2018 l VOLUME 9 l ISSUE 7 VICE PRESIDENCY FOR ECONOMIC GOVERNANCE AND KOWLEDGE MANAGEMENT 1 P olicies to move African economies from growth to transformation are urgently needed, but are they feasible, given typical political-economic constraints? Drawing on a multidisciplinary literature, this paper warns against the twin errors of ignoring such constraints and treating them as insuperable. There is no doubt that typical patterns of power and interest undermine the credible commitments, adequate public good provision, investment coordination, and provisions for joint learning that are crucial in economic transformation. Moreover, efforts to tackle poor economic governance comprehensively have generally failed. However, history tells us that successful economic transformation occurs in steps and is often achieved by targeted measures and focused institutional improvements in priority areas, with a good deal of context-sensitive trial and error. What is needed is a politically smart approach to the conditions for economic transformation, one that is based conceptually on the form/function distinction, empirically on the growing body of fine-grained case studies of experience at sector level, and a problem-driven learning approach to policy implementation. 1 | Introduction Across Africa, many countries are now accustomed to sustained economic growth. Relatively few, however, are experiencing “growth with depth,” otherwise known as economic transformation. 2 Economic transformation refers here to a process in which labor and other factors of production move from lower- to higher-productivity activities. It includes structural change, such as the classic movement out of primary production into sectors of higher average productivity. It also includes within-sector changes, including in agriculture and other primary sectors, as households and firms acquire new capabilities and become able to compete in larger and more distant markets on a growing scale. 3 Compared with the most usual pattern of growth, economic transformation (i) raises incomes broadly across the income distribution, because it is more employment intensive; (ii) is robust against price shocks and price cycles, thanks to diversification; and (iii) increases the opportunities for future economic growth, because it creates linkages and synergies. 4 This helps to explain the current interest not only in trans- formation as a policy goal but also in new approaches to “industrial policy,” conceived as active promotion of new economic activities of high potential in all sectors. 5 Making economic transformation a goal of national policy is good economics as well as politically attractive in many countries. Learning how to achieve this goal by pursuing some form of modern industrial policy is an obvious next step. Economic analysis offers several instruments for identifying areas in which investments would help to address the “transformation deficits” of particular national economies. 6 Disclaimer: The views and opinions expressed in the paper do not necessarily represent those of the Bank, its Board of Directors, or the countries they represent. Africa Economic Brief Tackling the Governance of Economic Transformation David Booth 1 1 Supporting Economic Transformation (SET) and Politics & Governance programs, Overseas Development Institute, London. 2 ACET 2014; ECA and AU 2014. 3 There continue to be strong reasons for emphasizing productivity gains in agriculture, especially in the early stages of development (Studwell 2013; Henley 2015; ACET 2017). On the other hand, convergence in labor productivity between poorer and richer countries has been fastest when investment has moved into manufacturing, because of the exceptional scope for the acquisition of new technological capabilities found in manufacturing activities (Cimoli and others 2009; Whitfield 2012; Rodrik 2013). In Africa, there are also reasons for thinking that the current period is presenting an opportunity as wage rises in China impel Chinese manufacturers to move the more labor-intensive parts of some global value chains to other world regions (Lin 2013; Stiglitz and others 2013. 4 McMillan and others 2017. 5 Rodrik 2007a; Lin and Treichel 2011; Lin 2012; Chang 2015; Newman and others 2016. 6 te Velde and others 2015.