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Inspired in part by the work of international organizationson green growth/green economy and on low-carbon,climate-resilient development, a number of developingcountries at varying levels of development have begun topursue development strategies aimed at leapfrogging the“grow now, clean up later” approach associated with thetraditional industrialization model. An important line ofwork has focused on the potential health and productivitybenefits from reducing severe levels of air pollution inhuman settlements, while at the same time limitinggreenhouse gas emissions.Industrialization strategies of most developing countriesstill rely heavily on export expansion to support large-scaleproduction. Thus, the capacity to adapt to changes inconsumer preferences, labelling requirements andgovernment regulations in overseas markets has animportant bearing on export prospects. As developedcountry consumers become more discriminating in theirpurchase decisions, more frequently evaluatingenvironmental and social benefits as well as cost, qualityand reliability criteria, producers will need to adapt. This isbecoming a more familiar feature of the landscape fordoing business, not just for manufacturers but also forexporters of primary commodities of various kinds. Fordeveloping countries this is both a challenge and anopportunity to leap-frog if they can meet the technologicalbenchmarks for success.This chapter reviews the current landscape ofindustrialization and the challenges ahead for today’s lateindustrializers, in light of the changes just highlighted. Itconsiders what sorts of policy and institutional support maybe needed to enable late industrialization today,particularly along a low-carbon, sustainable path. Itconsiders how a shift towards sustainable consumption andproduction globally is likely to alter the options for lateindustrializers.5.1.2. Evolution of thinking on the role of IndustrialPolicy for development in past decadesIn the period since World War II, academic thinking onpolicies to promote industrial development has gonethrough several phases (enumerated in Table 5-1). Thisevolution has in turn shaped policy practice in bothdeveloped and developing economies.A stylized laissez faire economic view confines the role ofthe state to providing an enabling environment forbusinesses by securing property rights, enforcing contracts,streamlining procedures for starting new enterprises,putting in place effective legal processes for disputeresolution and, under certain circumstances, providingreliable infrastructure. In this view governments shouldintervene in cases of market failures, due to informationasymmetries, existence of public goods, externalitiesand/or imperfect competition.In practice, few governments have adhered to this stylizedmodel. Most have been activist to some degree inpromoting industrial development. This is partly becausethe notion that countries should be content to specialize inaccordance with static comparative advantage is seen asresigning countries to remaining “hewers of wood anddrawers of water” of the international economy.An alternative perspective ascribes to government anactive role in promoting the structural and technologicaltransformation of the economy 390 . Within this framework,governments operate alongside market forces and partnerwith productive enterprises and households to fosterstructural transformation. They can create the conditionsfor the development of new industries and reduce thedislocations caused by shifts in investment and profits fromold to new industries. Governments can provide incentivesthat accelerate a process of discovering and developingsuccessful sectors 391 and even fill the gaps where theprivate sector is reluctant to enter into risky ventures withpotentially high social returns such as infrastructure.New thinking on industrial policy’s role focuses onpromoting individual and collective forms of learning andinnovation dynamics within manufacturing and broaderproduction systems. A more sophisticated understanding isemerging of industrial eco-systems that encompassesinterlinkages among producers at different stages of thesupply chain, technology infrastructure and other serviceproviders, and sophisticated users.88