Globalisation must work for as many regions as possible

ABSTRACT

Advanced economies have started to engage more pro-actively in designing, promoting and implementing a range of policies that aim to address the concurrence of two powerful and irreversible forces: one is the urgency of addressing societal and existential threats (including income inequality, joblessness, deindustrialisation, climate change, health and aging), and the other is the disruptive unfolding of new technologies (4.0 technologies). Responding to these challenges marks a pivotal moment for the global economy which will impact on places and with their firms, labour, citizens and the natural environment. This exchange paper advocates for a more meaningful continuum between the global, national and regional scales in a multipolar world.

KEYWORDS:

• Technological change
• regional development
• industrial policy

JEL:

• F6
• O25
• P25

1. INTRODUCTION

Debates over the benefits of globalisation from the 1980s onwards (Levitt, 1983) have been later superseded by more sceptical appraisals of the uneven distribution of such payoffs across nations and regions and by a renewed awareness of the failures of free market stances. Interventionist, selective, strategic and export-oriented policies have helped drive the Asian ‘miracle’ from Taiwan to Korea and China. These ‘pro-manufacturing industrial development policies’ worked so well, one could argue, because of the absence of a counterweight approach in advanced economies. In the latter, let loose to pursue their corporate strategic objectives, multi-national enterprises have reshaped global production by de-nationalising (Sassen, 1999) socio-economic interests.

As the tide turned after the 2008 global financial crisis, industrial strategy made a comeback (Bailey et al., 2015). Since, advanced economies have started to engage more pro-actively in designing, promoting and implementing a range of policies aimed at responding to two powerful and irreversible forces: one is the urgency of addressing societal and existential threats (including income inequality, joblessness, deindustrialisation, climate change, health and aging), and the other is the disruptive unfolding of new technologies (4.0 technologies). Addressing these challenges marks a pivotal moment for the global economy which will impact on nations and places with their firms, labour, citizens and the natural environment.

This exchange paper is written in response to Ron Boschma and Henry Yeung’s contributions to the debate on the synergies between evolutionary economic geography and the global production networks literature in addressing current global societal challenges. Drawing on both fields, it advocates for a more meaningful continuum between the global, national and regional scales in a multipolar world (Lloyd & Dixon, 2022). We know that in advanced economies, already extreme income inequalities will be widened by the short-term path-dependent (Boschma, 2024) aggravating effect of the Fourth Industrial Revolution (De Propris & Bailey, 2020) as the shock of technological change is expected to have profound implications on the global organisation of production. We argue that this calls for long-sighted, inclusive and transformative industrial strategies that fundamentally rebalance geopolitical interests and prosperity across regions and nations.

1.1. Globalisation, its discontents and income polarisation

Neo-liberal free-market approaches by Western governments allowed aggressive and intrusive hyper-globalisation and enabled production internationalisation strategies by multi-national firms⁣. As argued by Rodrik (1997), a policy of non-intervention is just as much an industrial policy as an interventionist one, albeit an implicit one. The outcome has been a process of deindustrialisation only partially mitigated by the selective expansion of the ‘knowledge economy’ and the service sector (Cooke & Piccaluga, 2006; Dunning, 2000). A legacy of unemployment, lack of economic opportunities and social-economic irrelevance has underpinned a map of deeply ingrained uneven, if not polarised, development and prosperity across places and regions, with widening opportunity and income inequality (see Corbin & Murphy, 2023; Putnam, 2000). Regional scholars started to discuss ‘left behind’ places (Dijkstra et al., 2020; Lenzi & Perucca, 2021; McCann, 2019).

Meanwhile, the international business (IB) discipline and global production networks (GPNs) (Coe & Yeung, 2015) approach focused primarily on the rising economic opportunities and growth trajectories of emerging and developing economies which were enabled through the spider’s-like web of the activities of multinational enterprises (MNEs). Indeed, in ‘catch-up mode’, such economies managed to grow at rapid speed thanks in large part to interventionist, export oriented, sector-selective policies both to attract inward foreign direct investment (FDI) from foreign MNEs and to become the destination of manufacturing activities. Such countries’ pro-industrialising policies shifted over time to supporting knowledge-seeking outward foreign direct investment accelerating processes of technology transfer from advanced to emerging economies with a subsequent loss of control over knowledge, innovation and technology by the latter. Overall, ample evidence has found that industrial policies in Japan, South Korea, Taiwan and China have contributed to their successful growth strategy (Juhász et al., 2023)

In advanced economies the structural reconfiguration of industries that globalisation caused was underestimated or dismissed for too long, causing social and regional imbalances that, through path-dependency (Boschma, 2024), have accumulated over time. This was mitigated to some degree by the implementation of a raft of cluster, innovation, cohesion and place-based policies that addressed the symptoms of the diverging patterns of regional prosperity seen as politically undesirable (seen, for instance, in the EU, smart specialisation strategies). However, such approaches could only go so far, as they were unable to tackle the root causes of such imbalances at the global level. In addition, national governments proudly supported their national champions (whether leading brands or clusters of excellence) in being able to compete in global markets with cost-saving offshoring strategies that contributed to manufacturing ‘hollowing out’ at home.

Over several decades of a fast moving and escalating hyper-globalisation of production, markets and innovation, the non-intervention policies adopted by advanced economies were equivalent to prosper-thy-neighbour policies (rather than ‘beggar thy neighbour’). Although parked on one side or even ignored, these deep-seated, widening and persistent opportunity and income inequalities became increasingly painful in the wake of the 2008 financial crisis. A scholarly and policy narrative emerged pointing to the need for interventions aimed at re-industrialising, rebuilding value chain resilience, regional resilience and diversification, reshoring and homeshoring, which nevertheless amounted to tweaking policies aimed at rebuilding regional value creation and capture in practice (Bailey et al., 2018; Bailey et al., 2020). One cannot look at the current emergence of a new generation of industrial policies in advanced economies without acknowledging that a free-market, neo-liberal approach to globalisation created wealth only for the few: these few being individuals, communities, places or regions. Without accepting this fundamental point, one could interpret the current wave of interventionist policies as motivated by geo-political power games, or protectionist or ‘nationalistic’ interests (Yeung, 2024).

In reality, the new generation of industrial policies is an endeavour by governments in advanced economies to rebalance the distribution of the wealth that is expected to be generated by the technological change in green and digital transitions. Indeed, differently from the adjustment policies of the 1990s and 2000s, the structural transformation linked to the technological change of green and digital transitions is tackled head on with industrial policies ‘as government explicitly targets the transformation of economic activity in pursuit of some public good’ (Juhász et al., 2023, p. 4). Targets include not only basic research, innovation, productivity and growth, but also energy transition, digital literacy and good jobs, so as to make the technological transition work for as many as possible.

There are, of course, legitimate questions as to whether polices can achieve all of these aims with a ‘win-win’ outcome or whether there are trade-offs across them, and also as to whether such policies cancel each other out across regions. However, to dismiss such policies as ‘problematic’ denies the legitimacy of public action to address such grand challenges and is misplaced on a number of levels, especially in the context of needing to reach Net Zero when the market is simply not moving fast enough.

2. THE RACE FOR 4.0 TECH

It would be a mistake to underplay the historical moment that the current technological revolution is marking for our communities, regions, and industries, as well as for our social, economic and ecological systems. Kaplinsky (2021, p. 1) argues that we face ‘a fork in the road’ and the choices we make will be irreversible, cumulative and disruptive. Since the mid-2010s, the emergence of a wave of new technologies has triggered what is widely known as the Fourth Industrial Revolution (Schwab, 2016), since it is redefining existing industries, creating new ones, launching new business models, designing new production organisations, identifying new markets and re-inventing society (De Propris & Bailey, 2020).

The growth trajectories of regional economies will depend on creating and accessing such new technologies, as well as being able to root and embed them in their socio-economic fabric. Market forces would favour the anchoring of these new technologies in places and regions already endowed with relevant and related assets and capabilities (Balland & Boschma, 2021; Corradini et al., 2021), thereby widening regional inequalities. However, ‘future and welfare-oriented’ (Aiginger & Rodrik, 2020) policies should commit and invest in creating new assets and capabilities in regions and places which would otherwise fall increasingly behind (Camagni et al., 2020; Capello & Lenzi, 2021).

Identifying new growth paths for underperforming regions would mean not only acknowledging their accumulated history, but crucially imagining and acting on a possible ‘future’ (Hassink et al., 2019). It can be argued that the discontinuity in the technological paradigm associated with green and digital technologies has the potential to reset regional economies that have been pauperised of their core competences and industries due to globalisation and have therefore underdeveloped or absent 3.0 technologies. The radical structural transformation driven by 4.0 technologies (Labory & Bianchi, 2021) will require major investment in physical and human capital as well as in infrastructures by the public and the private sectors that could open the door to the involvement of a diversity of locations and regions with untapped human, environmental and economic resources. The great re-set opportunity offered by the current technological race is the prospect to re-connect a greater variety of places and regions to engines of growth, and to deliver jobs and entrepreneurial ventures to left-behind places. The new generation of industrial policies recognise this. Again, one might raise questions as to how effective they will be. What would be ‘troublesome’, however, is simply not trying.

3. MISSION-ORIENTED POLICIES: BIG CHALLENGES, BIG IDEAS AND BIG MONEY

Technology policies have always been part of government policies that have aimed to create and sustain national level competitiveness (see debate on competitiveness, e.g., Krugman, 1994) to be delivered through articulated national innovation systems (Chaminade et al., 2018) of key stakeholders committed to research, innovation and diffusion. The roles of the government, universities, and public and private research organisations (Leydesdorff & Etzkowitz, 1998) have been instrumental in channelling public and private funding as well as acting as sounding boards for technological openings and explorations. It is not surprising if today’s technology policies are hence powering national level priorities to develop and anchor new technologies and their ramifications via green and digital transitions. Indeed, the current generation of technology policies has been shaped around the understanding that we face existential ‘grand challenges’ or ‘missions’ (Mazzucato, 2021) whose solutions are in enabling technologies that are embryonic but fast growing. However, critically, technology policies alone are not enough to address solution-driven challenges, and this explains why we are seeing a new generation of industrial strategies (which include technology policies) gaining centre stage in advanced economies. The structural transformation that 4.0 technologies are enabling, requires a broader, more eclectic, multi-levelled and multi-faceted approach to a state intervention that a technology policy alone cannot deliver.

Both the US and EU⁣ have shown vision, leadership and commitment to designing and implementing variants of such new generation industrial strategies. In the EU, the EU Digital Agenda (2010), the EU Green Deal (2020), Digital Europe 2030 and the NextGenerationEU are but a few of the flagship packages unveiled and under which there are important interventions for sectors, nations, regions, communities, workers and citizens. Perhaps more surprising has been the more interventionist stance by the US government. This started after the 2008 financial crisis but gathered pace over the last few years as the awareness of the stakes of 4.0 technologies became clearer. Indeed, the US has not shied away from visible and well-funded legislations that amount to a game-changing industrial policy: including the American Recovery and Reinvestment Act 2009, US Innovation and Competition Act (2021), Infrastructure and Jobs Act (2021), the Inflation Reduction Act (IRA) (2022) and the CHIPS and Science Act (2022). The IRA alone has stimulated some $278bn of private sector investment and created 170,000 jobs, many in underperforming places (Bailey & Tomlinson, 2024).

The re-engagement of advanced economies in a new generation of industrial policies is in one sense just levelling the playing field (Bailey, Pitelis, & Tomlinson, 2023; McCann, 2019). In fact, after 25 years of policies to build industrial capacity and new technology, China has yet again renewed its commitment to an active industrial policy aimed at scaling up the manufacturing of key components for new industries while South Korea has just announced a further $29bn investment in its EV battery industry (Bailey & Tomlinson, 2024).

4. TRANSFORMATIVE INDUSTRIAL POLICIES: LONG-TERM, MULTI-LEVELLED AND INCLUSIVE

We have argued that the structural transformation of green and digital transitions demands a new generation of industrial policies that aim to foster innovations in and a diffusion of 4.0 technologies. Nevertheless, three decades of scholarly work and policy-making on understanding places and regions as engines of economic growth (starting with the work of Becattini and Porter in 1990s; see, Porter, 1998; Pyke et al., 1990) needs to be borne in mind. Going beyond labels like vertical, horizontal or transversal policy, the new generation of industrial strategies requires more eclectic, multi-level and multi-faceted approaches that include technology policy (basic research), innovation policy (diffusion and adoption), education and skill policy (human capital and work), place-based policy (regional industrial specialisation), environmental policy (access and regulation), digital policy (access and literacy) and so on. The economic and societal transformation that is required is profound. Markets and the private sector are too slow, too timid and too risk averse, for example, in getting to Net Zero by 2050. In this regard, more interventionist industrial strategies are not, in large part, geopolitically driven, but rather show that Western economies are at last rising to the challenge of creating a convergence of interests between driving technological change and also making it work for as many as possible. Such a change is long overdue.

DISCLOSURE STATEMENT

No potential conflict of interest was reported by the author(s).