Global capitalism has undergone some significant reconfigurations over the past decade. This blog by Scott Lavery, Inga Rademacher and Victoria Stadheim is the first of a seven-part SPERI series which examines how industrial development might be re-shaped in this ‘post-crash world’ .
When economic orders collapse, they tend to leave behind a long trail of social and economic destruction. Amongst the rubble of the old order, new forms of economic development often take root. Consider two major crises of the 20th Century: the 1930s Depression and 1970s ‘stagflation’. While each of these fundamentally undermined key aspects of the existing social order; giving rise to new social forces, economic dynamics and power relations. After these breakdowns in global capitalism, a qualitatively new form of industrial development emerged.
The collapse of the 1930s was followed by the post-war ‘boom’ of the 1950s and 1960s, which saw a huge expansion in the industrial capacity of Western economies. The United States, acting in a new leadership role on the world stage, ensured that investment flowed into the reconstruction of key Western states. Government planning, counter-cyclical fiscal policy, rising international investment and the ‘embedded liberal’ compromise of Bretton Woods underpinned this rapid phase of re-industrialisation. At the same time, East Asian ‘developmental’ states emerged – under the protection of the US security umbrella – which in turn engineered rapid industrialisation and export-led growth.
This coordinated expansion of industrial economic activity continued apace throughout the three decades following World War II. However, from the 1970s onwards, the Bretton Woods framework began to unravel. In this context, a new international division of labour began to emerge. Production became increasingly global in character. While centuries of colonialism had of course entrenched unequal relations between states, these stratifications took on a new form in this period. The rapid growth of large multi-national corporations and ‘footloose’ investors – taking advantage of enhanced capital mobility, the third world debt crisis and various investment incentives – moved increasingly from the ‘core’ of the capitalist world economy to the ‘periphery’ in the Global South. Investment flows to the periphery increasingly took place in a context of Washington Consensus ‘conditionality’, which severely restricted the scope of these states to implement active industrial policy.
The lesson of these historical episodes is that the collapse of an old economic order often gives rise to new forms of industrial development.
The 2008 crash and its aftermath were on a similar scale to the convulsions of the 1930s and 1970s. Like these crises, the 2008 crash had a profound impact on the global economy. In its immediate aftermath, international trade contracted, industrial production declined and foreign investment collapsed. Today, over a decade on, its shockwaves still reverberate across the globe, exemplified by economic stagnation, the threat of deflation, unconventional monetary policy, shifts in geo-political power, rising trade protectionism and the rise of right-wing authoritarianism in many countries. These shifts pose important questions for researchers, including:
How might these shifts in global capitalism shape the future of industrial development?
Can we identify new patterns of industrialisation emerging out of this volatile ‘post-crash world’?
Is new ‘policy space’ opening-up for states to pursue industrial strategies, and to what extent is this distributed unevenly between ‘advanced’ and less developed economies?
There are signs that the ‘post-crash world’ is creating space for new patterns of industrial development within certain regions, nations and at a global level. Industrial strategy has re-emerged as a relevant policy agenda within the UK, the European Union and further afield. As the environmental crisis intensifies, calls for a ‘green new deal’ – a coordinated international programme of investment in green technology and jobs – have become louder still. The widespread perception that an over-sized financial sector was responsible for the crash has led many to question whether there should be an economic ‘rebalancing’ away from speculative activity and towards productive investment.
At the same time, numerous constraints on states’ capacity to pursue industrial development endure. Some developing countries have sought to engineer new patterns of industrial growth in the post-crash context, but questions remain over the extent to which new ‘policy space’ is distributed unevenly between advanced and less advanced economies. In some regions of the world economy, divergences between the industrial ‘core’ and de-industrialising ‘periphery’ have sharpened, as exemplified in the increasing concentration of industrial activity in Germany within the Eurozone. New scope for industrial policy may have opened-up in some places – but the tools and strategies available are markedly different from those which were utilised in the post-war era. For example, deep financialisation and commitments to austerity restrict states’ room to manoeuvre in terms of funding large investment projects. China’s rise as major industrial power continues to condition industrial trajectories in other regions, generating new opportunities but also constraints for countries integrated into the Chinese sphere of influence.
These shifts suggest that states still experience numerous constraints on industrial policy in the post-crash world. Much industrial policy is still organised around financial instruments, while available resources are constrained by commitments to budgetary balance and international ‘competitiveness’. At the same time, new ‘policy space’ might have also opened-up for (some) states to re-shape their economies, facilitated by changes in the monetary, financial, fiscal, ideological and political context of the post-crash world,.
In June 2019, a group of researchers from SPERI, King’s College London, the LSE, Max Planck, Winchester and Sussex held a workshop on these themes. The workshop, entitled ‘The Return of Intervention? Industrial Capacity and the State after the Financial Crisis’, drew together a number of leading early career scholars in the field of political economy.
Our SPERI blog series will publish a series of short essays which summarises the papers given by contributors. The range of topics is wide-ranging, but all speak to the core theme outlined above and to the title of this blog series: ‘Industrial Development in the Post-Crash world’.
In our first contribution, Natalya Naqvi (LSE) assesses whether recent shifts in the global monetary environment – Quantitative Easing and dollar liquidity – has enabled emerging economies to direct credit towards industrial development, for example through instituting newly empowered national development banks.
Inga Rademacher (KCL) adopts a historical perspective and examines the case of Germany – a state that is often held-up as a symbol of successful export-led industrial development – and assesses the various political coalitions that have shaped German industrial policy and how the state helped to dismantle these.
Manolis Kalaitzake (Max Planck) turns his attention to the under-examined ‘Big Four’ accountancy firms, and calls for the development of a new research agenda which can capture how these powerful corporations constrain attempts to limit the power of finance.
Victoria Stadheim (Winchester) and Neil Dooley (Sussex) in their respective contributions turn to the case of the Eurozone. Each author argues that prevailing interpretations of divergences in the Eurozone – whether focussed on ‘unit labour costs’ in the case of the former or fiscal profligacy in the case of the latter – fail to capture the real underlying causes of uneven industrial development and crisis within Europe’s single currency area.
Finally, Scott Lavery (SPERI) advances a critique of one of the leading contemporary strands of literature on industrialisation – ‘global value chains’ analysis – and argues that this approach is limited insofar as it adopts a firm-centric ontology and neglects the wider structural context within which industrial development takes place.
Each of these researchers is at a relatively early stage of their careers – whether as a Post-doctoral Researcher or Lecturer. As we discussed at the workshop, each of us wrote our PhD theses in the aftermath of the 2008 crash. We are therefore part of the first of a generation of (relatively!) young ‘post-crash’ scholars. We hope that our contributions will, in some way, help to shed light on how this tumultuous decade has created a new terrain in which industrial trajectories unfold. We hope you enjoy the blog series and invite you to join the conversation.