Doner, Noble, Ravenhill - The Political Economy of Automotive Industrialization in East Asia

 

Richard Doner, Gregory Noble, John Ravenhill

Oxford University Press, 2021

 

Building on their massive comparative endeavour and on some decades of applied research, Doner, Noble and Ravenhill drew on their recently published volume “The Political Economy of Automotive Industrialization in East Asia”, to give an extremely rich and insightful presentation. Through their impressive work, the three authors compare the development trajectory of the automotive industry in seven countries - China, Indonesia, Korea, Malaysia, the Philippines, Taiwan and Thailand, and try to explain the reasons for their success or failure.

 

The importance of their contribution, besides the extensive evidence collected through years of first-hand research in all these countries, rests on several elements. Firstly, the attempt to define different growth paths through the distinction between intensive and extensive growth, which per se sparked a lively discussion within the GERPISA audience. Secondly, the emphasis placed on the way institutions affect industry development, and a political economy analysis of the concept of upgrading, which highlights the complexity of industrialisation processes. Thirdly, their work allows us to revive an analysis of the role of states and government institutions in selecting defined strategies, thus enriching the debate on industrial policy tools available to emerging economies and ‘late developers’ today.

 

Starting point of their analysis is the attempt to explain why countries that started their journey from similar economic conditions and initially pursued similar strategies – based on import substitution and the promotion of national champions, eventually achieved very different outcomes. The response lies in the adoption of what they define extensive or intensive growth strategies, where the former involves broader sectoral shifts, possible gains in terms of employment, exports and domestic output but not necessarily high value added, and the latter is innovation-driven. An intensive growth strategy is also characterised by the acquisition of more sophisticated technology and higher R&D capabilities. Ultimately, the second is more difficult to achieve without the presence of strong, domestic institutions specific to the auto sector.

 

As the authors show through the discussion of their case studies, both extensive and intensive growth can lead to positive economic gains if successfully pursued. In their interpretation, Thailand is an example of positive extensive growth, while South Korea, Taiwan and China represent a success in terms of intensive growth strategies.

 

The analysis of the political economy of institutions – involving the consideration of different policy tasks, of challenges they involve and of the strength of institutions that perform them, allows for a complex understanding of why specific developmental outcomes occur. Engaging with the limitations of both neoclassical and institutionalist accounts, the authors partly side with a developmental state approach but aim to go beyond what this misses. Namely, they include an emphasis on different stages of industrial development, on sectoral variations and on the politics underlying institutions. They closely assess the different policy requirements implied in the different development strategies – extensive and intensive, their degree of difficulty and their potential failures. Within the intensive, innovation-driven type of growth, they highlight the significant difficulties linked to technology adoption and the acquisition of sophisticated technological capabilities.

 

This approach allows the authors to compare institutions involved in the industrial development process in the seven countries analysed, and to rank their capacity. Institutional capacity is also assessed by framing the politics behind the emergence of the institutions themselves. Here, the authors highlight how leaders and governments facing multiple lines of pressure (external security, internal pressure and inadequate resources) are more likely to promote specific domestic institutions and support the development of technological capabilities.

 

Out of the seven country cases, Thailand and Malaysia are chosen as crucial examples. On the one hand, Thailand represents the implementation of a successful extensive strategy (increasing vehicle production, exports and sales), but weak intensive growth, with low innovation, R&D and limited technological spillovers. Such an outcome is largely attributed to institutional fragmentation, short-term innovation initiatives, lack of active labour market policies and tariffs aimed to support local firms. On the other hand, Malaysia is quoted as a case of failed intensive development despite very positive starting conditions and domestic-orientated policies – rich resources, protection of local producers and large subsidies. In this case though, automotive specific institutions were absent, rather than weak or uncoordinated like in Thailand. Overall, Malaysia experienced stagnant exports while auto components imports grew, lost Proton as a national champion (sold to the Chinese Geely in 2017) and does not show a promising scenario ahead.

 

Ultimately, the rich country-comparison offered by Doner, Noble and Ravenhill can provide us with an incredibly valuable source to understand variations and trajectories in automotive industrialisation. It can very interestingly contribute to a political economy analysis of industrial policies and development strategies, that can inform research certainly beyond the East Asian context. To push reflections even further, the authors leave us with a series of open questions and future scenarios – will global demand in the auto sector continue to shift to the developing world, despite major uncertainties linked to issues like electrification, pollution, urban congestion? How will global challenges and the move towards EVs deal with important developmental matters, like skills shortage and employment re-composition? Who will be the next global leaders in automobile and EV production? Could hybrid intensive-extensive strategies be the solution for countries still developing their auto industries?

 

These questions introduced a very insightful and thought-provoking debate with our GERPISA audience. Many questions and comments were raised, amongst which:

·         The developmental impact of extensive automotive growth and the potential of intensive automotive growth to channel upgrading and integration within GVCs – can the two be ranked? To what extent one can follow the other, starting with extensive growth and then scaling up to an intensive path throughout structural transformation? How can we make sense of quality institutions in developing countries where the policy space is severely limited by the power of multinationals, where the direction taken by industrial policy is not often a choice but often driven by necessity? (L. Monaco)

·         We have seen different stages of development – most of the countries that industrialised before globalisation and the access to WTO went through a first phase of import substitution and the promotion of national champions, the countries that succeeded later mostly find their car production dominated by multinationals/foreign capital. Does this mean that the intensive growth strategy has become more and more difficult/less and less feasible? What difference does the domestic market make in your analysis, whereby the countries that made it even in a period where global production is driven by global value chains could all count on significant domestic markets? (T. Pardi)

·         What do you think of current development strategies like the one Indonesia is following, leveraging on local raw materials supply (like nickel) to entice car makers to build a local EV value chain? Is this interesting/sustainable? (M. Schroeder)

·         Building on the first question, on what follows what, it is historically quite clear that it is very difficult to build an intensive path without having first gone through an extensive one, to some extent, and that extensive growth is largely driven by increases in productivity. To what extent productivity is a crucial factor, if we go beyond the sectoral study? In terms of institutions, if these are described as demand-based, what does it take for this demand to be realised, in terms of new institutions? (A. D’Costa)

·         Issues of local development, suppliers development and production based on ‘enclaves’; sourcing strategies, the demand from MNCs that suppliers constantly squeeze costs; technology and skills transfers (comparison – Thailand, Japan, Taiwan, Indonesia); path dependency in institutions.

·         Cases of ‘reverse industrialisation’, rather moving from an intensive to an extensive path, often after having been ‘captured’ by multinational companies. Additional examples from UK, Czech Republic, Sweden, Vietnam, Taiwan (J. Thoburn)

·         Additional remarks on localisation and supply chain development in Romania; on electrification and niche strategies in Poland; on impact of single market on CEE auto industry (T. Pardi).