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determined by market forces and not by the special interests of government officials or rent-seeking entrepreneurs. The policy measures proposed here minimize the rent-seeking opportunities in implementation for five reasons:
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First, because the proposed approach and the sector-specific support are focused on sectors consistent with Ethiopia’s latent comparative advantage, the extent of government support can be limited and rapidly scaled back as new information arrives. Second, to limit the extent and cost of rent seeking, policies should focus on providing public goods that provide widespread benefits. Third, the reform should begin with pilot studies and be continually revised and updated. In addition, implementation should be decentralized, to enhance proximity to the private sector, increase accountability, and foster competition among local governments. Fourth, the government must be ready to withdraw support for industries that fail to deliver anticipated gains. Fifth, one of the best ways the government can facilitate robust private sector growth is by maintaining a stable and conducive macroeconomic environment and by ensuring that natural resources are well managed.
Political Economy Issues Economic policies have distributional impact. Most policy choices create distributional conflict—benefiting some and hurting others, vested interests in particular. The losers, if they are organized better and have stronger influence on the governments than the winners, can stop the reforms or force reversal of policies. Therefore, in designing and implementing reform programs, it is essential to identify the winners and losers and develop a strategy to reconcile the differences and elicit a favorable political response. In the program recommended here, most of the policy actions would result in short- and longer-term gains for a large group of Ethiopians. In particular, improving trade logistics, developing industrial parks, enabling the use of land and cattle as collateral, controlling cattle disease, reducing the fuel tax and import duties on trucks and spare parts, and facilitating development of competitive domestic input industries would create large gains for a wide range of interest groups. Losses for some segments of business are expected from liberalization of imports of apparel inputs and leather (local producers of these products) and elimination of export bans on leather and cotton (local processors of these inputs) and price controls on some food products. But these measures would create a large number of winners too. For example, elimination of price