Roadmap for Asia and the Pacific. The roadmap provides “five tracks on which to drive the economic system change necessary to pursue low carbon green growth as a new economic development path” (UNESCAP 2012: 220).

All these conventional analyses seek, by and large, to improve the government’s ability to overcome market failures while limiting the risks of resource misallocation and political capture to a minimum. However, as the market logic does not account for longer-term potential social and economic benefits, orthodox proposals have not been able to engineer solutions. In contrast, this contribution elaborates on thorough ‘green industrial policies’ and places these realistic strategic policies within the scope of the developmental state transformative involvement. A green industrial strategy would aim at identifying economic sectors, processes, and additional demand—through new consumption patterns, for instance—to be viewed as ‘green’. Assuming that green growth requires capabilities that allow for handling complex, non-routine situations in both the government and the private sectors, and technological progress and industrial accelerators ought to be directed towards greener technologies to avoid squandering investment spending towards ‘brown’ technologies for short-term returns, developmental state action can promote structural economic change by altering polluting ‘brown’ sectors through intentional strategic industrial policy.

Within such a context, the main goal of this contribution is to link the developmental state view to green economic growth. This chapter comprises two major sections. Section 2 briefly reviews the developmental state literature while pointing out the absence of ‘green considerations’. Section 3 frames a green developmental state by distinguishing two sets of factors: sociocultural and politico-institutional elements; and economic development and industrial targeting aspects. Finally, brief conclusions end the chapter.

2 Developmental State Theory in Retrospect: The Absence of ‘Green’

The developmental role of the state has been mentioned intensively by a great number of authors. The idea of the developmental state had occurred long before it was defined and became a widely used economic development model in practice. In reality, developmental states, or more precisely, states with developmental functions, had even appeared long before they were named by scholars. For instance, the Netherlands in the sixteenth and seventeenth centuries; Britain from 1560 to 1851; and Germany from 1850 to 1914 are sometimes viewed as developmental states in certain aspects (Bagchi 2000). Marx, the most influential figure over ex-socialist countries, Vietnam and China, is also among the earliest to have a rudimentary notion of the developmental state. He is believed to have a basic notion of a capitalistic developmental state when mentioning the French state under Louis Bonaparte, which had thoroughly been strengthened against the civil society and had a “completely independent position” (Marx 1852: 238; Leftwich 2000: 155). Although this type of state emerged from the society’s class structure and was seemingly able to insulate from any specific class interests, this state was not ‘free-floating’ as its basic goal was to strengthen the interests of the capitalist class (Leftwich 2000: 155).

In scholarly circles, the idea might be dated back to Friedrich List, an early theorist of economic protectionism, who is the first to counter contemporary prevailing liberalism by stressing national interests. However, the most persuasive account of late industrializing countries possibly belongs to Gerschenkron (1962) with ‘the latecomer effect’, which explained how late developers could ‘catch up’ with the developed world. Quite different to Marx’s notion of industrial revolution and its prerequisites, Gerschenkron (1962: 8–10) conceives industrial revolution simply as cases of sudden considerable increases in the pace of industrial growth, and recognizes the ‘formidable institutional obstacles’ to the cause of industrialization. Getting closer to the concept of the developmental state are writers like Riggs, Jackson, and Huntington, who focused on the concentration of power in a ‘bureaucratic polity’. Also, using a variant of the concept are theorists of the Dependency School, such as, Cardoso and Faletto (1979), who utilized the notion of ‘developmentalist state’ applied to Mexico and Chile when these countries attempted to industrialize their economies during and after the war (Leftwich 2000: 156).

On the whole, by the end of the 1970s, although a large number of authors had analysed and investigated the developmental roles and functions of the states in different countries, no theorists had systematically conceptualized the developmental state. Only when Johnson’s (1982) seminal work on Japan was published, was the concept of the ‘developmental state’ formally introduced and then seriously analysed by scholars and practitioners. Soon after that, the experiences of Taiwan and South Korea were also incorporated into the developmental state theory.

Pulling together the works of major contributors, a detailed developmental state analysis needs to encompass ten distinctive elements: (1) developmentally oriented leadership; (2) competent state bureaucracy; (3) pilot agency; (4) embeddedness; (5) sufficient state autonomy; (6) policy selectivity; (7) capacity to mastering the market; (8) ability to organize civil society; (9) competence to organize private interests; and (10) good performance and legitimacy.Footnote 1 The first five facets relate to the nature and quality of the organizational structure and personnel of the developmental state apparatus; the next two features illustrate its effective intervention mechanisms; and the rest refers to the outcomes of the first seven features of the developmental state model. These contributions clearly reveal the importance of long-standing heterodox threads, namely, the role of history, institutional structures, political economy, local culture and social psychology, and international relations, and place special emphasis on such important notions—including evolutionary-institutional ones—as emergence, path-dependence, power, idiosyncrasies, and national development acumen.

The element of ‘green sectors and activities’, however, has been missing from these heterodox writings. Green sectors can advance economic growth while ensuring that the quality and quantity of natural resources can continue to foster green investment and innovation, which would underpin sustained development and give rise to new economic opportunities. On the policy front, what has been seen by successful developmental states, such as those in Japan and in China, is that the great emphasis placed on industrial growth targets may well have contributed to the neglect of adverse developments like environmental contamination, structural imbalances, and sociocultural evolution shortfalls. We talk about green growth which is nationally owned and transformative, enhances the capital domain assets, supports livelihoods and new opportunities, is sustainable and inclusive, and empowers people. These missing links from the developmental state literature will be filled in the subsequent section.

3 Towards a Green Developmental State Framework

Despite the enormous impact of processes associated with globalization and financialization, the developmental state remains a viable and influential feature of the development process. More to the point, the ‘post-industrial era’, intently coupled with hyperglobalization and financialization, called for a resurgence of industrial growth and revived a strong interest in ‘go-back-to manufacturing’ strategies and policies to achieve endogenous growth and better standards of living (Kaldor 1966, 1968). At the same time, imposed by global and national asymmetries in resource mobilization, rapid technological developments, market power and political influence, fresh interventionist approaches in selected industrial policy arenas have become once again attractive. Nowadays, the relevance and importance of industrial policy have been acknowledged by heterodox and mainstream economists and by different political leaders worldwide. While green growth initiatives are usually focused at the national level, they often fail to fully recognize that countries’ institutions and policies can be at quite different starting points in the transition to a green economy.

Moreover, as an economy depends on its natural assetsFootnote 2,Footnote 3—i.e., energy, biological, and mineral resources—which not only provide essential inputs, but also absorb residuals of economic activities—e.g., waste and emissions to soil, air, and water—economists, scientists, and decision-makers have placed special emphasis on the mechanisms and calibrated policy actions to foster the growth of specific ‘green economic engines’, that is, increase and strategic positioning of green targeted sectors, activities, and networks. Unlike resource-based economies, which depend critically on locations where natural endowments are abundant, a modern knowledge-based green economy depends on ‘green capacity’ and ‘smart industrial specialization’. Government is the economic structure that is best positioned to make long-run investments. Subsequently, a green developmental state would need to provide alternative national visions and green national programmes to ‘pick’ or nurture green industrial sectors, perhaps even extending to specified firms and activities. In framing a green developmental state paradigm, two sets of notions are important: politico-institutional and sociocultural elements; and green development management and ‘smart industrial targeting’. These sets of notions are analysed in the following two sub-sections.

3.1 Sociocultural and Politico-Institutional Elements

Languages, religions, values, and customs differ from one country to another, which have been influenced by their history and have a profound impact on their economic development and policy outcomes. Yet, controversial changes that seek to transform existing structures and promote green growth can face severe challenges that may cause upheavals in the socio-economic milieu and thus may be politically problematic (Karagiannis and Madjd-Sadjadi 2007). To cope with these crucial challenges that can run contrary to the imperatives of ‘instrumental’ progress in any country and tip the debate in the direction of those social and political forces who seek to endorse a green developmental state approach, appropriate and supporting political, economic, and other social institutions will have to be in place.

Clearly, green economic development would require effective institutions grounded in norms of sustainability, accountability, equity, and tolerance for risk in pursuit of mutual gains for both the public and private sectors. In fact, a green developmental and entrepreneurial state would require wide consultation, broad political consensus, unwavering focus, a strong sense of realism, and realignment of decision-making with green development goals to facilitate the pathway to a successful production-oriented transformation. Furthermore, a green developmental state would need to provide ways for people, especially those who are excluded, to find a voice and influence in setting the green growth agenda.

In theory, Veblen’s view—known as the ‘ceremonial-instrumental dichotomy’—can provide an explanation of existing technological advances and production trends worldwide. Society progresses through learning how to deal with the material means of life. Thus, according to Veblen’s analytical contribution, the key in human evolution is the invention of new, more effective green technologies, in our case. Veblen saw societies not only dependent on skills and tools to support the ‘life process’ but also having a ‘stratified structure of status group life’. This gave rise to the dichotomy of the ‘ceremonial’—related to the past—and the ‘instrumental’—oriented towards the technological progress of the future (Veblen 1904; Knoedler 1997). Green economic development would involve transferring resources from established methods of production to green, innovative, welfare-enhancing methods.

Moreover, in line with Schumpeter (1934), the emergence of green complementary capabilities would develop around vital innovations to create green growth pathways. Such an alternative development model would generate a variety of diffuse economic and social effects that extend to complementary sectors. Following Schumpeter’s analysis, green economic development would entail changing a county’s industrial structure, the educational and occupational characteristics of its population and, therefore, its entire social and institutional fabric.

Such a radical alternative proposal seeks to overcome politico-institutional hurdles, is a long-term assignment requiring multidimensional changes, and would need a set of conditions favourable to such a policy shift. As green innovation is a social activity that requires different skills to collaborate to create value, the development of appropriate quality institutions is a major enabling factor behind green growth. High-quality institutions would support green productive activities and encourage capital accumulation, skill upgrading, invention, and green technological pathways. By investing in institutions, a green developmental state can support further utilization of endogenous industrial capabilities, lower risk, and inspire confidence by certifying the range of potential outcomes. However, as organizations and incentives flow from existing institutional arrangements, engaging in green growth means building or augmenting existing institutions that would be critical to progress. Building institutional capacities would also allow for a better platform to accommodate uncertainty and enhance the ability to meet possible contingencies.

Considering that an economy is built upon its own legacy, social values, codes of behaviour, and ethics, its policymakers must work with the country’s stakeholders to develop a new partnership model for organizing and managing the relationships between the national government, regional authorities, and green industrial targets. As a well-articulated vision for government is crucial to pursuing a long-run course, green industrial targets can help a country’s policymakers to have clear national development goals. To achieve this, a national government must bring together various interest groups representing the public and private sectors, as well as the broader society, to build consensus on vital and pragmatic strategic goals and objectives to be supported and executed by well-educated, well-trained, efficient, trustworthy, experienced, and morally committed technocrats. Executive bureaucrats and planners could form an entrepreneurial-type strategic planning agency that has the long-term commitment and the powers to intervene decisively and take necessary policy action (Karagiannis 2002; Karagiannis and Madjd-Sadjadi 2007).

Any government could benefit greatly from a planning team that has the capacity to coordinate green development priorities and industrial expansion initiatives, thorough technically proficient strategies, and a coherent set of policies. These planners need to be powerful members who have the necessary understanding of the required policy areas and sufficient knowledge of green technological pathways to ‘create winners’ and ensure a transition to ecologically sustainable trajectories. This presupposes clearly defined objectives which are broken down into measurable performance indicators. For government to be effective in promoting green economic development, there is a need for performance and impact assessments that are able to provide decision support for strategic investments. In fact, this requires monitoring and evaluation routines to continuously check the progress and performance of green industries and sectors, and support green programmes against existing benchmarks.

Thus, institutions will need to be in place to manage structural change, providing coordination for the emergence of new economic activities, nurturing entrepreneurship, and investing in education and skills development to ensure that human capital adapts efficiently to changes in the green aspects of the productive structure. As social elites may benefit from an existing unequal brown economy, unbundling the roles of policy design, funding, implementation, and evaluation can be very helpful to insulate such performance-based systems against any sort of collusive behaviour and interference. In addition, policymakers would need to maintain close relationships with the private sector and other stakeholders to get a deep understanding of how green economic sectors would function, and where bottlenecks exist that could hold back required changes. To what extent government intervention is necessary and what instruments are best suited are more likely to be context-specific and to change over time (Karagiannis and Madjd-Sadjadi 2007).

Consequently, government leadership and coordination will have to be accountable, effective, competent, and corruption-free to make the policy space for change, and this would require honesty and vigilance. This is especially important when few green sectors are the driving engines for green growth as exploitation of various loopholes and exemptions tend to appear more frequently when the stakes are higher. Still, the strategic planning process should be participatory and inclusive at all levels as participation would allow different social segments and national, regional, and local political forces to ‘buy-in’ to the goals and objectives that are clearly defined.

Green developmental state institutions will have to rely more heavily on complex collaborations that include government entities and programmes as important facilitators and conveners. The role of industrial policy could thus enhance embeddedness through systematic planning within broader social welfare processes that improve the outcomes for society at large. As the nature of a green developmental state would derive from more comprehensive state–society relations, special emphasis ought to be on expanding the space for public deliberation on the direction of green technological development as well as on policies of social inclusion to make sure that the society ‘buys in’. In the absence of such participation, marginalized social and political forces and groups may refuse to support or go along with any controversial change or ‘instrumental transformation’.

Clearly, the idea of ‘green growth’ has been promoted by various international institutions. But barriers to inclusive green growth are largely sociocultural and institutional in the broadest sense. Uncritical borrowing of these general analyses without the intervening stage of national institutions serves merely to import ideas which neither recognize the possibilities of change permitted by local conditions nor respect the limits on these possibilities imposed by them. As the Institutes which voice concern over ‘green growth’ are Western-oriented, genuine national efforts call for a broader cultural involvement in green development thinking, and propose a vision of a more humane and better society based on principles of equity and sustainability.

Ultimately, the best sustainable road ahead can only be found by way of analysis of the specific economic, social, and cultural conditions of any society. These multifaceted changes cannot occur without the complementarity or strategic partnership between the state and market participants, and without strong links with civil society, to transform an economy through targeted, dynamic, and promising green industrial sectors. Indeed, social and cultural patterns of behaviour would need to encourage green initiatives and engagement, as well as complementarity between government and industry. Without these preconditions and effective conflict management, if and when necessary, such a green developmental state framework will founder on short-term expedients, vested interests, socio-political challenges, or the resistance of ‘ceremonial’ arrangements and institutions.

3.2 Economic Development and Industrial Targeting Aspects

Enough evidence exists to show that the economies which are able to generate more effective long-term-oriented cooperative arrangements regarding (technological and organizational) learning and investment spending (in human and physical assets) are likely to outperform countries that largely rely on classic free market mechanisms. Developmental state involvement can channel investment into socially desirable directions, which may well aid green technological pathways and sustainable development. Accordingly, industrial policy can be conceived as a collaborative process of discovery and experimentation in which government and private actors closely interact and continuously negotiate and adapt their contributions to the development of green industries and sectors. Within the capital domain, there is a systematic inclusion of natural capital, human capital, social capital, and economic and financial capital, which all can influence sustainability and human well-being. Hence, policy interventions not only do they directly affect the capital domain but can also open up new economic opportunities.

As a snapshot of green industrial policies worldwide, Steer (2013) points out that the concept of ‘green economic growth’ can end up helping a national economy in more ways than just pollution reduction. Such policies can lead to competitive advantages that can create well-paying jobs and enhanced technological capabilities. Steer (2013) also mentions that over 50 developing countries are now implementing measures, such as feed-in tariffs and standards for renewable energy, “that at first sight seem not to be in their country’s narrow interest” (Steer 2013: 18). Fankhauser et al. (2012) examine the resultant ‘green race’, which is seen as being not unlike that of the space race, in order to empirically determine what causes relative success across countries.Footnote 4

However, modern economic development requires us to think about the dynamic and long-term trajectory of a country rather than concentrating on an efficient resource allocation in the short run. Consequently, using a green developmental state framework, instead of a market failure perspective coupled with institutional arrangements based on efficiency considerations, puts forward realistic alternative policy recommendations. Such a developmental state approach clearly requires targeting specific green sectors, rather than taking a more broad-based approach to industrial policy, with the aim of greening endogenous production lines and reducing pollution levels.

Considering that part of production, consumption, income, investment, innovation, and labour may be identified as green, aggregate demand policies can contribute much towards improving any country’s economic performance, and can facilitate green progress. As prudent macroeconomic management must seek to promote national purpose goals within budget constraints and to ‘crowd in’ private productive investments, fiscal policy along ‘functional finance’ lines—based on effective demand principles—is very important and relevant here, at least in the short and medium term (Lerner 1943). The ‘functional finance’ view would claim that whether budget deficits and national debt are too large ought to be assessed against the ‘functional finance’ benchmark, and would place special emphasis on the role of fiscal policy in supporting selected green dynamic sectors and industries and securing higher levels of economic activity. On the other hand, the objectives of monetary policy must maintain an interest rate policy that allows promising green industries to acquire necessary capital, encourage financial stability, and promote longer time horizons.

Crucial national purpose and internally specified goals will enable a nation’s decision and policymakers to figure out local solutions to local needs and challenges. Such a green production approach would centre around a flexible and dynamic mixture of inward focus and outward orientation, and would require a technically competent government that has the ability and the teeth to engage in thorough, technically proficient planning. In addition, the mutual benefits among new agriculture, green manufacturing, and green services would boost forward and backward linkages, and would bring about diversification while developing a broad and more stable supplier base. Although new breakthrough advances emanate from R&D and skill formation, there are also green industries and modern forms of innovation that are within reach and rely on different areas of knowledge. More to the point, the development of the capacities of indigenous green sectors and firms can significantly expand a country’s technological landscape and skills and may reduce the exposure to the vagaries of the world market forces and crises, thus, becoming more economically competitive in these areas in the near future (Karagiannis and Madjd-Sadjadi 2007).

The new targeted green areas, singled out by a country’s developmental state, may need to be organized around certain indigenous firms of high potential and achievability that show the ability to dynamically address current challenges and would require substantial financial support. Green investment needs to be increased in both quantitative and qualitative terms, and linkages need to be strengthened so that development efforts and policy do not result in failure, exasperation, and waste of valuable resources on projects that could lock any economy into a low growth-inadequate skill mode for years to come. By focusing on the most promising economic development priorities that can take care of the human, material, financial, and politico-institutional requisites and direct local resources effectively, policymakers can create the necessary conditions for the successful implementation of a green growth pathway. The key is not to allow short-term issues and ad hoc solutions to hamper vital long-term parameters (Karagiannis and Madjd-Sadjadi 2007).

Rather than measuring economic success by the number of jobs created or higher growth rates, this alternative approach focuses instead on manufacturing value-added, overall productivity, and efficiency and distribution of gains among related industries, especially when natural resources have been facing certain constraints. Targeting and support of selected green sectors also require detailed information on the quantity (how much) and quality (what type) of modern factors, which are needed by these sectors so that the quantitative and qualitative parameters of planned industrial investment are thoroughly taken care of (Karagiannis 2002; Mazzucato 2013).

As capacity is essential to green investments and innovation, cautious development planning ought to match industrial policy goals with sustainability outcomes. However, to address a country’s ‘green capacity deficit’, special emphasis needs to be placed on adequate green infrastructure and green industrial accelerators. As a result of this green innovativeness, manufacturing can create large knowledge spillovers, which could also enhance productivity in non-manufacturing activities. As ‘traditional’ financial schemes, such as loans or microfinance options, often recommend temporary assistance, may inspire squandering, favouritism, and rent-seeking, and can offer marginal solutions without getting at the root of the problems, there could be two useful fund-related options in the industrial policy arsenal that also highlight the long-term nature of green investments:

  • Considering that jobs in green industries require specific skills, government-led development policy can address this ‘green capacity deficit’ with strategic infrastructural investments and improvements in human capital together with a special emphasis on finance and guidance of higher levels of investment and capital accumulation. A government can invest in those activities that the private sector does not find lucrative enough to warrant its own investment in the short term, or for which the capital requirements are large and the number of participants complexes that institutionalized policy intervention is required. Planned production-oriented spending on specific training programmes, skills, knowledge, R&D, research, and innovation can align finance with green industrial targets; increase the quantum of skills and expertise linking productivity improvements with incomes; help ‘socialize risks and rewards’; and support green prioritized sectors and activities (Karagiannis 2002; Mazzucato 2013).

  • Tax policy selectivity by sector, location, and ownership can be a useful tool in the industrial policy arsenal. Green taxes can broaden a nation’s tax base, alter competitive advantages, and push markets into new dynamic areas because they can play a significant role towards focusing on industrial targets. However, these policy options need to emphasize performance, should be fund and time-limited, and would need effective systems of checks and balances. Discriminatory policy options through revenue enhancement or by channelling investment into targeted green sectors can be part and parcel of good industrial policy when cost discovery is at issue. Thus, discriminatory incentives and disincentives can not only transfer financial resources from disfavoured firms and activities (e.g., ‘brown technologies’) to favoured industries and sectors (i.e., ‘green technologies’) but can also release capital for green growth. Selective incentives and disincentives are reasonably impermeable to international challenge because they offer no clear advantage to the country using them. This has the extra benefit of simultaneously adding sectors that are being emphasized (Karagiannis and Madjd-Sadjadi 2007).

Furthermore, industrial policy tools, such as green industry protection measures, can reduce uncertainty by guaranteeing demand. As indigenous technological capabilities are the basis for a gradual correspondence between local production and demand structures, green investment priorities and the choice of techniques ought to be determined by the strategies of transformation and diversification, and by the product choices to which these strategies give rise. Sector targeting can help greatly in this regard and reflects a desire to support green economic growth. By accepting differentiation of key green sectors and industries, thorough industrial targeting can improve policy intervention effectiveness, strength, and evaluation while increasing rigour and transparency in government strategic decisions.

Such an industrial expansion will be characterized by green core industries around which linked industries develop, mainly through direct and indirect effects and positive spillovers. Even though reasonable production costs are expected, modern production techniques can make it possible to manufacture in small series on a viable basis. So long as firms are dynamic and swift footed and the developmental state is competent, trustworthy, and visionary, green industries can quickly achieve the necessary production levels to be globally competitive, and will result in improvements in both resource utilization and the balance of payments.

Yet, green industrial strategies could inevitably be most prone to open conflicts. This can be so because strategic industrial policy has to choose between technological pathways, sectors, or even individual firms in the same industry. Consequently, it tends to be more explicitly selective than other policies (Chang and Andreoni 2020). A green developmental state will give priority to those green sectors and industries, which appear viable and strategically important in a long-term perspective but which are vulnerable in the short or medium term without significant intervention. Such industries have to be provided with the resources and commitment to allow them to grow and mature, so that in the longer term the degree of intervention can be progressively reduced and the focus switched to other industries which have emerged as new priorities. As the green production base grows, and as an economy becomes more competitive technologically and on a human capital basis, additional opportunities for economic growth will come up.

Moreover, the formation of backward and forward linkages to the domestic economy could be a major problem. Evidently, externally enacted economic sectors not only cannot drive continuous structural changes and real production diversification but also exacerbate any country’s exposure to the vagaries of the global environment. Instead, an economy should make a greater and better use of its productive resources and capacity as the expansion of indigenous production lines could result in a better and more egalitarian and sustainable industrial growth. Contrary to neoliberal thought, the state has an indispensable role in helping the development of green sectors of high potential and achievability that would drive planned structural changes through active industrial policy—thus, leading to the kind of overall industrial upgrading and diversification that sustains long-term growth.

Green industrial engines can open up possibilities and set up incentives for a wide range of new economic activities, and are expected to be supply chain partners for a country’s other sectors, thereby resulting in more balanced economic structures. It is this process of ‘smart specialization’ and green innovation that could drive productivity growth and can determine where firms, regions, or countries have relative advantages. Furthermore, the government can emphasize selected ‘green growth poles’ as an important element of its strategic industrial policy. The expansion of the growth poles can bring about the expansion of output, employment, related investments and technical, technological, and psychological benefits based on anticipation of future demand.

In line with regional development and diversification efforts, and considering that industrial activity can benefit from location, a government can direct national resources in such green areas that have high growth potential. Location becomes important not only for recognizing opportunity but also for providing an environment that is responsive to the promising and dynamic industries. Such industrial targets may then venture into unchartered domains and can test the limits of their capabilities to realize potential gains. A proper green industrial policy needs to define the roadmap to success with timed benchmarks and incentivize the phasing out of unsustainable or highly polluting technologies. In other words, a committed national government needs to outline a thorough plan for action and undertake various initiatives to boost investments in green growth poles and industrial clusters.

Evidently, modern economies have overemphasized higher levels of foreign direct investment (FDIs) without serious consideration of any other plausible direction to activity. What’s more, there are two very important industrial policy-governance related concerns: (1) careful studies have found little systematic evidence of technological and other externalities from FDIs (Hanson 2001); and (2) foreign investors often exploit various ‘exceptions’ and local resources while weakening a country’s tax base (Cowling and Tomlinson 2011).

Although FDIs and joint ventures are policy options, in contrast to neoliberal proposals, an intelligent government pursuing a strategic industrial policy will not have a ‘uniform’ policy stance towards foreign investments across industries. Each industry serves different functions in the greater scheme of industrial development, and it would be totally unwise to have either uniformly liberal or uniformly restrictive policies towards FDIs across different industries. Instead, a more ‘appropriate’ approach towards foreign initiatives ought to be designed in the context of the long-term strategy for green development. What exactly the strategic way means depends on various crucial factors, such as a government’s relative negotiating position, the technological nature of the industry, the role of the particular industry concerned in the bigger scheme of the country’s environmental strategies and industrial diversification, and the broader social and economic needs of the nation (Chang 2003).

4 Conclusions

This chapter links the developmental state argument to green economic growth with a view that intervention, learning, adaptation, and fast and flexible experimentation in policy may never end. For governments, articulating an alternative vision and meeting a set of national development objectives is a challenging task, which depends on functioning social and economic institutions. A production-oriented approach that clearly prioritizes green development has been outlined, given the active role that national governments continue to play. More to the point, current conditions and trends can increase the potential advantages of pursuing ‘governed-market’ policies.

Looking forward, one would expect that sustainable development and green growth paths could signal the beginning of a new phase for the developmental state model. Assuming that green growth requires capabilities that allow for handling multifaceted situations in both the government and the private sectors, and technological progress and industrial accelerators ought to be directed towards greener technologies, a green developmental state apparatus can promote structural economic change through intentional strategic industrial policy. Due to its special focus on the economy–environment nexus, a green developmental state conceptually covers broader objectives and green policy responses, including green investments, green employment creation, green infrastructure, natural capital efficiency and sustainability, and vital aspects that are needed for human welfare and quality of life. Consequently, by finding the right focus, activities, and partners for inclusive and equitable green growth, such a green developmental state can pave the way towards a better society.