Developmental Agency under the Radar: Developmental States and Coalitions in Dependent Market Economies and Low-Tech Sectors

In a recent paper co-authored with László Bruszt and published in a Special Issue of Review of International Political Economy, we identify a developmental state in the least likely  of times – the period of hegemonic neoliberalism in the 1990s and early 2000s –  and the least likely of places, namely the post-socialist Central Eastern European (CEE) economies conventionally described as FDI-dependent Dependent Market Economies (DMEs). 

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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. Read More »

BNDES’ multidimensional retreat from the Brazilian economy

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Brazil is in a crisis again. The COVID-19 pandemic has spread across the country and political incompetence has led to a massive health crisis. Investment outflows have been rapid and the Brazilian real has depreciated dramatically. The Brazilian economy is set to contract again after three years of weak positive growth.

Brazil’s development bank Banco Nacional de Desenvolvimento Econômico e Social (BNDES) has announced some measures to deal with the financial instability caused by the COVID-19 pandemic. However, these measures are being criticised for being insufficient. Rather than being a temporary policy mistake that can be corrected easily, BNDES’ passive response is linked to the bank’s structural retreat from the economy over the past five years.

During the 2000s, BNDES was acclaimed as a catalyst of the country’s economic growth. Globally, developing countries such as Indonesia saw the rise of BNDES as something favourable and sought to mobilise their own national development banks.

By acting as a lender and a minority shareholder of major domestic companies, BNDES played a key role in Brazil’s state-activist growth model of which the observers have labelled liberal neo-developmentalism,’developmental neoliberalism,’ or ‘democratic state capitalism.’ Furthermore, BNDES actively supported national champions’ internationalisation strategy by financing export and investment activities. During and after the global financial crisis, BNDES’ role extended and was used by the government to carry out counter-cyclical operations. Read More »

Lean on me: Development financial struggles and national development banks

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National development banks are back in fashion and here to stay. A number of countries benefited from the global economic boom during the 2000s as exports and commodity revenues surged. These countries’ governments stored some of the current and fiscal account surpluses and used the capital to expand state financial institutions. Two prominent types of institutions have grown rapidly, namely sovereign wealth funds (SWFs) and national development banks (NDBs), which often have financial return and development stimulation as their core mandates, respectively. Much attention has been afforded to how these organisations’ activities have turned into a global force. For example, the Norwegian SWF’s investment spans across 73 countries, including shares in more than 9,000 companies, and China’s NDBs have emerged as the developing world’s leading project backer.

More recently, NDBs have been identified as important agents in funding domestic development projects in a wide range of developing and advanced countries. The perceived role of NDBs is shifting from a reactive counter-cyclical role towards a proactive patient capitalist role. Popularity in NDBs may appear to be obvious due to the rising interest in pursuing state-designed development planning and industrial strategies over the past decade. While many observations have focused on the growing inclination towards state activism as catalyst to NDBs’ expansion around the world, this piece examines three structural challenges incentivising developing countries to mobilise NDBs. Read More »

The Sacrificial Generations of Capitalism

Screenshot 2020-02-11 at 09.28.58In this article I remind readers about the existence of “sacrificial generations” within global capitalist history. By sacrificial generation I mean a group of people at a point in time that experiences suffering with the immanent or intentional effect of changing economic, political or social conditions, which are in turn disproportionately enjoyed by another group of people at a later period in time. I identify four areas in which there systematically exists sacrificial generations:  three stages of capitalist development (state formation, capitalist property rights transition and early industrialization) and a cyclical aspect of capitalism (Polanyian-Marxian cycles). It could also be argued that the future generations which would disproportionately experience the environmental costs of past and present generations’ consumption are “climatic sacrificial generations”, but this will not be explored. Read More »

Indonesia’s State-Led Development: Custodian of the National Interest, or Boondoggle?

industry-4612432_1920Nobel Laureate Esther Duflo once likened the work of economists to that of plumbers – tinkering and adjusting as necessary as they engage with the details of economic policy-making. The implication in this comparison is that economists generally understand economic systems and behaviour how the pipes come together – and that the main work of the discipline is to fiddle with these components – adjusting the pressure, replacing valves – to see what works and what doesn’t.

A critique of this approach was compiled by Ingrid Harvold Kvangraven here. The primary criticism is that the basic premise is flawed – we do not, in fact, have a very complete understanding of how the pipes come together. Often, we don’t even know where they are. The institutional architecture that determines economic outcomes can vary widely from one country to the next. With so much variation at the systemic-level the utility of “tinkering” at the margins is questionable.

This blog series will interrogate some of the prevailing assumptions about the relationship between state and capital and look at why and in what ways some economies are deeply intertwined with the state. The structural conditions that actually exist in developing economies are often ignored in mainstream economic analyses – the prescription for countries with large state-owned sectors is usually some combination of more market liberalization, less protectionism, better enforcement of property rights. This ignores why the economy is structured that way in the first place, and therefore such prescriptions risk being disconnected from the reality on the ground, and thus ineffective.

Indonesia’s economic trajectory helps to illustrate this point. Despite a long history of sometimes violent anti-communist sentiment, massive portions of the economy are either partially or directly controlled by state-owned enterprises. According to Kyunghoon Kim in 2016 there were148 SOEs in Indonesia, and their total assets were equivalent to 56.9% of the country’s GDP.This includes the state-owned oil and gas company Pertamina, three of the four largest banks, the state-owned electric utility PLN which owns the entire national grid, airport operators Angkasa Pura I and II which operate every major commercial airport, the telecom giant PT Telekomunikasi Indonesia and the largest toll road operator Jasa Marga, to name just a few. Read More »

The local state origins of national economic development

Korea_busan_pusan_harbour_cargo_container_terminal.jpegDuring the high period of global neoliberalism (1980-2008) the international development community essentially banned the heterodox concept of the ‘developmental state’ from polite discussion. One of the reactions to the global financial crisis and the Great Recession that ensued after 2008, however, was a growing call for the partial revival of the developmental state model. Most attention in this revival of interest has predictably followed the line that began with Chalmers Johnson’s pioneering work on Japan’s developmental state; which is to say that the discussion has overwhelmingly centred on the purpose and role of national-level developmental state institutions. This discussion is somewhat incomplete, I would argue, if not a little misleading. This is because a great part of the historic economic development success attributed to the ‘top down’ developmental state model since 1945 is actually success brought about thanks to the innovative and determined activities of sub-national ‘bottom-up’ developmental state institutions, which we can term the ‘local developmental state’ (LDS) model. Read More »

Should the African lion learn from the Asian tigers? A comparison of FDI-oriented industrial policy in Ethiopia, South Korea and Taiwan

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The Huajian shoe factory in the Eastern Industrial Zone in Ethiopia. Photo: UNIDO.

Ethiopia is being hailed as one of the most successful growth stories in Africa. Because of the country’s rapid economic growth, the high degree of state intervention in the economy, and the state’s focus on industrialization, people have started to compare Ethiopia to the Asian ‘tigers’ (Aglionby, 2017; Clapham, 2018; De Waal, 2013, Hauge and Chang, 2019; Oqubay, 2015) four countries in East Asia (Hong Kong, Singapore, South Korea and Taiwan) that underwent rapid industrialization and maintained exceptionally high growth rates in the post-WWII era.

However, this emerging literature on Ethiopia-Asia comparisons has not yet sufficiently addressed one of the most important aspects of Ethiopia’s industrialization strategy — the attraction of foreign direct investments (FDI) into the manufacturing sector.

The rationale of my recently published article was this gap in the literature. In it, I ask the question: Should the African lion learn from the Asian tigers with respect to FDI-oriented industrial policy? 

In short, my answer is yes. While Ethiopia’s policies are bringing about short-term economic success and showing promise for further industrialization, the state could arguably bargain harder with foreign investors, like it did in South Korea and Taiwan.Read More »