Who’s in control? Wall Street Consensus, state capitalism, and spatialised industrial policy

By Seth Schindler, Ilias Alami and Nick Jepson

Recent trends may well have puzzled critical observers of global development policy. On the one hand, we witness the rise of what Daniela Gabor has aptly termed the ‘Wall Street Consensus,’ an emerging paradigm promoting the mobilisation of private finance as a developmental priority. Southern states are encouraged to re-engineer their domestic financial systems around securities and derivatives markets, create ‘investable’ opportunities in sectors such as infrastructure, water, climate adaptation, health and education, as well as deploy policies that specifically ‘de-risk’ investment for global investors. In this formulation Southern states are subordinated to global financial capital and their policy space is significantly constrained.

On the other hand, however, we observe a tendency towards state capitalism, wherein states are increasingly active within markets, as entrepreneurs and owners of capital as well as regulatory agents in the world economy. Across the income spectrum states have embraced the role of agents of transformation and development. In the global South, one way these trends manifest is in the proliferation of new modalities of spatialised industrial policy underpinned by large-scale development projects. Examples include the China–Pakistan Economic Corridor, Indonesia Vision 2045, the Plan Sénégal Émergent, Morocco’s New Development Model, and the developmental aspects of Mexico’s Fourth Transformation such as the Tehuantepec Isthmus Interoceanic Corridor. Some of these plans have benefitted from the rise of China and its multitrillion-dollar Belt and Road Initiative, which traditional development actors now increasingly seek to counter by providing alternative initiatives.

We reconcile the apparent paradox presented by the simultaneous emergence of the Wall Street Consensus and evolution of state capitalism in a paper recently published in New Political Economy. The title of our paper ‘Goodbye Washington Confusion, hello Wall Street Consensus’ is a reference to economist Dani Rodrik’s highly influential paper which traces permutations in global development policy in the mid-2000s. In our article, we first offer a historical-analytical explanation of political economic transformations in the global development regime that can account for both trends. We locate the emergence and proliferation of new modalities of spatialised industrial policy underpinned by large-scale development projects within three significant trends in global development: (1) a crisis of the Washington Consensus, which made way for renewed interest in infrastructure-led development and state-led spatial planning; (2) the formation of a global coalition of powerful state and market actors around the idea of funding spatial planning schemes by mobilising international private finance; (3) a broader reconfiguration of the state’s role as promoter, supervisor, and owner of capital across the world economy. Our main contention is that the new spatialised industrial strategies (underpinned by large-scale infrastructure projects that ostensibly facilitate the integration of places within global value chains) are both a manifestation of the opportunities afforded by these trends, and a negotiated outcome of the tensions and contradictions among them.

Second, we demonstrate empirically how governments in developing countries have indeed exercised agency while accommodating global finance in their pursuit of spatialised industrial strategy. Our empirical focus is on three spatialised industrial strategies: Saudi Arabia’s Vision 2030, Kenya’s Vision 2030 and Thailand 4.0. In each case, we demonstrate that governments willingly embrace the policy grammar of the Wall Street Consensus, agreeing to its conditions and assuming some of its risks, because it allows them to formulate spatialised industrial strategies centred on the state-coordinated expansion of infrastructure. As such, the Wall Street Consensus may shape how states intervene in markets, but governments are nonetheless able to pursue spatial and developmental objectives by framing them in terms of the rules and norms of the Wall Street Consensus. This is where we diverge from Gabor, who asserts that the Wall Street Consensus policy framework ‘lacks an autonomous strategic vision, unless ‘more infrastructure’ can be described as such’ (2020, p. 4). We argue that infrastructure projects underpin spatialised industrial strategies that are indeed constitutive of autonomous strategic visions.

More precisely, these industrial policies seek to enhance capacity in key sectors and/or diversify the economic base. All of the plans emphasize the need to steer investment to lagging regions. Furthermore, in all three countries new institutions were created or existing institutions were empowered to implement spatialised industrial policies. Their authority supersedes most existing governmental institutions, and they report directly to the executive branch of government. Thus, in contrast to the Washington Consensus which advocated ‘spatially blind’ policy and undermined the agency of states in the Global South through the imposition of structural adjustment facilities, the Wall Street Consensus affords states considerable scope to articulate ‘state spatial objectives’ (within limits circumscribed by the extended disciplinary reach of financial markets) and justify the centralization of governance and the concentration of political power.

We conclude the article by calling for further research into the complex ways in which contemporary state capitalism and the Wall Street Consensus are entangled, and for a keener sensitivity to questions of infrastructure, territorial integration, and logistical connectivity within debates on the revival of industrial policy on since the 2008 global financial crisis.

To be clear, we do not endorse any of these development plans and modalities of spatialised industrial policy. Nor do we argue that they will produce their intended effects. Rather, we draw attention to what we see as far-reaching trends in global development policy in relation to turbulent transformations in global capitalism, the implications of which deserve scrutiny and critique.

Ilias Alami is a research fellow at Uppsala University. He tweets at @IliasAlami.

Seth Schindler is Senior Lecturer of Urban Development and Transformation at the Global Development Institute, University of Manchester. He is also the co-founder of the Second Cold War Observatory. He previously coordinated the Global Studies Programme at Humboldt University of Berlin.

Nick Jepson is a research fellow and lecturer at the Global Development Institute, University of Manchester. He leads the working group on finance for CHERN (China in Europe Research Network). 

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