Not long ago, global economic growth forecasts were very optimistic, including developing countries. It stemmed from the fact that economic growth was evident, extreme poverty had been drastically reduced and a clear consensus had emerged for the creation of a growth strategy based on integration into the world economy.

But, this consensus seems to have already been "destroyed" by developments that have been simmering for a long time. Technological progress has brought about changes in the manufacturing sector, requiring high levels of skill and capital and increasingly moving away from the workforce. This is undermining the effectiveness of industrialization as a growth strategy.

The pandemic itself brought out other trends. As growth slowed, the debt problems of developing countries became devastating and many lost access to financial markets. The geopolitical competition between the US and China and the slow backlash against hyper-globalization transformed the global economic landscape and made the world economy less hospitable to growth through trade. The mandatory green transition adversely affected agriculture in many developing countries. Also, if we consider the problems and the crisis caused by the outbreak of the war in Ukraine and the continuation of the conflict in Gaza, especially in the interruptions of the supply chain of raw materials and food products, the panorama of developments is clearer.

NEW STRATEGIC APPROACH TO ECONOMIC DEVELOPMENT

In this situation, the new industrial policy, the green transition, (energy, agriculture) services (tourism, financial services that bring employment), the blue economy, and the circular economy became a matter of debate and discussion as opportunities for sustainable development. But here I will focus only on the new industrial policy as a necessity of sustainable development.

The common element in all cases of rapid and sustainable growth of our time has been the strategy of industrialization. During the early post-World War II period, this strategy was import substitution industrialization (ISI). Combining strong state intervention with barriers to imports, the ISI focused on building domestic manufacturing capacity—first consumer goods, then intermediate goods and capital industries. This model of export-oriented industrialization (EOI) in East Asia proved more sustainable and eventually became the model to be emulated for countries adopting more market-oriented approaches under the influence of the Washington Consensus. While committed to the centralization of markets and opposed to government "intervention," the Washington Consensus focused primarily on the "fundamentals"—investments in education, governance, and macroeconomic stability—and downplayed the structural transformation strategies that were essential to the success of developing countries. East Asia, including the role of clear trade and industrial policies (used in East Asia) to foster learning and new industries. Mainly due to these factors, the growth benefits expected by the Washington Consensus did not materialize as expected.

China emerged as the flagship of the East Asian model's success story. Post-1978, the Chinese government strategically prioritized economic growth, blending trade incentives with unique institutional setups such as the family responsibility system, dual pricing in agriculture, township and village enterprises, and special economic zones. These measures aimed to foster structural transformation, diversify production, and cultivate new skills. Crucially, China's industrial policies drove the nation's prosperity, leveraging new manufacturing activities to great effect. While benefiting from increased globalization, China charted its own course within the global economic landscape.

By the 1990s, globalization had reached unprecedented levels, with economic policy focusing on reducing transaction costs in international trade, finance, and investment—a concept known as "deep integration." This, coupled with technological advancements, propelled global value chains (GVCs) into the forefront of global production dynamics. However, alongside the deepening of global economic ties, export-oriented industries (EOIs) and GVCs faced threats from what came to be termed "premature deindustrialization" in developing nations. This phenomenon was chiefly driven by technological shifts favoring skilled labor and capital investment over traditional manufacturing.

Consequently, globally competitive formal production sectors in developing countries ceased to be significant sources of employment, reverting to "enclave" sectors with limited opportunities for low-skilled workers. Even in nations where manufacturing output remained steady, manufacturing employment dwindled as a proportion of total employment, signaling a significant shift in the global economic landscape.

Structural transformation is the key dynamic driving rapid economic growth. As workers move from low-productivity to higher-productivity sectors, they increase their earnings, overall productivity rises, and economic growth accelerates. The main strategic question that needs to be answered to start this process is: where will the best and most productive jobs come from? While manufacturing will remain an important sector for most countries, we do not believe it can be the protagonist of economic growth, as it was in East Asia and other successful economies of the past. Industries (New Industrial Policy) and green transition – green services (tourism, agriculture, green energy, and financial services in the case of our country) must play an important role in filling the gap, especially in the coming decades. Therefore, in the function of the budget policies and the support from the development and facilitation program of the EU, the continuation of the restructuring of the economy according to the new conditions and factors appearing in the economy and the development of projects in function of this goal would be a necessity, as it would encourage economic development and integration in the regional and European market.

WAR ECONOMY – MILITARY INDUSTRY

As debates surrounding the initiation of new industrial policies gained prominence, discussions and practical implementations regarding the development of a "war economy" and "military industry" began to emerge, a scenario also under consideration in countries within our region. This discussion has assumed greater significance against the backdrop of a real war unfolding in the heart of Europe. This conflict, characterized by its humanitarian, economic, social, and energy implications, has disrupted supply chains for cereals and food products, raw materials, and has led to drastic price increases, inflation, market instability, and new dimensions of geopolitical tensions.

Russia's ongoing war in Ukraine, now entering its third year, has been preceded by a global battle against the "invisible enemy" of the COVID-19 pandemic for nearly two and a half years. Within this complex global political-economic landscape, discussions surrounding scenarios of a "war economy" have gained traction. When such discussions transcend the realm of experts or institutions and are articulated by political leaders, they demand attention. Yet, once again, the question arises: what precisely do we mean by the term "war economy"?

THE CONCEPT OF "WAR ECONOMY"

The term "war economy" refers to the measures implemented by a state to mobilize its economy for production during times of war. Philippe Le Billon characterizes the "war economy" as the system of production, mobilization, and distribution of resources to support acts of violence, namely war. From the perspective of aggregate demand, this concept is closely linked to "military Keynesianism," where defense spending stabilizes the economic cycle during periods of recession by redirecting all economic development policies. Historical examples from the First and Second World Wars demonstrate this phenomenon.

In contemporary times, it appears that the era of disarmament is waning, giving rise to a resurgence in the arms race. Consequently, another hallmark of a "war economy" is the escalation of military expenditures. This trend is evident not only in the most powerful nations such as the USA, China, Russia, Germany, France, and NATO countries but also in numerous other countries. Factors contributing to this increase include heightened levels of insecurity following events like the Russian attack on Ukraine and conflicts in regions like Gaza. The surge in military spending has stimulated the war industry, leading to increased production and trade of armaments. While such policies may provide short-term boosts to economic development, in the medium and long term, they can evolve into sources of economic, financial, and social crises in certain countries.

In the Albanian context, where the military industry has been largely dormant, the evolving security landscape, both domestically and within NATO, necessitates a reconsideration of policies regarding defense spending. This includes seeking understanding, financial, and technological support from allies, primarily NATO, as exemplified by initiatives like the development of Kuçova Airport. By leveraging such support and aligning with our budgetary constraints, we can effectively continue our restructuring and development programs, implement new industrial policies, and advance social programs aimed at regional and European economic integration.

*Academician, economy expert, former MP and Minister of Economy, president of the Mediterranean University of Albania