Separated under the Same Roof: The Revived Relationships of State-Market Institutions. 

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When looking at the way contemporary global value chains/global production networks (GVCs/GPNs) and the articulations of globalised capital have been studied, it is clearly visible that the hegemonic power of Multinational Corporations (MNCs) has monopolised the empirical and theoretical analysis. Indeed, their ability to maintain control over the technological, financial and commercial flows through private-led governance has impacted most of the industrial development and underdevelopment of the Global South. Such footloose private operations have often caused undesired consequences such as eroded environmental standards, low wages and scrapped social protection rights. Governments have joined in a race to the bottom on fiscal and labour deregulations in order to attract foreign direct investment in exchange for low and semi-skilled jobs, resulting in very low fiscal revenue, low productivity, balance of payment imbalances and poor social outcomes. 

The underpinning theory was that countries should follow their comparative advantages and let the market determine prices of labour (costs) and goods in order to be competitive in the world market and maximise returns. Yet, such losing game has been criticised since the start by heterodox development economists who widely denounced how theories and policies of development forgot the role of the state in history and in the present. In other words, public institutions have always played a key role not only in the quantitative making of capitalist accumulation, but also in its qualitative distributional and developmental outcomes. 

Building upon the heritage of such scholarship, and in view of multiple and overwhelming ‘market failures’ in the global South and beyond, a new wave of Marxist-institutionalist inter-disciplinary literature spanning from Geography to International Economics and Finance has been trying to untangle the potential synergies between the public and the private domains by connecting the GVCs/GPNs and Developmental State approach. 

In this debate, it has been emphasised that the state should be seen as a facilitator (i.e. assisting firms in smoothing market transactions); a regulator (combined with distributor to mitigate inequality and negative market externalities); a buyer (i.e. public procurement); a producer (i.e. state-owned enterprises) and a financer as a result of state-capital reconfigurations through sovereign wealth funds and development banks. Therefore, such functions should be foregrounded in analyses of development, because they are key to understanding developmental sources and processes within GVCs. 

In my contribution to this debate, I have recently argued in a paper titled “Unpacking state-led upgrading: empirical evidence from Uzbek horticulture value chain governance” that the state can and should act as a coordinator of strategic developmental objectives beyond and across GVCs. I use the lens of upgrading – which is generally defined as a shift to higher productive value-added activities’, as a result of improved access to, and use of, technology, knowledge and skills – to show how state functions can lead to organisational upgrading, namely a state-led coordination strategy able to link economic upgrading in GVCs with developmental objectives. Hence, economic upgrading, if effectively planned and coordinated, can lead to societal benefits. To support this proposition, I underline three points: an epistemological, an ontological, and a methodological one. 

The first one is epistemological, and relates to the inter-scalar dimension of development: targeted macroeconomic policies on trade, macro-finance and innovation and industrial policies are instrumental in meso- and micro-upgrading processes and vice-versa. In other words, in order to understand the time- and space-specific dimensions of development processes, we need to adopt an epistemological approach which focusses on the dialectical relations between potential macroeconomic strategies and microeconomic operations. 

The second point is ontological and relates to the inter-sectoral possibilities of upgrading.  The state, through coordinated policies, can create specific spill-overs across different sectors and industry, bridging the specificities and potential of agriculture, manufacturing and services. In the paper, for instance, I show that agricultural industries such as high-value crops are often neither understood within the more complex inter-sectoral labour relations that they can develop, nor for their contribution to potential value-addition and backward and forward linkages. 

Public governance can be an alternative to private buyer-led governance, which often disproportionately benefits lead firms, because it can help domestic agents and firms to capture value and power within the GVC/GPNs, as well as societal benefits in and outside the GVC/GPNs. The state can indeed shape the institutional context of GVC/GPNs through the establishment of (patient) financial and political partnerships with international actors to avoid predatory competition, it can coordinate inter-sectoral spillovers for short and long-term collective learning and capacity building and it can also create linkages which enable long-term developmental objectives. Such objectives cannot be pursued through private actors only. It is therefore necessary to underscore the strategic-relational role of the state to spur such organisational upgrading, namely a state-led coordination strategy able to link economic upgrading in GVCs while mediating inter-temporal economic and developmental objectives. 

The third and final point is methodological, and it relates to the quantifying tendencies of the discipline of economics, and how these have dominated the production of evidence and paradigmatic policy solutions. Far from being perfect, this performative approach has not only obscured the complex reality of social phenomena, both global and local. It has also too often been relying on poorly constructed secondary data, resulting in a priori biases in the analytical variables considered important to explain developmental processes. Race, class, power and gender relations have been simplified to adjust to deductive correlations, which has obscured the complex nuances of historical dynamics and structural barriers. By triangulating primary and secondary data and texts, and relying on inductive questions linked to theories, interdisciplinary research can investigate discrete but insightful patterns behind social phenomena, thus overcoming the dogma of ‘external validity’.  

In conclusion, a new literature emerged that finally acknowledges and engages with the simple fact that coordinated state interventions are instrumental in ensuring the sustainability of the socio-economic transformations beyond and across GVCs. More and more researchers seem committed to develop a political economy of development scholarship able to explain how the real world actually works, and how it can be improved. We all should keep questioning the limitations of its modus operandi to adapt and cope with the unanswered multiple questions posed by the challenges of post-Covid economy, and hopefully, engage with the politics that can eventually lead to the much anticipated end of neoliberal capitalism.  In a nutshell, the state-market relationship can take many forms. While political movements strive for more progressive ones, both theories and policies should do their part too. 

Lorena Lombardozzi is a lecturer in Economics at The Open University in the UK. She tweets at @floretta_voice. Photo by faith.e.murphy.

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