The commodity supercycle of the 2000s and 2010s gave rise to a rich debate in the academic literature about the possibility for resource-rich countries to muster the primary commodity price bonanza for development. As in past debates on the rise of Asia as the ‘world’s factory’, industrial policy was once again at the forefront of discussion.
On the one hand, orthodox scholars insisted that the use of market distortions to channel resources towards industrialisation would be a risky gamble with little guarantee of success. Instead, as the Asian ‘tigers’ and China before them, developing countries would do well to make good use of the market to identify their comparative advantages. In this view, industrial policy continues to be inefficient and wasteful, especially as it creates plenty of opportunities for corruption rather than development. On the other hand, heterodox researchers argued that state intervention was crucial to divert resource rents to specific nascent industries that would never be able to withstand international competition without sustained support. As both the Asian ‘tigers’ and China more recently used robust industrial policy to develop globally competitive industries, developing countries should also use targeted policy intervention to ‘upgrade’ to higher value-added manufacturing for export.
Still, one question that eludes both orthodox and heterodox literature concerns why, for decades, multinational corporations would consistently invest in manufacturing in resource-rich countries such as, for instance, Argentina, Brazil, and Egypt. This has been the case despite the small scale and high costs of production in these markets (making them inefficient, per orthodox scholars), whose output is mostly sold domestically rather than exported (pace heterodox scholars).
In a recently published open access article in Competition & Change, I applied Argentinian scholar Juan Iñigo Carrera’s original elaboration on Marx to the under-researched case study of the car industry in Uzbekistan to answer precisely this question. I found this same orthodox-heterodox binary to dominate the literature on ‘transition’ from the command to the market economy in Uzbekistan, too. Orthodox researchers averred that state-owned auto company UzAvtoSanoat failed to develop due to inefficiency and corruption, in particular due to the distortions of the government’s industrial policy. Heterodox scholars instead found industrial policy to be the very reason behind the creation of a successful export-oriented car industry, in particular during the commodity supercycle when part of total output was exported mostly to Russia. Neither, however, could explain why Korean Daewoo Motor Company (DMC) and American General Motors (GM) entered into a joint-venture with UzAvtoSanoat, despite the small domestic scale (hence high costs) of automobile production in the country, which is mostly purchased domestically.Read More »