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The Political Economy of the Rise and Decline of Developmental States
Carlos Aguiar de Medeiros•
Abstract
Based on a classical political economy, on Latin American structuralism and on
Gramscian perspective about the state this paper argues that national economic
strategies are formed by particular interactions between institutions and economic
structures and evolve according to social conflicts in a non neutral international
environment. This idea is explored to interpret the rise of the developmental state in
some national development strategies experienced by peripheral countries during the
highest convergence period of the Golden Age and its crisis and redefinitions during the
greatest divergence phase and neoliberal reforms of the last two decades of last century.
Some new efforts to launch new development strategies in the last decade are
considered.
Introduction
The diffusion of industries to several peripheral countries after the Second War
and the great divergence between them since the eighties has sparked wide debate on
economic development. Interpretations based on neoclassical and on institutional
economics (with different degrees of proximity to neoclassical economics)1 are the
major field of historical explanations. Despite the wide differences they have on the
determinants of economic growth, they share a common perspective about three basic
aspects: The first is the supposition that strategies of development are built by a set of
government policies and by institutions that model private behaviors (of course they
disagree on what policies and institutions promote economic development); the second
assumes a "methodological nationalism”2 in which individual countries growth
performance are explained by domestic factors. The third is the corollary of the two
above perceptions and says that the state as a major inductor of positive change (in
•
Associate Professor at IE, UFRJ, and CNPQ’s grantee.
. For a recent classification of the institutionalist approach, see Fine (2005)
2
For an original reference to this expression, see Gore (1996), see also Medeiros (1997)
1
1
resource allocation as in the heterodox reasoning, or in creation of market institutions as
in orthodox thought) is responsible for success or failure of growth strategy. For the
mainstream school wrong policies taken by populist state plays the dominant role,
wrong policies taken by liberal or neoliberal states plays this role by heterodox. For
both a meritocratic Weberian state is central to the successful strategies of development
(to avoid cases rent-seeking according to neoclassical authors; to discipline large firms
according to the institutionalists)3.
Stemming from a methodological perspective based on classical political
economy, on Latin American structuralism and on Gramscian perspective about the
state4, this paper takes a critical stance concerning these three basic aspects. At first it
considers that modern explanations about developmental states and the role of
institutions neglects the different challenges and circumstances created by initial
conditions and how different economic and social structures influences institutions (a
bias opposed to ECLAC’s classical structuralism that neglected the autonomous role of
institutions). The major challenge to explain development strategies is to articulate the
two dimensions5. Secondly, it assumes the proposition according to which the
international environment is not identical for developing nations and is influenced by
the hegemonic state’s economic and political action, creating different development
opportunities for them. Finally, it considers that the state cannot be viewed as an agent
above interests, apart from social classes and relations with other states, but rather, as a
central institution where the dominant class or some of its sectors leads a coalition of
power and builds a
hegemonic project compatible with a particular accumulation
strategy.
Besides this introduction this paper has three main sections. In the next two
sections there is an attempt to illustrate some of these issues from an analysis of national
patterns of industrialization and development strategies experienced by peripheral
countries both during the highest convergence period and the greatest divergence phase.
The third and last section explores some new attempts to rebuild a “neo-developmental
state”.
3
Skocpol (1985) is an essential reference for the Weberian approach.
This tradition has a large influence in some contemporaneous analysis of globalization like Jessop
(2002), Morton (2007) and broad perspectives on capitalist state and institutions like the social structure
of accumulation theory (SSA), Mc Donough, Reich and Kotz (2010) .
4
5
By development strategy we follow Gereffi (1990): “Development strategies can be defined as sets of
government policies that shape a country’s relationship to the global economy and that affect the
domestic allocation of resources among industries and major social groups” Gereffi (1990:23)
2
National Development Strategies in the Golden Age of Post-War. The
Formation of Developmental States (DS) 6.
The partial and limited diffusion of industrialization in the postwar period
(especially, among industries and activities closer to the innovative businesses such as
capital goods sector) was a consequence of national strategies led by developmentoriented states specifically geared to reproduce — in backward economies — modern
industry and its infrastructure as the main engine of economic growth.
Under U.S. hegemony and under the geopolitical of the cold war, national
development was basically an accumulation strategy and a hegemonic project of
industrial national capital coordinated by national states favoring the formation of large
industrial companies and their markets. National developmental strategies were
followed in several countries and took different routes according to the size of the
economy, the natural resource base, income distribution, geopolitical insertion (i.e.,
associated with higher or lower degree of ambition and political and military
autonomy), the political power underlying that strategy and the unequal opportunities
created by more developed countries. How successful those strategies were depended on
the combination of those internal and external circumstances7.
At distinct levels of success a few countries (in Latin America, especially Brazil
and Mexico, in Asia, the Asian Tigers - especially Korea and Taiwan - the
Southwestern Asian countries, India and China) followed a path somehow similar to
6
The internationally consecrated formulation about the Developmental State is Johnson’s (1982). It
discusses the post-war Japanese state, having as a central focus the coordination of new industries
investments coordinated by the state through selective intervention. Studies done by Amsden (1989),
Chang (2006) about Korea and Wade (1990) follow this approach. The emphasis is put on the state power
to discipline big business. What makes these studies essentially “state-centric” is the absence of
hypotheses on why companies accept the tasks and act according to the direction of the state. Kohli
(2005) identifies as developmental states a kind of cohesive capitalist state formed in countries like Korea
or Taiwan very different of others social formations as Brazil or Mexico where a fragmented a multiclass
state was formed. Here we consider as developmental state a state geared to change the economic status
quo favoring the construction of new productive industrial capacity through state companies, public banks
and coordination mechanisms. In this sense Brazil and Mexico and even Argentina that never built an
encompassing and powerful developmental state – a cohesive capitalist state as put by Kohli (2005) had
during the post war a state motivated by a strategic rationality to promote industrialization. But we
consider that the success of this strategy depends less on design and more how they are implemented and
this depends on internal interests, conditioned upon economic structures and the action of the hegemonic
state.
7
For a discussion of articulations between internal and external dimensions, see Medeiros and Serrano
(1997)
3
what industrialized countries had experienced to restructure during the post-war period.
An attempt was made to transplant the key industries typical of the American
manufacture pattern - metal mechanics, automobiles and chemicals - and their
consumption patterns - centered on consumption durable goods financed by credit.
These industries, along with urbanization and its services and infrastructure created in
agrarian economies what Hirschman (1958) defined as a new "multidimensional
conspiracy for development" as its expansion would generate a chain of effects on
productive sectors and technological improvements that would engender economic
development. As Prebisch (1949) remarked, the typical Keynesian post-war policies on
the periphery would require structural change so as to offset the external constraints,
and building new capital stock in the industrial sector would be the basis for a policy
directed to high growth and unemployment reduction.
Between 1950 and 1980, the steady increase in per capita income in those
countries — higher than the world average rate and U.S. rate, the country leader8— was
chiefly due to the increased pace of the industrial output growth and the transfer of
surplus labor in agriculture to urban activities led by industry and services. In countries
where this shift was greater, as in Korea or Brazil, the growth rate was higher, and in
countries where it was less intense, as in India, the rate of growth of income per capita
and per employed person was lower9.
Despite the diversity of initial conditions within those countries, they faced the
challenges caused by large technological gap in relation to industrialized countries, the
narrowness of domestic markets, the problems of coordination and financing of
complementary blocks of investments in new sectors and restrictions on balance of
payments10.
Similarly to what happened in Western Europe in the postwar period, the
influence of industrial success in the Soviet Union gave major political legitimacy to the
long-term planning; thus, the Government planning boards became pilot agencies with a
major influence on economic policy. But the national strategies of industrialization were
8
Although generalized this reduction was very unbalanced amongst countries and regions according to
the initial levels of development (greater in Latin-American countries, smaller in Asian countries),
product and population growth rates.
9
The discussion between industrial product growth rate and GDP growth rate was analytically studied by
Kaldor (1996) and is widely renowned in unorthodox development literature
10
The analysis of questions regarding the implementation of modern industries in farm-based societies
was the main focus of the study on “the pioneers of development economy” such as Rosestein Rodan,
Nurkse, Lewis, Hirschman, Furtado and Prebisch, inducing a new meaning to development economy. A
new work among the classic collection is the recently reedited Agarwala and Singh (2010).
4
not distinguished only by planning. In those most successful countries such as Brazil
and Korea (and later in China, since Deng Xiaoping’s reforms), strategies were the
result of industrial action over the allocation of investment. In some countries like
Korea, Taiwan or Mexico the state has directly controlled the “commanding heights” of
the financial sector (Haggard, Lee, Maxfield, 1993). Besides finance, in many countries
industrial inducement was directly exerted through the formation of major blocks of
state enterprises operating in strategic industrial activities and infrastructure11.
Thus, regardless the higher or lower share of exports in the composition of
industries’ final demand, the late industrialization of the 20th century was led by the
states. The conventional distinction between a strategy based on import substitution
industrialization (ISI) associated with the state leadership in countries like Brazil and
Mexico, and an export-oriented industrialization (EOI) associated with a pro-market
strategy that would have prevailed in Korea, Taiwan or Thailand does not resist, in fact,
to the historical evidence on industrialization pursued in those countries12. All strategies
originally included import substitution processes and selective opening and put greater
or lesser emphasis on industrial exports according to different sets of factors. An
essential part of national development strategies was the macroeconomic regime in
which the exchange rate, fiscal and monetary policy were subordinated to the objectives
of industrial development (Haggard, Maxfield, 1993). Until the 1970s, the external
financing was scarce and the constraint on foreign currency imposed strict control on
foreign exchange, control of imports, encouraged exports and policies that proved to be
a strategic element to the national development-oriented routes.
However, in spite of common strategies, the countries that started their industrial
diversification processes in the post-war period followed different patterns and their
states had different capacity to induce structural change. Two aspects stand out from
pattern differences: the levels of income distribution associated with the
industrialization process of (inequality in Latin America was much higher than in Asia),
and the share of industrial exports in countries' total exports (much higher in Asia).
Besides these structural dimensions, one important difference was the role played by
foreign capital larger in Argentina, Brazil or Mexico than in Korea, Taiwan or India.
11
Not only in China and India that had an independent and particular position during the cold war but
even in peripheral countries like Brazil and Argentina arms production and pacific nuclear technology
were developed as part of security and development strategy.
12
State intervention is a phenomenon that has been common across the development experience, in the
successful cases as well as the failures. “States (…) thus differ not so much in their orientation toward the
economy (…) but in their capacity to bring about the desired results” (Chibber, 2003: p. 6).
5
Considering the State’s power to induce the economy one may observe that although the
common base was a coalition between the military, technocratic planners, and the
private manufacture sector13 this coalition was stronger in Korea or Taiwan than in
other countries14. In these countries a “cohesive capitalist” state (Kohli, 2004) was built
by dislodging the landed owners and with strong support of US in their strategy of
communist contention in Asia. It was also influenced by Japanese’ institutions and
business strategy developed after the war. The development state outside Asia was more
“fragmented and multiclass” and the industrial sector had to compromise some
economic policies with powerful land owners.
Different Patterns
Unlike Western European countries, industrialization in peripheral countries led
by developmental states was not accompanied by social democratic coalitions aiming at
the distribution of income and full employment15. However, despite the fact that the
goals for greater equity were subordinated to the goals for growth and industrialization,
income distribution was quite uneven according to the different social coalitions
supported in the state. The social coalitions, i.e., the economic interests prevailing in the
hegemonic project16 of national developmental age, and the pattern of income
distribution were essentially influenced by the way the land property and the
modernization of agricultural production evolved. In countries where the productivity in
food production17 was lower, the lower was the peasant’s income and the heavier was
13
Despite the great differences in the role played by these different groups in the state.
Here is interesting to follow Jessop (2002) in his definition of economic domination considering two
dimensions. “The first is internal to the economy and concerns the power of one or another fraction of
capital …to impose its immediate interests on other fractions, regardless of their wishes and/or at their
expense. Such domination can derive directly from the position of the relevant fraction (cartel, firm) in
the overall circuit of capital in a specific economic conjuncture and/or indirectly from the use of some
form of extra-economic coercion (including the exercise of state power”. “The second dimension of
economic domination………refers to the capacity of capital in general, a given fraction of capital, or
particular capitals to steer the evolution of other institutional orders in line with the demands of capital
accumulation..” op. cit. p 29)
15
During this same period and among industrialized countries was build a very different state. Bob
Jessop (2002) denominated it as “Keynesian National Welfare State” as a new hegemonic project based
on the search of full employment and social integration based on the expansion of internal market as a
central base for productive accumulation scales.
16
What is meant here as hegemonic project is the solidarity of interests that transcend private and
corporate economic interests in a given hegemonic policy. See Morton, 2007.
17
The distinction developed by Lewis (1977) and Furtado (1969) between tropical agriculture and that of
a temperate climate is essential for the understanding of distinct starting points of the “primary-exporter”
model and for the different levels of heterogeneity of social and economic structures.
14
6
the weight of the traditional oligarchy on political power — such as in Brazil, India or
Indonesia the sate was more “fragmented and multiclass” — and the industrialization
took place accompanied by extensive social marginalization and exclusion of rural
masses (and growing suburban areas) of modern consumption, leading to large income
concentration. In countries where land reforms and simultaneous modernization of
agriculture took place (as in Korea and Taiwan, that like Japan made deep changes in
ownership relations, with the United States’ support and encouragement), internal
structural heterogeneity18 and social polarization was less intense, and the state was
more cohesive around the interests of industrial capitals19.
Similarly, export performance followed a distinct path.
In Asia, the import substitution was quickly followed (as early as in the 1960s) by
industrial exports (mainly textiles and clothing in the early stages), generating a greater
trade diversification and consequent positive effect on the balance of payments. In Latin
America, the diversification of exports happened much more slowly and less intensively
(and even so, only in some countries, notably in Brazil this occurred in late 1960s).
Several hypotheses explain this discrepancy. Hypotheses that follow a neoclassical
approach and those closer to predominant institutional analyses emphasize the different
strategies adopted and the prevailing interests. Excessive protectionism, the urban and
anti-rural bias of developmental coalitions20, or the pessimism about the Latin
America’s possibility to export industrial products21 would have prevailed in the region
in contrast to the clearly exporting-oriented strategies of Asian countries (explained by
orthodox perspective as a result of less protectionism, or by the heterodox viewpoints as
a consequence of solid industrial policies).
What distinguishes these approaches is the lack of connection between strategies,
institutions and economic structure. Using an argument similar to that employed by
Diamand (1986) in the case of Argentina, by Mahon (1992) and more recently by
18
A classical study is made by Anibal Pinto (1973) on the great structural heterogeneity of Latin
America. Here we consider internal structural heterogeneity the productivity gap between food production
and industrial goods and by external productivity or unbalanced economic structure the productivity gap
between primary export sector and industry. See ahead.
19
In Argentina land concentration came together with high productivity in food production generating a
unequal but rich economy for Latin American standards. The political power of the agrarian class in
Argentina had by its turn a strong influence on state policies during de developmental years. In Mexico
land reform had little influence on income distribution because the best lands remained concentrate in few
hands and the lack of public investment collaborate to keep productivity in a very low level.
20
A good synthesis was made by Fishlow (1991).
21
Explicitly underlined in the 1953 CEPAL document. For discussion see Pazos (1984)
7
Bresser-Pereira (2010), here we claim that among countries with highly competitive
export industries based on natural resources such as those of Latin America, there came
to be an external heterogeneity or an "imbalance in the production structure" between
the productivity of the primary export sector and that of the industrial sector. This
imbalance led to the formation of an uncompetitive exchange rate for the industry
contributing for the specialization of the export sector. Industrial policies favored
domestic industry through preferential exchange rates and tariffs, but they were not as
competitive as it was in Asia for industrial exports. The interests involved in this
strategy clearly were much more solid than were those generated by such a different
economic structure as the one that prevailed in the most dynamic Asian countries22.
In Latin America, the high share of exports based natural resources exacerbate a
distributive conflict between primary exporters, industrial sector, non tradable support
activities and the working class on the exchange rate. This was particular intense in
Argentina due to its bigger external heterogeneity and higher labor militancy.
Thus, the higher cohesiveness around manufacture exports (and industrial interests)
was not simply matter of institutions but an outcome from the economic structure.
In Asia, for a small group of countries like Korea, Taiwan that had during the
1960s a lower level of industrialization than Argentina Brazil or Mexico, and certainly
city-states like Hong Kong and Singapore, the scarcity of natural resources made the
export of industrial products the obligatory path toward industrialization, whether due to
the low size of the domestic market (as in the case of Taiwan and the city-states) or, as
in the case of all the others, due to the need to finance their import capacity23. Poor
natural resources basis was favorable to a more balanced economic structure, making it
possible to establish a real exchange rate more favorable to industry. Secondly, because
of the political situation resulting from the Cold War, these countries relied on heavy
U.S. support during the initial provision of external funding and of a preferential market
for their exports.
Thus, the Asian industrial strategies did not distinguish themselves for having
adopted policies and instruments very different from those used in Brazil or Mexico24.
22
The above argument does not mean that in Latin America a permanent and overall appreciated real
exchange rate prevailed (Sachs, ) after midi sixties many countries adopted exchange rate devaluation
policies. What here is stressing is that the absolute level of exchange rate was not competitive for the
manufacture sector due to the higher productivity of the commodity export sector (Diamand, Bresser)
23
In Medeiros and Serrano (2001), the role of exports in growth trajectories according to their distinct
productive structures is discussed.
24
One may consider that the creation of maquiladora (in-bond) in Mexico occurred in 1965 as in Taiwan
8
The State was not more or less interventionist in the induction, coordination and
subsidization of private investment25; however, due to dissimilar structural and
geopolitical circumstances, this policy has yielded different macroeconomic and social
results.
In these countries, the composition and transformation of the export structure
generated a larger and more diversified sector of industrial tradables and a stable
exchange rate. The dominance of industrial sector (led by coalition of big business and
the State) over other fractions of capital was much more secure than in other developing
nations. The main conflict between industrial capitalist and working class was
suppressed politically by an authoritarian State but economically the evolution of real
wage was sustained by a simultaneous rise in food and industry productivities.
This fact26 had important consequence for the easier way that Asian countries
reacted to the debt crisis of 1980, but it had already manifested itself with the pattern of
indebted growth followed by Brazil, Mexico and Korea in the 1970s27.28
During the seventies, despite the dollar over borrowing that was spread in
periphery (India is an exception), the differences within Latin America Countries and
within Asian countries were very sharp in contrast with the situation that took place
after the 1980s marked by a regional clustering. After the first oil shock and during all
the 1970s Argentina with a fragile balance of payment position and strong working
class had high rate of inflation exacerbating its structural dilemma; Mexico interrupted a
cycle of “stabilizing development” and pressed by the political turmoil of the late
sixties, initiated a distributive strategy in a unstable path until the discovery of new
reserves of oil and huge accumulation of external debt. Brazil and Korea had a different
strategy and used the availability of cheap money to launch an industrial plan aimed to
import substitution in heavy industry and chemicals.
25
“It is by now well known that the favorite neoclassical showcase of South Korea is not predominantly
one of market liberalism but of aggressive and judiciously selective state intervention. The Korean state
has heavily used the illiberal compliance mechanisms of selective command and administrative
discretion, restricting imports for industrial promotion, disciplining the private sector through control over
domestic credit, foreign exchange and underwriting of foreign borrowing, and public enterprise leading
the ways in many areas” Bardhan (1988:62).
26
Chibber (2003) develops the implications of this characteristic on the greater ability of the exporting
Asian States to discipline large corporations to comply with industrial policy orientation.
27
Although the ratio of debt to GDP was not very different in Korea and Brazil, the ratio of debt service
to export that captures better the country external solvency was much lower in Korea. See Singh and
28
External debt grew extraordinarily in the 1970s under the pressure of the bankers – Medeiros, 2008a,
Pazos, Fislow
9
Between
1950
and
1980,
developmental
states
that
made
domestic
industrialization their main strategy for national development also took form in
Indonesia and India. Five-year plans, a high percentage of state companies in strategic
sectors of heavy industry and infrastructure, strict protection of the internal market and
import substitution were the core of this strategy. In India, its neutral position in the
Cold War and the influence of Soviet planning led to the formation of an autonomous
military strategy with significant impacts on the priority of heavy industry. In both
countries, these strategies led to performance quite distinct from that of the Southeast
Asian countries and structurally more similar to that of Latin America. With an
underdeveloped agricultural system, a vast majority of the population engaged in the
struggle for survival, little intra-sectoral mobility and an insubstantial industry of
handcrafted consumer goods, Indian developmentalism resulted in modest growth rates
and income concentration (given the vast rural poverty), yet it has managed to
internalize important segments of modern industry and its infrastructure. In Indonesia,
where there was a predominance of primary exports, high income concentration based
on the differences between rural areas and cities also occurred.
Table 1 summarizes the different patterns.
10
Table 1
Developmental State and Patterns of Growth
Countries
Median
East
Asian Countries
(Korea
and
Taiwan)
Large
Asian
Countries (India,
Indonesia)
Structural
Heterogeinity.
Tradable
and
domestic sector
Poor
natural
resources
and
low
external
heterogeneity.
High
productivity in
food,
low
internal
heterogeneity,
low
income
concentration
and low poverty
Rich
natural
resources
and
high
external
heterogeneity.
Low
productivity in
food,
high
internal
heterogeneity,
high
income
concentration
and high poverty
1950-1980
Macroeconomic
Policy
Pro-growth
strategy based
on credit, low
interest
rate,
competitive
exchange
rate
trough foreign
capital control
and
wage
control
Pro-growth
strategy based
on credit, public
spending, low
interest rate, low
exchange
rate
trough foreign
capital control
and
wage
control
Median
Latin
American
Countries
(Argentina and
Chile)
Rich
natural
resources
and
high
external
heterogeneity.
High
productivity in
food,
low
internal
heterogeneity,
low poverty
Pro-growth
strategy based
on credit, public
spending, low
interest rate, low
exchange
rate
trough foreign
capital control
and
wage
control
Large
Latin
America
Countries
(Brazil
and
Mexico)
Rich
natural
resources
and
high
external
heterogeneity.
Low
productivity in
food,
high
internal
heterogeneity,
high
income
concentration
and high poverty
Pro-growth
strategy based
on credit, public
spending, low
interest rate, low
exchange
rate
trough foreign
capital control
and
wage
control
Level
of
Intervention and
Economic
domination
Productive
Sector.
Industrial class
led by domestic
private groups
as a dominant
economic class.
State
Owned
Enterprise
in
heavy industry
Productive
Sector.
Multiclass
alliances
between
industrial sector
with land and
export sector as
the
dominant
economic bloc.
State
Owned
Enterprise
in
heavy industry
Productive
sector.
Multiclass
alliances
between
industrial sector
with land and
export sector as
the
dominant
economic bloc.
State
Owned
Enterprise
in
heavy industry
Productive
sector.
Multiclass
alliances
between
industrial sector
with land and
export sector as
the
dominant
economic bloc.
State
Owned
Enterprise
in
heavy industry
Developmental
Strategy
State
Power
Class Conflicts
Import
substitution and
early diversified
export
promotion
through
subsidies, tariffs,
domestic credit
and
selective
opening.
FDI
control
Cohesive State.
Expropriation of
landed
class
political power,
subordination of
class struggle to
the
developmental
state
through
political
dictatorship
backed by US
Fragmented
state.
Preservation of
landed
class
political power
and
subordination of
class struggle by
dictatorship (in
case
of
Indonesia)
or
liberal policies
(India)
Fragmented
state.
Preservation of
landed
class
political power
and
subordination of
class struggle by
dictatorship
(during
the
seventies)
Import
substitution and
low
export
diversification.
Subsidies,
tariffs, domestic
credit
and
selective
opening. Capital
control
Import
substitution, low
export
diversification.
Subsidies,
tariffs, domestic
credit
and
selective
opening. Capital
control
Import
substitution and
diversified
export
promotion
Subsidies,
tariffs, domestic
credit
and
selective
opening. Capital
control
Fragmented
State.
Preservation of
landed
class
political power
and
subordination of
class struggle by
dictatorship (in
case of Brazil
(from 1964 on)
or more liberal
policies
(Mexico)
11
Neoliberalism and the Crisis of the Developmental Nation States
The Reagan-Thatcher offensive against the National Keynesian State in the
central nations, the external-debt crisis at the periphery and the collapse of the USSR in
1991, at a time at which a new technological revolution based on information and
telecommunication was rising, led to significant changes in the international division of
labor. Under unrestrained competition finance and productive internationalization
greatly enlarged29.
The “Washington-Wall Street complex”30 (and its leadership over the World Bank
and the International Monetary Fund) established itself as the center of political power
and of the ideology not only of globalized American capital but also of globalized
capital in general. Despite its rhetoric concerning a minimal state and market efficiency
the establishment of neo-liberalism as a doctrine led to a new strategy of accumulation
and a new hegemonic project widening the dominance of capital in general and finance
capital in particular over other fractions and interests31. These transformations were
triggered through a widespread attack on the unions and on welfare state32. It also
corresponded to a new U.S. trade offensive to open the hitherto regulate internal market
of the new industrialized exporting nations33.
Among the industrialized nations, the large corporations, exposed to intense
international competition, sought greater autonomy from the state, the workers and the
chain of domestic suppliers, simultaneously demanding greater state support for the
globalization process of production and finance in new spatial and regional
29
“The breakdown of communism eliminated a competing model, which had obliged most Western
leaders to respect some kind of equilibrium between the worlds of capital and labour. In addition, the
crisis and fall of the Soviet Union gave way to rapid impoverishment of the countries of the former
socialist bloc and to disarray in most of the Third World. The end of the Eastern bloc and the rapid
liberalization of certain parts of the Chinese economy, in the early 1990s, further consolidated the
globalization of neoliberalism”. (2007:29)
30
Wade and Veneroso (1998).
31
Jessop (2002), in his analysis of the state that emerges from crises of Keynes and the Welfare State,
denominates a “Schumpeterian competitive state” a “state that aims to secure economic growth within its
borders and/or to secure competitive advantages for capitals based in its borders, even where they operate
abroad, by promoting the economic and extra economic conditions that are currently deemed vital for
success in competition with economic actors that and spaces located in other states.” (p. 96).
32
For discussions on these formulations see Serrano (2004) and Glyn (2006).
The liberating pressure was particularly strengthened in the environment of the WTO in the Uruguay
Round started in the 1980s.
33
12
arrangements. Transplanting labor intensive activities to peripheral countries was
intense remaking the international division of labor.
During the eighties and nineties a low and asymmetrical growth took place within
industrialized countries. Despite some national regularities observed in all countries McDonough, Reich and Kotz (2010) named these changes liberal social structure of
accumulation to distinguish them from regulated SSA that prevailed before- the
“devolution” of Keynesian National Welfare State was very differentiate among
industrial countries according to the severity of external pressures and the resistance of
working class and State social institutions.
Among the recently industrialized and semi-industrialized nations, the impacts of
these transformations were greater in light of the lesser productive diversification and
greater dependence of its industries on state regulation of the financial system and the
domestic market.
Although taken in different circumstances and with different intensity, the end of
the developmental state had a similarity with the end of the
Keynesian Welfare
National State in industrial countries. If this was associated with the end of the
subordination of monetary and fiscal policy to full employment, the end of
developmental state was associated to end of the subordination of fiscal and monetary
policy to industrial development.
Similarly as it was happened with national Keynesianism, development strategies
based on industry and on the nation as the prevailing scale of accumulation were
abandoned in many countries and a new hegemonic project led by the economic
domination of cosmopolitan capital was established.
Despite the differences observed in time and space, the discontinuity in
development strategy involved two major forces: financial openness and big business
revulsion against the developmental state34.
34
“In CEE the restructuring of market–state relations has been the most sweeping. While the economic
changes were more profound than anywhere else – moving from a socialist model to neoliberal capitalism
– they also were implemented faster. Within less than a decade (the 1990s) the transition was
a fact, and the region had opened up to global private capital. Most of the former socialist countries in
Europe have decisively distanced themselves from the ex-Soviet Union and have been linking up to the
European Union, either as new members (Hungary, Poland, Slovenia, Slovakia, the Czech Republic,
Estonia, Latvia and Lithuania) or as candidate members (Bulgaria, Romania
and Croatia)”.( Jilberto; Hogenboorn, 2007: 30)
13
Financial opening played an important role for the crisis and discontinuity of
national developmental strategies (in both industrialized and, mainly, semiindustrialized nations) insofar as it exposed the economies to volatile capital inflows
and dissolved the role of domestic credit as a mechanism for coordinating investments.
The developmental coalitions supporting state intervention was supplanted by a “more
orthodox and internationalist policy factions and pushes toward liberalizing reforms”
(Haggard, Maxfield, p. 325). It was in the wake of the exchange-rate crises that WC
structural reforms were massively introduced35. The institutional position of the Central
Bank (with an exclusive focus on price stability) was strongly enlarged due to
international constraints that followed the external crisis and the role played by
manufacture interests and its institutions was diminished.
As a corollary to these macroeconomic and institutions change there was a split –
to the extent to which, and under the conditions in which the nations opened their
economies – between the interests of the large corporations and the national industrial
strategies that were the basis of national development36. Cultivated and promoted by
their developmental nation-states domestic business, challenged or partially removed
from their markets, began to seek for new opportunities and strategies for accumulation,
especially through the formation of joint ventures with multinational corporations and
through majority interests or participation in the business of privatizations. Such
opportunities demanded new State functions and policies and a new power scheme and
strategy of accumulation37.
Thus, the U.S.-led pressure throughout the 1990s in favor of liberalization,
deregulation and privatization found widespread internal support among the dollarbased cosmopolitan financial groups and big business in general. The large
corporations’ rebellion against developmental states occurred everywhere38. It was
generally accompanied by public opinion that identified industrial policies – such as
those implemented by countries like Brazil, Korea or Indonesia – with political
authoritarianism, with “crony capitalism” and, in the case of Brazil, with income
35
For a discussion on the debt processes and their impact on macroeconomic regimes, see Medeiros
(2008a)
36
As observed earlier the discipline of big business and the State influence on investment decision was
the essential characteristic of developmental states.
37
In Medeiros (2009) privatization as a form of organizing “big business” is discussed.
38
“in Korea, the giant conglomerates (the chaebols) have aggressively campaigned during the 1990s to
convince the population that the government should abandon its industrial policy and financial
regulation” Chang, 2006:253.
14
concentration. The social cohesion and political legitimacy of industry-based
accumulation strategies and, consequently, the hegemony of this project were
profoundly shaken39.
But this general trend was far from being homogenous and a great divergence
took place.
In Latin America and in some East European countries, the debt crisis of the
eighties was intense bringing about high inflation rate and deep recession. This caused a
structural crisis in prevailing State led growth and created new coalitions of internal and
external interests – remaking the bloc of finance and primary export that ruled LA in the
XIX century- around the agenda of reforms of the Washington Consensus that spread
all over the region in the nineties. (Medeiros, 2008a)
In Asia, the external shock of the eighties was not so disruptive. In large countries
as China or India, the debt ratio was too low to make any substantial negative impact
(Hughes and Singh, 1991).
In East and on South-East countries, thanks to better
solvency ratios, the surge of Japanese investments and the clustering of production
chains in the region (Medeiros, 1997) and the majority of the economies (more or less
open) had high growth preserving the bulk of institutions developed earlier. This
clustering of success and collapses in space and time is the major evidence of the limits
of the “methodological nationalism” (Ocampo, Parra, 2007, Medeiros, 1997). Only in
the nineties but mainly after the 1997 crisis – circumscribed to the countries that opened
their capital accounts (in Thailand, Indonesia, Philippines and South Korea)- occurred a
strong offensive against the developmental institutions.
Thus, like happened in industrialized countries, there were different national
answers to liberalization process. In Latin America countries liberalization was taken
in a radical U-turn as a “rebound effect” (Hirschmann, 1982, Palma, 2010) from a very
weak national position; in Korea and other Asian countries liberalization was taken later
39
Fine (2005) examines the different interpretations about the crisis of the developmentalist state, from
what he calls the “political school” (Johnson, 1982), to the “economic school,” (the main institutional
authors such as Chang, Amsden, or Stiglitz and Rodrik). For the former, the developmental state was a
singular historical construction that lost its functionality with the success of development. For the latter
authors, the State crisis it derived from the financial opening and the lack of adaptation of institutions to
the new environment; for others, such as Chang, the financial opening destroyed the basic mechanism of
investments coordination. For Wade (1998) the crisis was the result of American pressure on Asian
institutions. Here we assume some of aspects mentioned in these approaches, but considers them under a
different light in respect to the relationship between the state and capital, emphasizing the change in
interest of large economic groups and their strategic alliances.
15
and from a trajectory of high growth. Other Asian countries like China, Taiwan or India
did not dismantle the main developmental institutions. Political and structural reasons
contributing for this different route.
Thus, the degree and impact of these changes on national developmental
strategies essentially depended on the extension and circumstances of the external crisis,
the resistance of the previous economic and political coalition to the new challenges and
the capacity for structural transformation of the economies. The production structure,
the existence of distinct regional dynamics and the power and political cohesion of the
nation-states were the main vectors for a strong differentiation occurred between Asian
and Latin American Countries.
Different Paths
Throughout the 1990s, it was possible to identify various reactions to the
liberalization and technological pressures. One common response to the new challenges
was the pursuit of an “integrationist” strategy (Amsden, 2001), or as put by Lall (2000)
“a passive strategy dependent on foreign direct investment (FDI)”. This was based on
two pillars: on micro side this strategy was built by the formation of new private
alliances and re-specialization in activities with absolute cost advantages (whether in
industrial commodity chains, as in Mexico, or in natural resources, as in most South
American countries and in Russia, throughout the 1990s)40..
On macro side this strategy centers on exports and on external financing and investment
as the main growth machine. The demise of developmental state’s institutions and the
reconstitution of new state around these new activities and social classes was the main
political challenge.
In Mexico, the liberalization
process initiated after the 1982 default in external debt and bank nationalization
accelerated in the beginning of the nineties moving towards the NAFTA agreement
established in 1994. Led by small group of technopols41 a victorious coalition formed
40
“Within the context of the above-mentioned structural heterogeneity, LA has developed two types of
successful “modern-sector” regional oligopolies: those involved in large scale capital intensive
commodity production for exports, and those that have mastered the technique of organizing low-valueadded labour intensive production chains- sometimes for exports (most agricultural products) and
sometimes in services(eg. retail)” Palma (2010:33)
41
The Chilean “Chicago boys” during the Pinochet Government were the first technopols group to lead a
radical economic change in the continent, in 1985 Jeffrey Sachs led a radical reform in Bolivia during the
16
by large Mexican groups mainly in non tradable sector, and American multinational
companies, inaugurated a growth strategy based on exports of labor intensive industrial
activities in a “shallow” trade specialization42. This export model enlarged the Mexican
dependency to US markets and investments and promoted the rise of domestic
conglomerates43. For this last endeavor the State has a protagonist role in privatizations
deals and massive finance support.
In South America, cosmopolitan
big business’s rebellion against the developmental state started during the late seventies
and the eighties as a consequence of the external crisis and hyperinflation that occurred
in many countries. It corresponded to the expansion of the power and influence of the
traditional exporters, banks, supporting non tradable activities and industrial groups in
association with foreign capital. In Argentina, during the eighties the external debt
resulted in huge wealth transferences from state to big business44. Started in 1989, the
Losada presidency, Pedro Aspe Phd from Harvard became finance Minister in Mexico, Alejandro Foxley
future ministry in Chile, Domingo Cavallo as well from Harvard became the most powerful technopol in
Argentina. They were all connected with Lawrence Summers, Jeffrey Sachs, Rudiger Dornbusch, Stanley
Fisher and martin Feldstein that form a elite group in US Treasury and in IMF. Contrary to the old
technocrats they had to be good politicians. Daniel Yergin (1998) has a point when he argues that WC
was developed in Latin America by Latin Americans
42
In Mexico, “After s period of rising state intervention in credit markets, which culminated with the
bank nationalization in 1982, Mexico move dramatically away from heterodox financial policies. As
happened during earlier periods of international trouble in Mexican history, the efforts by both President
de la Madrid and President Salinas to regain credibility with international investors and creditors
strengthened the hand of economic liberals within bureaucracy. The government initiated the
reprivatization of the banks, reduced preferential credit distributed through public development banks
and trust funds by half in 1987, and reduced reserve requirements and freed interest rates in 1989”
(Haggard, Maxfield, 1993: 321)
43
“While, for most Mexicans and much of the economy, the 1980s were a lost decade, for Mexican
economic groups it was the time of a miraculous centralisation. The nationalisation of the Mexican
banking sector in 1982 resulted in former bankers creating new financial groups that invested in
non-bank activities, including stock markets and insurance companies. The stock markets in fact turned
into a parallel banking system, and a new group of giant firms emerged: los bolsistas3 with, among
others, Carlos Slim”Jilberto, A. and Hogenboom, B (2007) pg 143 “. He has made his fortune in the
aftermath of the crisis of 1982 and his corporate activities currently range from telecom to finance, and
from electronics to trade. After privatization he became the owner of a controlling share of Teléfonos de
México
(Telmex) with partners Southwestern Bell and Telecom France. In 2001, Slim started to expand his
corporate dominance beyond Mexico, particularly through América Móvil, a giant and fast growing
company in cellular phones. Slim’s career is the ultimate example of the current regional power
of Mexican conglomerates, illustrating their economic concentration and transnationalisation since the
1980s. Moreover, the expansion of Slim’s conglomerate points at the use of good relations with
politicians and state officials, and also shows how, for such large corporations, financial crises
can be treated as opportunities rather than threats”. Pg 137
44
“The subsidizing of large economic groups and foreign capital during the 1980s by transferring their
debt to the state also happened with the capitalization of this debt via the redemption of foreign debt in
the process of privatization, when it was exchanged for net worth pertaining to the public
17
Structural Adjustment Programme and massive privatization supported by Washington
institutions and Argentinean elite generated a premature deindustrialization and
denationalization but simultaneously a large centralization of capital took place headed
by commodity exporters and finance.
As a big country in Brazil, the
alliance that backed the State was led by manufacture industry (including a high
participation of foreign companies) but included domestic construction firms (and
support activities in non tradable sectors) and domestic banks that achieved a strong
position in the seventies. Important segments of manufacture sector early contested the
State leadership. But it was the 1980’ external crisis, high inflation and the irruption of
an autonomous labor struggle that undermine this coalition. With a more diversified
industry that partially resisted the process of trade and financial opening, some
important public enterprises (including a big development bank) were preserved from
the
massive
privatization
and
denationalization
of
midi
nineties45.
The
“desenvolvimentistas” – the technocratic, intellectuals and industrial leaders that led the
old economic strategy- were not completely dislodged from the State as happened in
Mexico or Argentina. But likely all countries in the continent the winners from these
liberal transformations were foreign investors and the big business in finance sector46
and in production of commodities47.
services. In Argentina this ‘capitalization of foreign debt’ was devised in 1985, though initially it was not
associated with privatizations but with the transfer of private debt to the state, which had not been done
before when the exchange insurance regime was applied. Added to this were other subsidizing
schemes of large companies, such as state overvaluation of purchases of goods and services, and other
mechanisms. It is estimated that total state transfers to the more concentrated capital amounted to $105
billion in the period 1981–9, a magnitude similar to the total yearly gross national product (GNP) of
Argentina. The main beneficiaries of these regimes were economic groups or conglomerates such as
Pérez-Companc, Techint, Siemens and
FIAT” (pg 174)
45
This resistance was only partial. Along the nineties there was a disarticulation of some productive
chains and the abandon of some innovation intensive activities creating a kind of “regressive
specialization” (Coutinho, 1997) although some modern capital goods manufactures more integrated with
mineral and raw material resources were preserved.
46
The power of private banks in Brazil has a long history. During the sixties commercial banks were
forbidden to compete on interest bearing demand deposit accounts allowing a great inflation bonus. This
can be understood as a political exchange in face of an active state intervention on credit allocation trough
state banks. But until the eighties the influence was lower then what became later. The state owned Banco
do Brazil that had an unlimited overdraft privileges (“movement account”) and with the support of
industrialist acted as a countervailing force against monetarist policies usually hold by Central Bank. A
big change occurred in 1986 when under a coalition of interests formed by Brazilians private banks, the
Central Bank, the World Bank and foreign banks this privilege was extinguished (Armijo, 1993). In the
eighties the financial sector earned a large inflation bonus from demand deposits – that paid no interestinvesting funds in high-yielding treasury bonds. As observed by Armijo (1993) in many developing
countries the Brazilian Central Bank could have “raised bank’s reserves requirements and obligatory
holdings of government debt. Instead, increasingly attractive interest rates were needed to induce banks to
18
Led by the bureaucracies close
to Washington institutions (the technopols in the central bank, the finance ministry,
etc.), liberal reforms removed industry and its bureaucracies (planning ministry, labor
ministry, intermediary government agencies, etc.) from the “commanding heights” of
the conomy.
In Russia and East Europe, the crisis of socialism was also accompanied by a
“rebellion” of the elites – the “revolution from above” as Kotz and Weir (1998) stated it
–, particularly of the executives of the large corporations. A violent, primitive capital
accumulation was established involving the new sectors and private economic groups
that prospered by the transition to capitalism (agriculture, oil and natural gas). In the
East European nations that attracted German capital, a new specialization process in
labor-intensive industrial activities was initiated, and foreign financing was resumed,
affirming, here also, the “integrationist” way.
An essential feature of this strategy was a macroeconomic regime based on
monetary stability, cut in public expenditures (mainly investment) and financial
openness. This led to substantial valorization of the real exchange rate and high interest
rate. The power of financial sector in these countries enlarged not only because its
assets grew faster in the decade but because its main interest – higher interest rate and
low rate of inflation- has predominate on economic policy. Due to high levels of
external debt and growing influence of IMF on domestic policies, this finance
domination was expressed in orthodox Central Banks that assumed in these countries
the “commanding heights” of the economy.
Some of these changes and the demise of the developmental state also occurred in
Korea in the beginning of the nineties48 and in many Asian countries after 1997-8
hold treasury bills” (p.282). After this decade not only the interest rate set by Central Bank has been much
higher than the rate observed in other countries, but the spread is incomparable high as well. There is no
agreement about this last feature but one may observe that contrary of what happened in Argentina or
Mexico, the financial sector in Brazil was not denationalized and the big domestic banks prospered as the
main dealer of Brazilian internal debt.
47
“During the 1990s, Brazil’s industrial elite withdrew without much conflict from areas attractive to
international investors: industrialised food production and distribution, supermarket chains and
automobile spare parts in the beginning of the decade and, later, telecommunications, advanced services
and financial institutions. The industrial elite has either migrated to the tertiary sector or retreated from
business altogether, investing their capital in the financial market, pension funds or real estate. Other
possibilities were ‘support activities’ such as the building sector, packaging industry, car sales
concessionaires, activities related to business and law consulting, business promotion, educational and
cultural events, administrative and honorific
positions in the ‘third sector’ (NGOs) and the administration of real estate”. (Rocco, 2007:208)
48
The dissolution of the powerful Economic Planning Board into the Ministry of Finance and Economy
was the milestone of the new State.
19
external crisis hit. Throughout the 1990s, several Asian nations followed a mix strategy
based on industrial inducements and on IDE and exports integrate in commodity chains
in a flying geese model. Korea under American pressures opened its financial system
eliminating the role hitherto exerted by Government on credit and investment. Big
chaebols decided that the government intervention was a hindrance to new economic
opportunities. Other less developed countries in Southeast Asia follow a similar liberal
road.
The national development strategy was not fully changed in China, and India
(both with military power and autonomous geopolitical presence) and Taiwan or
Singapore that followed a path of greater autonomy or of greater resistance, preserving
the national developmental strategy and its hegemonic project in a new context.
Although relinquishing some previous economic regulation mechanisms, the
developmental state in dynamic East Asian countries survived.
In the case of China, this route – “independent” according to Amsden’s (2001)
classification– was based upon greater resistance to abandoning the national
industrialization strategy, maintaining or introducing superficial changes in the control
of financial flows, investments and associations with foreign capital. The preservation
of large public corporations, the maintenance of internal credit state control and the
maintenance of economic planning and macroeconomic coordination centered on the
defense of a competitive real exchange rate progressed strategically, favoring industrial
capital prevailed. As a form of restructuring resulting from external pressure and
technological changes, this path was based on selective, negotiated policies of trade
liberalization, on support of the corporate globalization process and, above all, on the
pursuit of inclusion of innovative and proprietary activities in the closest production
chain through ample public investments in science and innovation aimed to industrial
up grade.
India followed an intermediary regime. It introduced comprehensive trade reforms
and liberalized private business to rebuilt new internationalization strategy but
preserved the controls on financial flows and kept the State rule on industrial policy.
This path was taken by various countries preserving the bulk of industrial policy and a
positive articulation between national industry and exports subordinating finance to this
goal.
20
National Development Strategies in the beginning of New Millennium. A
Neo-Developmental State?
In the beginning of the new millennium great changes occurred in world
economy. Higher international growth, substantial rise on commodities prices, lower
rate of interest and a continuous expansion of industrial commodities chains mainly
located in Asia were the main facts. The rise of China as a great trade power was in the
center of these changes. These circumstances brought about better and more diffused
economic opportunities for many peripheral countries. Even for less competitive Latin
American countries, the rise in commodities prices allowed a simultaneous and rare
situation of economic growth with positive current balance and sharp contraction of
external debt. (Ocampo, 2007). The 2008 financial crisis brought about a great recession
in industrialized countries (a effect that still continues) but did not change some of these
new and structural circumstances for less industrialized countries. In this context many
countries introduced Keynesian expansionist measures against the hitherto predominant
orthodox opinion. Politically the once strong IMF, World Bank, WTO and other global
organizations and their free trade ideologies lost credibility and influence in face of the
wave of crisis that hit the countries that followed their main prescription. Nationalism,
regionalism and national strategic alliances gained more legitimacy.
In face of these circumstances, three different strategies were taken by developing
countries. Two of them were not very different from the route took in the nineties. The
first, a “passive and integrationist” strategy as the one taken by Mexico and some East
European countries in the nineties was a mere continuation and gained more support
despite its weak results49. The second, a “neo-developmental” strategy taken by China,
Taiwan, Singapore or even India explored the new opportunities to up grade their
industrial structure including new policies without radical change in their previous
mechanisms of industrial and finance regulation. The macro policies (public spending,
rate of interest, exchange rate) are subordinate to industrial change aimed to reduce the
technological gap.
49
In Mexico, the insurgence of radical rural-based movements did not alter the fundamental social
coalition and development model based on a passive strategy dependent on FDI and on the American
market built along the nineties. The same conditions prevailed during the last years generating in
consequence low and export dependent growth, high emigration and continuous deterioration of state
institutions. In East Europe, the road taken by many countries in order to access to European Union
increase as well a passive and FDI dependent strategy.
21
The novelty was the third way, the road taken by some countries after the demise
of their developmental state and after one decade of liberal reforms. This third route was
taken by several natural resource export countries (like Argentina or Venezuela) or
countries with a more diversified but unbalanced industrial sector (like Russia or
Brazil). Despite their economic, political and ideological diversity these countries have
been following a more pragmatic economic policy. A higher and more diversified
economic growth and social progress led by internal markets and higher wages have
been achieved in these countries without direct or strong efforts to change their pattern
of trade specialization. Due to its emphasis put on economic development through
horizontal Keynesian policies without direct or discretionary State intervention to
promote industrial change, we may call it a “neo-Keynesian” route.
Let’s explore the making and the limits of these strategies.
As has been here argued, institutions and mechanisms for coordinating production
were created to solve the problems of industrialization according to the specificity of
production sectors, their entrenched political interests and technological stages50.
Although the institutions required for coordinating and transplanting industrial sectors
in agrarian economies (the post-war challenge) are different from those required for
industrial up-grading (the present challenge), they continue to be necessary, as the Asian
experience indicates. As Lall (2000) observed, commercial policies, credit and subsidy
policies, infrastructural development, skill development, technological incentive, and
the attraction and delimitation of FDI continue to be the instruments of industrial
policy-making. In fact, industrial policies (not only horizontal, but also vertical ones)
are necessary both to the creation of the incentives of the innovation process in activities
involving rapid transformations in the international economy and to the construction of
a new infrastructure.
Thus the emergence of new challenges to the strategies of industrialization and
development resulting from new information and telecommunications technologies
(ITT) and from the formation of global and regional production chains placed new
demands on national industrial policies. The construction of a new transport and
communications infrastructure, the dissemination of new technologies and the pursuit of
50
Such change in the coordination agent has uneven effects over sectors. As Hollinsgworth and Boyer
(1997) observed, “Industries that are generally coordinated by markets-irrespective of the level- are
securities, banking, textiles, apparel, shoes, and hotels, while industries coordinated by corporate
hierarchies are highly capital intensive ones, such as chemicals, bauxite, oil, aircraft, and automobiles” (p.
31).
22
specialization in specific production segments became part of the ordinary agenda of
national projects of industrial up-grading. This “neo-developmental” strategy is less
centered on the internal market as the prevailing scale of accumulation51, and the
processes of productive regionalization and internationalization of “national champions”
strongly expanded the horizons of firms’ investments. The strategy of buying
established technology and of adaptation based on process innovations such as the one
that typically distinguished Japan and Korea was challenged by modularized production
and new strategies based on greater proximity to proprietary activities and activities
related to product innovation. In China as well as Korea or Taiwan, a “second phase of
catching-up” (Chang, 2006), based on innovation and the construction of proprietary
national technologies, would be the basic challenge of industrial up-grading.
Based on these new challenges, a “neo development strategy” was developed, in
the countries that knew how (or were able) to resist external and internal pressures
adopted, aiming at continuing the “catch-up” strategy.
In Asia, this new strategy was mainly followed by China that strongly combined
public investment in infra-structure- the main inducer of overall growth productivity –
with a selective industrial policy in ITT technologies in an expansionist
macroeconomics. This includes a low rate of interest, an anti-cyclical fiscal policy and
the maintenance of a competitive rate of exchange. The subordination of finance and
enterprises to the development goals defined by State was achieved trough the
maintenance of political centralization, solid
institutions and by the leadership state
enterprises in the “commanding heights” of the economy52. In India, with a much more
fragmented society some of old regulations instruments were also preserved favoring a
less ambitious but nevertheless active industrial policy.
As we have been observing along this paper, a strategy is not only the outcome of
State decision but its coherence is social and structural conditioned. In Korea after the
liberal reforms implemented in the midst of an ample IMF financing adjustment, the
previous industrial policies and institutions were dismantled. But the extraordinary
expansion of exports (partially induced by the Chinese expansion) that followed the
1997 crisis permitted substantial reduction in sovereign debt and less interference of
51
This is not to say that this strategy is led by exports, in case of China and India internal markets are still
the main demand source for capital accumulation, but in both countries exports are much larger than they
were in the past.
52
One peculiar fact of the State leadership is that only in the last years a Chinese capitalist class emerged
with some autonomy from the State exercising a moderate influence on Communist Party.
23
IMF. In this new situation some big chaebols rebuilt with the Korean state a new
coalition heading in the direction of widespread industrial modernization based on
innovation. A new strategy toward the internationalization of median industrial
enterprises followed this path. Thus, due to a developed and homogeneous structure and
pragmatic economic policy, institutional change in Korea did not interrupt its high road.
In a more interventionist Malaysia something similar happened. A neo-developmental
strategy is being taking without or “beyond the developmental state.” (Ben Fine, 2005).
A neo-developmental strategy as we described has today a focus less centered on
productive sector than it happened in the past and is more centered on innovation
processes in new technologies through several policies and instruments. But essentially
what makes this state developmental is not only the general goal to change the pattern
of comparative advantages but the availability of instruments to implement it53.
In South America a spectacular rise in the price of commodities (between 2002
and 2008) permitted these countries to obtain higher growth rates, sharp contraction in
external debt and accumulation of reserves. After the evident failure of neoliberal
strategies based on Washington Consensus reforms, a more pragmatic macroeconomic
policy took place. Simultaneously, various nationalist movements spread from
Patagonia to Andes countries (Venezuela and Bolivia, being also highly critical to
market and liberal institutions supported by US) as a backlash from the radical liberal
experiments of the 1990s. These movements created regional policies and agreements
like ALBA (Bolivarian Alliance of America) and UNASUL (South American Nations
Union) with alternatives goals to the initiatives of free trade led by US.
In Russia a similar situation occurred reverting the tragic 1990s’ decade enabling
the new Government to construct significant sovereign reserves54. Countries as diverse
as Argentina, Brazil or Russia could achieve a higher growth pushed by the internal
markets now released from the external constraints that blocked them along the nineties.
And this occurred essentially without changing the pattern of the economic growth.
Thus, various countries began constructing new development strategies situated
between neo-developmental strategy based on “a second catching-up phase” and a
53
And this as we argued along this paper is conditioned by economic structure, the geopolitical position
of the country and political coalitions between states and social classes.
54
With the end of the socialism and radical liberalism of the 1990s, Russia resumed national
developmentalism strategy based, however, on natural resources. Thanks to its geopolitical position and
greater state control over oil and natural gas exports, transfers to other sectors of the economy increased
substantially; however, they did not result in greater export diversification. “Old-fashioned” policies, that
is, policies based on direct state intervention, have been thriving not only, and above all, in the industrial
exports of the “military industrial complex,” but also in the aeronautics field.
24
passive and integrationist strategy. This third way, a “neo-Keynesian” tries to keep
distance on the one hand, from the previous strategy of national development and, on
the other, from the pro finance and liberal macroeconomic policy advocated by the
Bretton Woods institutions.
Without the particular conditions that support a “high road” that we observed in
some Asian countries the State in this third way has less power to induce structural
change. The economic and social cohesiveness for this is missing.
In fact, for different structural and political reasons in major Latin American
Countries or East Europe the major private economic groups that in the past were the
main benefiters of industrial policy are nowadays much more associate to international
commodity chains in asymmetrical regional agreements and in non tradable activities
(in case of Mexico or East European countries that took the integrationist strategy) or
was fragmented did not survive the radical process of liberalization (in case of
Argentina) or have dislocated to sectors based on natural resources and its support
activities in services and construction (Brazil or Russia). Of course in these countries
there are large segments of national manufacture industry not connected to global chains
that have resisted and survived. Nowadays they are exposed to a strong competition
from China and need a more active industrial policy but these interests are diffused and
less powerful to exert a leadership in economic policy and to build a political support
for a comprehensive industrial policy. On the other hand, the opportunities to expand
investments in natural resources have great enlarged.
Our final considerations in this paper seek to identify the scope and limits of this
way in countries that, throughout the history of development mentioned here, are
characterized today by a large (and growing) share of natural resources in their exports,
poor infra-structure and high social polarization.
What were the main reasons for the slowdown in the economic growth in these
countries in the past decades that were temporarily circumvent by the recent trends?
Although each national case has its particular history the synthesis made by MorenoBrid and Ros (2009) about the Mexican case (that had a slow growth in the last decade
as well) seems to be quite accurate for a large sample of countries:
“…our argument is that the proximate
of Mexico’s slow growth determinant since the early 1980 is a reduced investment rate, and four factors
are constraining investment: the low level of public investment (particularly in the area of infrastructure),
an appreciated real exchange rate for most of the period since 1990, the dismantling of industrial policy
during the reform period, and the lack of bank finance” (p.242)
25
Thus, a comprehensive industrial policy aside (that identifies the neodevelopmental state), the main constraints and consequently major challenges to enlarge
the development horizons are the low level of public investment55, a competitive
exchange rate and the lack of bank finance. Indisputably this last factor is less general
than the others, being more important in Mexico and Argentina than it is in Brazil.
The relevance of a competitive exchange rate and of the decline of public
investment are nevertheless an undisputable reasons for low growth’s explanations in
these countries unless along non orthodox approach. In an important way they are
connected: there is a strong relationship between the contraction of public investment
observed in all these countries in the nineties and the growth of interest payment
spending56; the maintenance of a high rate of interest push this increase on debt
spending (and consequently the contraction of public investment) and is the basis for the
valorization of exchange rate. But although they have this important connection, we can
consider two different strategies of the growth according to the emphasis attributed to
the exchange rate and on public investment. We can unfold the “neo-Keynesian”57
strategy in two roads: one, a “new developmental” strategy considers a more
competitive industry sector as the main goal and a competitive exchange rate its major
instrument58; the other a “social democratic” has the enlargement of internal market as
its main goal and public investment its main instrument59. Table 2 summarizes the
different strategies.
Let’s explore some structural dimensions of these challenges.
As aforementioned, one important dilemma in countries like Argentina, Brazil
and now Russia, is the “structural imbalance” between the productivity of the primary
export sector and the productivity of all domestic manufacture sector60. Such imbalance
leads to a relatively uncompetitive exchange rate for industry. As shown during the
nineties for all these countries (and nowadays in Brazil) this industrial “wrong price” is
55
Even in the zenith of developmental states. Countries like Brazil or Mexico achieved a low level of
infrastructure (electrical energy, telecommunications, transport and clean water access) in per capita
terms. Although there was some progress in telecommunications stimulated by privatization investments,
in all other areas this level stagnate widening the gap with Asia and other countries. See Palma (2010).
56
For Latin American countries see Martiner and Troben (2003)
57
The main aspect is the predominance of macro and indirect incentives. Different from the “neodevelopmental state” the state has fewer instruments and more goals to fulfill.
58
In Brazil, a basic formulation of this “new developmental” strategy is discussed in Bresser- Pereira
(2010).
59
These “productive” and “distributive” strategies are not necessarily incompatible and do not
correspond to any clear national case but they signalize different priorities, economic interests and
strategies that are roughly in place in South America as government priorities and policies.
60
In México this unbalance is between export industry (in the processing area) and the others sectors
26
higher when set by an autonomous finance motive made by an interest rate on the public
debt above the world average.
Why could Asia preserve a competitive rate of exchange while the tendency in
others countries here considered was so different? The first reason in not so different
from the one observed during the post war. In poorer natural resources countries the
maintenance of a devaluated currency unifies production and exports interests thus
Table 2
New Developmental Strategies in New Millennium
Integrationist
Neo-Developmental
Accumulation
strategy
Centered on exports
trough
a
better
resource allocation
given
by
comparative
advantage
and
internationalization
of domestic capital
Main
Policies,
Instruments
Orthodox
macroeconomics,
Attraction of IDE
Ideology
and
Political coalitions
Neoliberal
modernization and
poverty reduction.
Big business in
export sector and in
modern
services,
financial sector as
the
dominant
economic bloc.
Dilemmas
Low growth, high
dependency
on
external market, low
social support and
State fragmentation
Simultaneous
expansion
of
external and internal
markets;
technological catchup and industrial up
grade,
internationalization
of domestic capital
Comprehensive,
industrial
policy,
expansive
macroeconomics,
intervention
in
exchange
market,
public investment in
new infrastructure
National
development trough
technological
“catch-up”.
Renewed
old
developmental
coalition centered on
manufacture sector
and led by State
with
a
greater
influence of private
groups
Growing complexity
and challenges in
high
technology,
enlargement of new
goals and political
dispersion.
Keynesian,
new
developmental
Higher
economic
growth
through
diversification
of
exports
as
the
predominant goal.
Intervention
in
exchange
market
and in tax system to
achieve
a
competitive
exchange
rate,
balance budget.
National
development
through competitive
industrial
sector.
Non
traditional
manufacture
business as the
dominant economic
bloc. Alliances with
middle classes
Trade off between
exchange rate and
real wage, low price
elasticity in high
tech sectors, low
political support by
other social groups
and opposition from
finance interests
Keynesian, socialdemocratic
Higher
economic
growth
through
integration
and
expansion
of
domestic
markets
and
support
to
internationalization
of main domestic
groups
Expansion of public
investment
and
credit favoring the
export
sector,
infrastructure
and
social sector
National and social
development based
on
mass
consumption.
Big
business
in
infrastructure, banks
and export sector as
the
dominant
economic
bloc,
alliances
with
middle and popular
sector.
Trade off between
wage
rate
and
manufacture
exports,
unsecure
external
position,
opposition
from
finance interests
preserving the social and economic coalition focused on the exchange rate policy as part
of the industrial policy.
For richer natural resources countries, the reality is different insofar as the
“wrong price” for industry can be “right” for exporters of commodities and
27
countervailing exchange rate (through taxes) policies encounters greater opposition.
Additionally, the greater income polarization in these countries increases support for a
high exchange rate, which is functional for raising the real salary while keeping
inflation under control. Due to its positive impact on inflation strategies, targeting an
exchange rate favorable to industry face greater political obstacles led by the
community of financial interests that see the stability of prices – and the inflation target
regime- the main protection of their assets. Industrialists suffer the loss of external
competitiveness, yet may be benefited (as in Brazil nowadays) by its positive impact on
expansion of domestic demand.
The second reason is the effect of China on Asian industrial producers and on
producers of raw material and food. In fact, a competitive national rate of exchange
does not depend exclusively on the rate between a particular exporter country and their
main consumers but on its value in relation to their competitors in those markets. Thus,
the Chinese maintenance of a low but stable exchange rate after the 1997 Asian crisis
when all affected countries strongly devaluated, created an important price reference for
Asian countries (a floor for some countries a ceiling to others) set competitive exchange
rates. China’s influence on prices and consequently in terms of trade had a different
effect for raw material producers contributing for the valorization of exchange rate.
In Latin America, Argentina is the only country that after the strong exchange rate
devaluation after the 1999-2000’ crisis kept a competitive rate of exchange until the end
of the present decade. This was achieved through a tax on exports rents and capital
controls. Politically these measures were supported by “Keynesian coalition” created
from the shambles of the neoliberal project that ruled the country on the nineties given a
larger State autonomy. Economic growth was high and was led by internal markets.
Although increasing from lower rates the expansion of public investment was important
for this growth. This exchange rate had a positive impact on balance of trade avoiding
growth external constraints. But besides the China’ effects on terms of trade, the
appreciated Brazilian rate of exchange was important – since MERCOSUR Brazil is by
far the principal partner of Argentina- for this competitive overall real effective
exchange rate61. Thus without the combination of China (enlarging its exports) and
Brazil (decreasing its imports) effects Argentina hardly could sustain a high growth
61
As considered by ECLAC a country’s overall real effective exchange rate index is calculated by
weighting its real bilateral exchange rate indices with each of its trading partners by each
partner’s share in the country’s total trade flows in terms of exports and imports
28
pushed by internal markets without change its unbalanced structure. The same historical
dilemma is being in place.
In Brazil, different of what happened in Argentina, and despite some positive
political initiatives and income policies (minimum wages increases and pro-poor
income transferences) that were enlarged since the beginning of this decade, the
Government (led by Worker Party) practiced a recessive economic police until the midi
of the decade62. With extremely high interest rate the exchange rate achieved high
values. Despite this, the surge of Chinese demand for food and raw material pulled
Brazilian exports sanctioning the “regressive specialization” initiated in the nineties.
But two main structural changes occurred. The internal heterogeneity declined due to
large modernization of food production and the linkages of primary exports and internal
markets strongly enlarged by the incorporation of the countryside lands as the main
geographic export area. Non tradable activities like transport, construction, packaging
industry, telecommunication, support activities, etc strongly prospered and formed
important economic groups63.
A “Keynesian coalition” led by “desenvolvimentistas” group (that enlarged its
influence in the second half of decade) achieved greater power in the wake of the
international crisis of 2008. With a lower rate of interest (although situated in a very
high plateau) this new policies include strong efforts to increase public investments,
housing finance, credit expansion (led by public banks), enlargement of pensions and
transferences to the poor. This coalition enlarged the old alliance of finance, state and
construction with the primary exporters but included new social sectors. So far has
avoided changing the exchange rate regime used by Central Bank as the main policy
against inflation. The initiatives taken in industrial policy have been weak and the most
effective industrial policy has been related to the support the internationalization of the
national groups in commodity production.
In Russia, that like Brazil has a large and diversified domestic manufacture
sector, the rebirth of nationalism was associated with new economic conditions created
by the high prices of oil and gas. Thanks to its geopolitical position and greater state
control over the natural resources income transfers and investments to other sectors of
the economy increased substantially enlarging the internal market; however, due to the
62
Brazil has followed a tight inflation target regime, a police that in Latin America adopted as well by
Chile, Colômbia, México and Peru.
63
The incorporation of new lands always cause an extension of internal markets exerting a demand on
industrial capacity and infrastructure service.
29
lack of effective industrial policies and to an appreciated exchange rate these
transferences did no result in greater export diversification.
In many small Latin America countries, the industrialization of natural resources
as an alternative industrial strategy has been in discussion. The broad idea is that due to
the high technological gap created by new technologies and their localization in Asian
countries small Latin America countries do not have the conditions to attract and
develop modern industry that could change their position on international division of
labor. Nevertheless there are some possibilities to add more value to their production.
The idea is introduce more intensively general purpose technology (basically ITT and
biotechnology) and adapt it to the processing of natural resources widening the demands
for R&D and skilled labor. (ECLAC, 2008)
This discussion also occurs in Brazil instigated by the recent discover of oil in
deep waters (Pre-Salt) and the protagonist rule played by PETROBRAS, a state owned
company. This high tech and capital-intensive oil extraction has important linkages for
Brazilian industry, but hardly this demand policy could substantially up grade its
manufacture sector unless a comprehensive industrial policy enlarges this opportunity.
Thus, the limits of a “new Keynesian” strategies of growth can be considered.
The “new-developmental” strategy aims to achieve a higher demand for manufacture
export in order neutralize the unbalanced economic structure. The main target is a
competitive exchange rate and the main instrument is a lower rate of interest. This newdevelopmental strategy tries to achieve a more diversified economic structure and
economic dynamic led by manufacture investments and exports. This strategy is
addressed to correct by macro intervention a structural problem and assumes a high
substitution effect exerted by real exchange rate on manufacture sector. The state’s rule
is to organize the manufacture sector through pro- export macro policies. The most
difficult and contradictory aspect of this strategy is the defense of a balanced budget in
order to open space to cut interest rate and achieve a exchange rate real devaluation64.
Given the contractive effect of exchange rate devaluation on real wages accompanied by
fiscal adjustment, the positive effect on growth depends on strong effect on export
demand. Thus, the conflicts with the working class can increase with a negative impact
on its political support. A lower interest rate can open space to public investment but
this expansion can be moderate by fiscal targets. But as far as the direction of infra
64
As in Bresser (2010)
30
structure investment is led by business interests on export sector, there is large
opportunities to attract private investment in non tradable sector. This strategy has in
addiction a nationalist ideology that colludes with orthodox wisdom and vested interests
of finance community centered on price stabilization. Thus the making of the social and
political coalition for this strategy is a real challenge.
The second strategy is also based on Keynesian policies but the emphasis is put
on lower interest rate and enlarging public investment. The broad strategy is to enlarge
the opportunities created by the export of primary commodities and resource based
manufacturing and expands public investment in infrastructure and social sector.
Although a competitive exchange rate is necessary for the manufacture sector as put by
the other route, its effect on real wage is considered as a negative factor for growth. In
this route the State aim to organizes business –mainly in export sector, finance,
construction, services, retailing, and real estate, etc- given priority to internal markets
(reestablishing a renewed connection as in case of Brazil between exports and internal
markets) but includes wider goals and a wider social and political coalition. It tries to
involve larger actors that were absent from the old developmental state, and from new
developmental strategy as well. The opposition from the orthodox wisdom and from
finance community is larger because the direction of public spending is less induced by
private interests and consequently relies more on state budget.
The most difficult challenge of this route is to achieve a productive structure
efficient enough to guarantee higher wages. Thus, a more inclusive pattern of
development based on higher social cohesion depends not only on achieve a political
consensus on social priorities but there is a necessity to induce public investment to
directions that contributes to increase the productivity of the goods and services
consumed by workers. Nowadays the labor consumption pattern includes not only food
and housing but modern technologies and services. But although this investment can
contribute for a sustainable increase in real salary in tradable sectors without sacrificing
external competitiveness, this strategy is very difficult to fulfill its main goals without a
more diversified tools towards a blend of import substitution and export promotion.
Here, again, the making of the social and political coalition for this strategy is a real
challenge.
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