Class 5 Role of State Prof Paulo Feldmann

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Class 5 Role of State Prof. Paulo Feldmann

Class 5 Role of State Prof. Paulo Feldmann

Wars during the XX th Century • Motivation was to protect borders or search

Wars during the XX th Century • Motivation was to protect borders or search of new territories. • Governments invested in weapons and soldiers 2

Wars in this century • Economical wars destined to get new markets and protect

Wars in this century • Economical wars destined to get new markets and protect the old ones. • Best exemple China X USA. 3

Technology is at the center of this war • Trump government is bothered with

Technology is at the center of this war • Trump government is bothered with issues such as the forced transferred from American companies technology to Chinese companies. 4

 • The events of 2008 resulted in the revival of the view that

• The events of 2008 resulted in the revival of the view that ‘states really do matter’. • The financial sector and the automobile industry had to ask for the support of the state to continue to survive. The state is back!

 • The basic goal of business organizations is to maximize profits and ‘shareholder

• The basic goal of business organizations is to maximize profits and ‘shareholder value’. The basic economic goal of the state is to maximize the material welfare of its society • States need firms to generate material wealth and provide jobs for their citizens. TNCs need states to provide the infrastructural basis for their continued existence

Where are the powers of the state ? • 1) The terms on which

Where are the powers of the state ? • 1) The terms on which companies may have access to markets and/or resources • 2) The rules of operation with which companies must comply when operating within a specific national territory. • 3) Defining industrial policies. 7

Seducing investors: • Countries will tend to bid against one another to capture the

Seducing investors: • Countries will tend to bid against one another to capture the investment • At the international scale, the use of relatively lower tax as an incentive to attract multinationals is increasingly common • Evidence suggests that tax competition has increased sharply in Europe, driven not only by the influx of new member states but also by the aggressive competition for FDI by countries like Ireland Switzerland.

Industrial Policy X Policy for Science & Technology • Many countries consider that both

Industrial Policy X Policy for Science & Technology • Many countries consider that both policies should be deeply integrated. • I. P is more oriented for companies. • S&T is more oriented for universities. 9

Industrial Policy • The industrial policy of a country, sometimes denoted IP, is its

Industrial Policy • The industrial policy of a country, sometimes denoted IP, is its official strategic effort to encourage the development and growth of specially the manufacturing sector. The government takes measures "aimed at improving the competitiveness and capabilities of domestic firms and promoting structural transformation. " 10

I. P. and Macroeconomic policies • Country's infrastructure (transportation, telecommunications and energy industry) is

I. P. and Macroeconomic policies • Country's infrastructure (transportation, telecommunications and energy industry) is a major part of the manufacturing sector that often has a key role in IP. • Industrial policies are sector-specific, unlike broader macroeconomic policies and many times include improving educational levels in specific areas. 11

Types of IP • Many types of industrial policies contain common elements with other

Types of IP • Many types of industrial policies contain common elements with other types of interventionist practices such as trade policy and fiscal policy. An example of a typical industrial policy is importsubstitution-industrialization (ISI), where trade barriers are temporarily imposed on some key sectors, such as manufacturing. 12

Market Reserve • By selectively protecting certain industries, these industries are given time to

Market Reserve • By selectively protecting certain industries, these industries are given time to learn (learning by doing) and upgrade. Once competitive enough, these restrictions are lifted to expose the selected industries to the international market. 13

The traditional ‘varieties of capital’ literature focuses on just two broad categories of ‘national’

The traditional ‘varieties of capital’ literature focuses on just two broad categories of ‘national’ capitalism: • Liberal market economy (LME) = > USA, UK. • Coordinated market economy (CME) => Germany, Sweden, Japan. ØNot a very satisfactory classification…

There are 4 types of state • Neo-liberal market capitalism (maximum returns to the

There are 4 types of state • Neo-liberal market capitalism (maximum returns to the owners of capital) => USA and UK. • Social market capitalism (the concept of ‘social partnership’) => Germany, Scandinavia and other European countries. • Developmental capitalism (the state plays a much more central role) => Japan, South Korea, Taiwan Singapore and most other Asian countries excluding China. • Authoritarian capitalism (highly centralized political system is combined with an increasingly open capitalist-market system) => China (1979 on); Russia (1991 onwards).

STATES AS REGULATORS The states regulate their economies in different ways as they attempt

STATES AS REGULATORS The states regulate their economies in different ways as they attempt to control what happens within, and across, their boundaries: Normally they : • Enhance their international trading position in order to capture as large share as possible of the gains from trade. • Attract productive investment to build up their national production base that, in turn, enhances their international competitive position.

SOME REGULATORY TOOLS • Trade => In general policies on imports are restrictive whereas

SOME REGULATORY TOOLS • Trade => In general policies on imports are restrictive whereas towards exports, with few exceptions, are stimulatory. • Tariffs => on the value of imports to protect domestic industries. • Non-tariff barriers (NTBs) => Some are quantitative, some are technical, more extensively used by the developing countries.

STATES AS REGULATORS Ø Continental European countries, and USA and UK represent different types

STATES AS REGULATORS Ø Continental European countries, and USA and UK represent different types of capitalism. • Major difference: the centrality of industrial policy, together with a greater degree of social accountability of business in Europe, and the absence of such policy and accountability in the USA. • The UK occupies an intermediate position between the virtually pure market capitalism of the USA and the kinds of social market capitalism practiced in continental Europe. USA: Federal government has been generally regulatory, the country has been seen as having strong “free market” tendency. • France: Maintains the most ‘nationalistic’ economic position. • Germany: More centralized approach to industrial policy.

The United States • Neo-liberal market economy • Strong domestic economy + State’s role

The United States • Neo-liberal market economy • Strong domestic economy + State’s role to ensure competition • US have a massive trade deficit and suffers with markets that don’t have good commercial/trade practices • Shifts to a more strategic trade policy: high technology sectors = centre of a country’s competitive position

The United Kingdom • Kind of HYBRID CASE: Has been more interventionist than US,

The United Kingdom • Kind of HYBRID CASE: Has been more interventionist than US, although since the 1980 s it has taken on much more of a neo-liberal policy agenda • 1980: Thatcher agenda: strongly neo liberal: much reduced role of the State, with deregulation and privatization • UK Strategy in XXI century v. Investments in IT v. Improving labor force skills, especially technical and IT skills v. Reduction in EU bureaucracy

France • STRONG ANTAGONISM TO THE ANGLOAMERICAN NEO LIBERAL MODEL • Within Europe, it

France • STRONG ANTAGONISM TO THE ANGLOAMERICAN NEO LIBERAL MODEL • Within Europe, it has had the most explicit state industrial policy. • French government exerts influence on its industry through its purchasing policies and control of financial institutions • Although there were several privatizations, the State retains a very considerable direct involvement in the economy. Example: majority stake in some 1, 500 companies

Germany • Germany is a federal political unit with power divided between the federal

Germany • Germany is a federal political unit with power divided between the federal government and the provinces • Social-market economy • Considerable degree of competition between domestic firms and a high level of consensus between various interest groups, including labor unions, banks and industry • Major challenge after 1990: cope with the fundamental transformation of the economy brought about by reunification

Japan • Japanese historical tradition grants to government a legitimate role in shaping and

Japan • Japanese historical tradition grants to government a legitimate role in shaping and helping to carry out industrial policy” • No natural resources, poor agricultural base = the only hope is to build a strong manufacturing base • FDI: purchase and licensing of foreign technology and NOT THE ENTRY OF FOREIGN BRANCHES OR SUBSIDIARIES • After 1990: problems with high-value currency, contentious trading relationship with the US and Europe, and the deep domestic recession after the collapse of the so-called “bubble economy”.

South Korea • Strong state-directed economy; financial system was placed firmly in the hands

South Korea • Strong state-directed economy; financial system was placed firmly in the hands of the state • “This highly centralized ‘state-corporatist’ bureaucracy, in effect, ‘aggressively orchestrated the activities of ‘private firms’. In particular, the state made possible – and actively encouraged – the development of a small number of extremely large and highly diversified firms – the chaebol – that continue to dominate the Korean economy”

China • There is no doubt about state’s centrality. • Opening up of the

China • There is no doubt about state’s centrality. • Opening up of the Chinese economy to foreign direct investors, but FDI was steered to specific locations (the Special Economic Zones) Shenzhen, Zhuhai, Shantou and Xiamen = they offered a package of incentives, tax concessions, duty-free import arrangements and service infrastructure established in 1979 • Despite of FDI, China remains a centrally controlled command economy in which state-owned enterprises predominate.

Chinese government • Has been crucial in allocating resources and offering subsidies and in

Chinese government • Has been crucial in allocating resources and offering subsidies and in setting up incubators for startups. The government was tough in forcing foreign multinationals ( installed in China ) to transfer their technologies to Chinese state-owned enterprises and to create the national champions. 26

Brazil iniatives of industrial policies • Embrapa - success • Embraer – success •

Brazil iniatives of industrial policies • Embrapa - success • Embraer – success • I. T – failure 27

GII Clusters 28

GII Clusters 28

GII clusters 29

GII clusters 29