Manufacturing development: how transnational market integration shapes opportunities and capacities for development in Europe’s three peripheries

Abstract

According to the dominating perspective in the literature, transnational market integration has the uniform effect of decreasing the room for development in peripheral economies that do not have the economic and political power of countries like China or Russia. Challenging this perspective, this Special Issue (SI) contrasts different integration strategies yielding dramatically different effects on developmental opportunities and capacities. By exploring various patterns of market integration, we show first, that states in peripheral economies vary in their institutional strengths to exploit developmental opportunities and that the existence of such capabilities depends on domestic political conditions. We also show, second, that depending on their integration strategy, transnational integration regimes (TIRs) can both improve and worsen developmental capacities and political conditions in these countries. The SI examines the different integration strategies used by the largest TIR, the European Union (EU), in its peripheries. The shallow model of integration allows for à la carte trade liberalization and regulatory integration. This model helps to consolidate pre-existing rent-seeking alliances and with it, the conservation of the institutional status quo. The pro-active version of the deep model of integration can promote upgrading in domestic developmental capacities in the period of preparing new countries for membership. Once peripheral economies gain membership, the EU has limited tools to help these countries to synchronize domestic developmental needs and transnational regulatory requirements. Increasing contestation of liberal ideas is the result.

Keywords:

• State capacity
• integration
• economic development
• European Union
• value chains
• multinational companies

1. Introduction

Transnational integration regimes (TIR) deal with the gradual removal of various forms of national discrimination restricting the free movement of goods, services, capital, and labor across participating countries. Moving beyond trade liberalization, twenty first century TIRs like the European Union (EU) or the North American Free Trade Area (NAFTA) extend the room for the free movement of goods and the various factors of production primarily by replacing national rules with common ones in a growing number of policy fields ranging from rules of competition through labour standards to food safety regulations (Bruszt & McDermott, 2014). TIRs legitimize this process by the claim that increased market freedoms relying on the growing number of shared rules will produce common goods for participating countries.

Strong political forces have challenged this claim during the last decade. In 2012, Hungarians witnessed the most massive demonstration since 1989 in the streets of Budapest, with demonstrators chanting ‘We will not be a colony.¹ These chants echoed verbatim the attacks of Prime Minister (PM) Viktor Orban on the interventions of the European Commission regarding how the Hungarian government handled the consequences of the 2008 financial crisis. A few years later, Polish PM Mateusz Morawiecki justified nationalist developmental policies by citing the concept of ‘dependent capitalism.’ He called for steps to counterbalance the ‘sharp economic imbalances, stemming from the pursuit of a fixed exchange rate regime’ in Europe.² In the Southern part of Europe, the Greek, and a few years later, the Italian governments declared war against the ‘yoke of EU’s monetary rules.’ Even the present-day leaders of the countries of Ronald Reagan and Margaret Thatcher talk routinely about no longer tolerating the unjust consequences of TIRs. One must be a genuine believer in free markets to think that the free movement of goods and factors of production will automatically produce benefits for all participating countries.

Our goal in this Special Issue (SI) is to explore the effects of various integration strategies on the capacities of lesser-developed countries to benefit from integration. A large part of the literature on globalization and regional regulatory integration supports pessimistic views in this respect: Integration regimes that impose uniform rules on more and more policy areas, such as the EU, deprive the weaker economies of crucial tools of economic policymaking (Jabko, 2006). Under the banner of creating a ‘level playing field,’ TIRs expose fledgling market economies to competition from the world’s most competitive economies. The free movement of capital allows dominant firms in the most developed countries to transnationalize production and to construct global value chains (GVCs). Simultaneously, the new rules of the freer markets deprive the lesser-developed countries of the traditional tools for protecting and promoting their industries (Chang, 2002; DiCaprio & Gallagher, 2006; Wade, 2003). The combined effect of these changes is a growing dependence on external actors and factors. Development scholars described this as ‘kicking away the ladder’ (Chang, 2002) or ‘shrinking policy space’ (DiCaprio & Gallagher, 2006; Wade, 2003). Peripheral economies that proved to be the most successful in the competition for joining GVCs are described as being in the position of dependent market economies (DMEs) (Nölke & Vliegenthart, 2009). Except for the largest developing economies, like the BRICS, the smaller and lesser-developed economies are framed in this literature as rule takers. Global and regional rules lock them into a (semi) peripheral position without much policy space to capitalize on the opportunities of market integration.

We recognize the narrowing of the policy space resulting from the emergence of TIRs. However, we take issue with the main concerns expressed by scholars in this literature. More specifically, we disagree with the expectation of a uniform and steady decline in the developmental capacity of states in lesser-developed countries in the world of TIRs and GVCs. In our research on the three peripheries of Europe,³ we find just the opposite: considerable variation in the capacity of states across Europe’s peripheral economies to explore and exploit opportunities for development offered by TIRs. At least as important is our finding that there is substantial variation in the evolution of developmental state capacities in countries with similar initial conditions but exposed to different integration strategies. Such differences suggest that TIRs are critical players in shaping developmental state capacities in peripheral economies. These findings make it all the more urgent to explore two interlinked questions in this SI. First, what factors are responsible for variation in the developmental capabilities of states? Second, how do various TIR integration strategies shape opportunities for development and capacities to exploit these opportunities? These are the questions that we explore in this SI.

The EU is a perfect case for such an analysis. It went the furthest among the TIRs in moving beyond trade liberalization and entering into encompassing regulatory and somewhat more limited monetary integration. It is also the only TIR that is integrating a large number of economies at widely different levels of development. Finally, it is also the only TIR that employs different strategies of integration for its three peripheries (Bruszt & Langbein, 2017; Bruszt & Vukov, 2017; Langbein, 2014). Exploring the effects of the various EU strategies on developmental state capacities might thus produce essential lessons for other parts of the world on how to expand integration regimes among countries at different levels of development.

In our research, we follow the founders of the comparative study of economic development in the peripheries. They broke with the idea that a single set of externally imposed constraints uniformly determined the unequal distribution of roles and opportunities in the world market. The rejection of the deterministic version of dependency theory has opened up the way to a new research agenda: the exploration of a more diverse set of domestic and external economic, social, and political factors helping or hindering departure from the periphery and setting countries on diverging developmental paths (Cardoso & Faletto, 1979; Evans, 1979; Hirschman, 1971). Instead of talking about the uniform effects of external constraints, scholars in this approach described various ‘situations of dependent capitalist development,’ or clusters of developmental constraints and enabling factors. Following this research tradition, we rely more specifically on the literature on developmental states (Evans, 1989, 1995; Wade, 2003), but we upgrade this to the context of transnationalizing markets in the twenty first century. We also draw on the evolving literature on TIRs (Bruszt & Langbein, 2017; Bruszt & McDermott, 2014), but we add to it an in-depth analysis of TIRs’ diverse effects on domestic developmental capacities.

In this SI, we make three principal arguments. First, we argue that states differ in their institutional capacities to insert their economies in transnational markets and help their firms to improve their positions within them. Such state capacities were already relevant before the rise of TIRs and GVCs (Evans, 1989, 1995). But in the new era, as we will show, the room for old-style protectionist industrial policies is waning. There is room for new types of developmental strategies that can help previously shielded sectors survive in open markets and achieve a high(er) position in GVCs. Implementing these strategies needs new kinds of state institutions. Second, we argue that domestic political factors determine the existence of these institutions, or the ability of domestic actors to create them when needed. Many lesser-developed countries cannot develop as they either lack the institutions that could help them adjust to the challenges of integrated markets or domestic political factors prevent them from developing these institutions. Third, we argue that TIRs shape both the institutional and political conditions in their member states. Depending on the integration strategy employed by TIRs, the effects range from institutional decay and economic disaster to considerable upgrading of domestic developmental capacities. Pre-existing differences in developmental state capacities further increase across countries when the countries that dominate the TIRs employ shallower integration strategies. Deeper integration strategies that combine more encompassing institutional conditionality and assistance can elicit considerable convergence in developmental capacities.

The SI makes three contributions to the emerging literature on TIRs and the comparative study of development in lesser-developed countries. First, it offers an analytical frame for the comparison of various TIR integration strategies and their capacity to help states in peripheral economies play by and benefit from the shared rules of the integrated market. Second, it provides a multifaceted analysis of the institutional foundations of developmental state capacities in the era of TIRs and GVCs. The papers in the SI explore the specific institutional capacities that can help states to insert their firms in competitive markets and promote their upgrading. They also provide detailed analyses of how interactions between the EU and domestic actors have shaped the evolution of these institutions. Third, it provides an exploration of the political factors that help or hinder the creation of developmental institutions.

The papers in the SI form part of a joint research project co-designed by the editors and the contributing authors. While the authors of each paper pursued their specific research questions, each of them did so in light of the shared issues of our research project.

We explored separately the effects of both the pre-existing domestic institutional capacities and the effects of variation in integration strategies that the EU has used in its different peripheries. To do so, we selected countries from both peripheries of Europe, including countries that varied in their developmental capacities at the time they started integrating with the EU. The EU pursued dramatically different integration strategies in the case of countries that became members of the EU versus countries with no or uncertain membership prospects. We chose Poland and Romania among the group of Central and Eastern European (CEE) member states—two countries equipped with dramatically different state capacities at the beginning of their integration with the EU. From outside of the EU, we chose Ukraine, which has been struggling with creating elementary developmental state capacities since the dissolution of the Soviet Union. We chose Turkey as a contrasting case—a country that has lost the prospect of being considered for membership. Turkey had some elementary state capacities in place when it began integration negotiations with the EU, despite suffering from clientelism and rent-seeking in some spheres of the economy. As a control case, from the Southern periphery of the EU, we included Spain, a country with relatively strong developmental state capacities before starting the EU accession process.

We focus on the automotive sector as a strategic case. The literature on dependent market economies uses this sector as one that best exemplifies the limitations of domestic policy space as a result of the dominating role of lead firms in GVCs. If we find variation in domestic developmental capacities in this sector, we should be able to detect variation in any other sector. If despite the dominance of core countries, we find that the EU shapes developmental capabilities in this sector, we should be able to observe EU impact in less strategic sectors.

As a control case, the SI includes an analysis of the evolution of the dairy sector to call attention to the developmental relevance of sectors listed as low and medium technology (LMT). We investigate the pathway of this sector in two countries (Poland and Hungary) that share similar starting conditions and that were exposed to the same integration strategy by the EU. That allows us to demonstrate the relevance of different types of domestic developmental alliances for sector-level institutional change. We also explore the effects of EU sector-level interventions both in the pre-accession period, when the EU still controlled the quality of core state institutions, and in the post-accession period when Brussels stopped sanctioning EU criteria regarding the quality of domestic state institutions.

We also provide an in-depth exploration of the scope and limitations of the effects of the deep integration mode on the development of local capacities for upgrading in the strategic automotive sector. For this, we selected two countries: Romania and Poland. The EU applied the same integration strategies towards these two countries, which differ in the way they used the opportunities offered by the EU’s developmental assistance program.

Finally, the SI also explores the developmental effects of EU strategies in building elementary state capacities during the pre-accession period. For the analysis, we selected all the countries from the CEE and the current EU candidate countries in the Western Balkans. This case selection allows us to establish a considerable variation in the outcomes of EU-induced state-building.

The findings that we present in this SI show that the EU has a surprisingly diverse set of policies and employs a variety of institutions to address the challenges of integrating countries at different levels of development. The EU uses these tools selectively across space and time. EU integration strategies differ dramatically regarding how and the extent to which they manage the conflicts between the requirements of implementing uniform market rules and the requirements of diverse local developmental needs.

As a default, the EU leaves the management of the developmental consequences of integration to the countries participating in integration and cares primarily about perfecting the methods of monitoring and sanctioning the implementation of its rules. In fact, this has been and is still characteristic of the integration strategy applied towards countries not considered for EU membership.

This default strategy also largely shaped the process of integrating the Southern periphery during the late 1970s and 80s, except for one innovation: the EU has introduced various assistance programs in the form of financial transfers aimed at upgrading the market power of various categories of economic actors. Otherwise, the distribution of responsibilities remained the same: monitoring and sanctioning rule implementation stayed with the EU level, and member states remained responsible for managing the developmental consequences of integration.

During the Eastern enlargement, the EU has gone beyond its default strategy and has experimented with an integration scheme that conceived of the potential negative developmental consequences of market integration as an EU-level systemic problem (Bruszt & Langbein, 2015; Bruszt & Vukov, 2017). Apart from imposing institutions that could guarantee rule compliance, the EU created provisional transnational institutions to anticipate and alleviate the potential large scale negative developmental externalities of market integration. Also, it has invested in the upgrading of core state institutions and in the developmental capacities of domestic actors in these countries prior to accession.

Instead of consolidating and transferring the rather positive lessons of the pre-accession process characterizing the Eastern enlargement, the EU discontinued the activist integration strategy in the CEE countries once they became members. As in its Southern periphery, the EU strengthened transnational monitoring and disciplining capacities in the new Eastern member states, leaving it to the latter to manage the developmental consequences of integration after EU accession.

We show that the default EU strategy increases divergence in developmental capacities in the peripheries. Countries without a membership prospect that had better state capacities before their economies started to integrate with the EU market, tend to gain more from integration. By contrast, countries with weak state capacities are much more exposed to the potential negative effects of market integration (Langbein, 2020; Langbein & Markiewicz, 2020; Šćepanović, 2020). Similar are the effects of the EU integration strategy that the EU has applied during the Southern enlargement and, after accession, in the CEE member states (Bruszt & Karas, 2020; Medve-Balint & Šćepanović, 2020; Šćepanović, 2020). The encompassing domestic institutional change induced by the EU in the CEE countries in the pre-accession period, however, contributed to considerable convergence in developmental capacities (Markiewicz, 2020; Vukov, 2020) and yielded significant positive effects on economic development (Bohle & Greskovits, 2012; Bruszt, Munkacsi, & Lundtsted, 2020; Vukov, 2020).

In the next section, we discuss the specific constraints of development in the world of GVCs and TIRs. We focus on examining domestic institutional and political factors that shape the probability of the emergence of developmental state capacities. In section three, we argue that TIRs, in principle, can alter nearly all parameters of domestic institutional change. Why do they only do this in an ad hoc manner and selectively? What are the effects of these TIR strategies? Part four provides a brief introduction to the papers included in the Special Issue, and part five concludes.

2. From dependence to variable capacities to manage dependency

Our approach in this SI can be located between two literatures on the factors shaping developmental opportunities in lesser-developed countries. On the one hand, the twenty first century versions of the dependency literature that we discuss below do not ascribe agency to lesser-developed countries. In these accounts, the latter group of countries have progressively fewer opportunities to shape economic development, since they are increasingly exposed to rigid external constraints set by the most developed core countries and multinational companies. According to the middle-income trap literature, on the other hand, domestic developmental strategies are what make the difference (Acemoglu, Aghion, & Zilibotti, 2006; Aghion, Akcigit, & Howitt 2013; Doner & Schneider, 2016). Drawing on the literature on developmental states and the literature on upgrading in GVCs (Evans, 1995; Gereffi, Humphrey, & Sturgeon, 2005), our approach takes the external constraints discussed in the dependency literature as a starting point. But it asks how and why states in lesser-developed countries manage dependency in dramatically different ways. What factors shape the capacity of states to change the parameters of their dependency situations? Why and how can TIRs shape domestic efforts to alter situations of dependency?

The twenty first century versions of the dependency literature indicate that the room for domestic policy space is in decline, and that the developmental capacities of states are negatively affected both at the micro- and systemic-level. More precisely, at the micro-level (the level of firms), domestic actors in the lesser-developed parts of Europe are dependent on the strategic decisions of lead firms in the GVCs (Cerny, 1997; Nölke & Vliegenthart, 2009). States in small open economies lacking capital and access to sophisticated technology can, at best, compete in servicing the interests of MNCs (Bohle, 2006; Drahokoupil, 2009; Friedmann, 1999). According to the most parsimonious micro-level perspective on development in the CEE countries, MNCs have substantial stakes in maintaining their comparative institutional advantage via conserving the developmental status quo and keeping the lesser-developed economies on the low value-added parts of transnational value chains (Nölke & Vliegenthart, 2009).

At the level of TIRs, the implementation of common transnational rules and policies dramatically reduces the room for domestic developmental experimentation (Scharpf, 2002; Streeck & Mertens, 2013; Thrasher & Gallagher, 2008). Short on capital and constrained by TIR regulations, countries rely heavily on FDI that creates DMEs. Multinational companies lock DMEs into a (semi-) peripheral position without much possibility for industrial upgrading (Nölke & Vliegenthart, 2009). In these accounts, MNCs are interested primarily in exploiting the availability of cheap labor. They have, however, little interest in investing in capacity-building and innovation in host countries or in creating backward linkages, since they rely on inputs and technologies produced in their headquarters.

We recognize that TIRs and GVCs significantly narrow the policy space for developing countries. But we have both empirical and theoretical reasons to take issue with the strong version of the ‘new dependency’ argument. Our contributions provide empirical evidence for the different capacities of states to manage the challenges and explore and exploit the opportunities for development in peripheral economies. Exposed to similar external constrains, countries in the periphery diverge in their developmental paths. Such divergence calls for the exploration of the domestic and transnational, political, and institutional factors that could help local actors to identify, increase, and use available opportunities (Bohle & Greskovits, 2012). Our case studies on the developmental pathway of the automotive industry reveal a great deal of variation in developmental state capacities and outcomes. They range from failed market insertion and industrial decay to successful inclusion and even some upgrading, as indicated by increasing net-exports of high value-added products.

The papers in the SI show that more autonomous and capable states can change MNC profit strategies by way of improving the capabilities of workers entering the labor market, or by increasing the capacities of domestic firms, research institutes, and regional governments to join in more complex forms of collaboration (cf. Medve-Balint & Šćepanović, 2020; Šćepanović, 2020; Vukov, 2020). Domestic developmental strategies matter. The SI shows that nurturing backward linkages is one option for improving the position of peripheral economies in GVCs (cf. Šćepanović, 2020; Vukov, 2020). Another option is the diversification of the supplier base of part producers to decrease the dependence on a single MNC. Poland’s industrial policy for the automotive sector is a case in point (cf. Markiewicz, 2020). That said, in the world of GVCs, foreign direct investment in HT sectors is just one option to improve lesser-developed countries’ position in regional and global markets. Even if developmental capacities quickly grew in all peripheral countries, demand for HT products is limited. Therefore, not all peripheral economies can garner a lot of it simultaneously.⁴ HT sectors are not the only places where domestic value added is produced and where lesser-developed countries can achieve industrial upgrading. As Bruszt et al. (2020) show, sectors listed as LMT have segments that require the use of HT components (e.g. biotechnology). They also produce products with high skill content (as in R&D, marketing, or the production of pesticides). These sectors can contribute to increases in the growth of domestic value-added at least as much as firms in the HT sector proper.

All in all, this SI subscribes to a weaker version of the dependency approach according to which FDI-led development spurred by TIRs like the EU present not only specific constraints but also opportunities to peripheral economies. These are different from the limitations and possibilities of development that existed in the twentieth century Global South.

Why do countries with similar pre-existing levels of development and the same external constraints vary in their capacity to shape the parameters of dependency and detect and exploit developmental opportunities in the world of TIRs and GVCs? In the literature, we find an institutional and political answer to this question (Doner & Schneider, 2016; Haggard, 1990). The first focuses on the institutions that could allow for increasing state developmental capacities, the second on the political factors that could help or hinder the emergence of such institutional capacities.

Representatives of the first answer focus on the institutional context in which various state and non-state actors take decisions related to development. The institutional properties of the state occupy a central place in this literature. Identifying and exploiting developmental opportunities, mobilizing resources, and creating developmental coalitions to change a developmental path all require autonomous and capable states (Acemoglu et al., 2006; Evans, 1995). Such states can produce various public goods needed for economic development. Defining what those necessary public goods are and, consequently, what sort of capacities countries need to enhance development are contested issues. Some stress the need to enforce property rights or to create a predictable policy environment (Acemoglu et al., 2006). Others emphasize the importance of state capacity to produce and implement industrial policies, to foster innovation, or to help economic actors solve problems of collective action (Doner & Schneider, 2016; Evans, 1995).

In identifying the key state capacities, we draw on the above-cited institutionalist literature. We apply their insights to the conditions of the new world of transnationalizing economies. In this world, lesser-developed countries have to cope with the problems of inserting their formerly closed economies into transnational markets dominated by TIRs and GVCs. We distinguish between three sets of capacities:

First, core state capacities set the basis for providing the most general public goods needed to create functioning markets. These include safe property rights, enforcement of contracts, and a predictable legal environment (Acemoglu et al., 2006; Evans, 1995). The capacity of the state to evenhandedly provide economic freedom relies on an independent and capable judiciary and bureaucracy, steeled by checks and balances within the state. The latter is meant to reduce the risk of using core state institutions for short-term political purposes (Bruszt & Campos, 2017). The presence of these core state capacities is an essential precondition for the other two kinds of developmental capacities to come about.

Second, drawing on the work of Peter Evans, we use the concept of midwifery capacities. The concept refers to the ability of states to insert—into a competitive environment—firms and sectors previously shielded from the market. It requires the capacity to anticipate and manage the potential negative developmental consequences of opening up to the market. In the phase of insertion into transnational markets, the critical developmental question is whether states have, or can acquire the capacity to prepare essential sectors of the economy to the potential dangers of this process. States in this phase of development need the ability to create and use supporting organizations that can transfer resources, and knowledge of how economic actors will be affected by the opening of markets. At least as important, they need the capacity to forge developmental alliances among various economic players. A variety of policies can be utilized by states to display the role of a midwife. They can negotiate shorter or longer grace periods with TIRs and use them to endow promising sectors or groups of firms with the capacity to withstand competition in transnational markets. As we will show in the SI, states can use protective tariffs and subsidies to enhance export competitiveness during that period. Meanwhile, states can increase the ability of domestic economic actors to restructure, organize, mobilize resources, or bargain with MNCs.

Once the peripheral economies are integrated into transnational markets and under the control of TIRs, the second stage of integration begins. At this stage, states increasingly lose the capacity to use former discriminatory developmental strategies to protect and promote selected sectors. They have to acquire husbandry capacities, i.e. new skills to facilitate a better positioning of their economies in regional and global markets. We also borrow this concept from Peter Evans. But since the time Evans coined the term, the conditions of pursuing these goals changed. Countries no longer need to develop vertically integrated industries to participate in global trade. They can also develop capacities in specific segments of the value chain and create respective outward linkages to benefit from trade and GVCs (Cattaneo, Gereffi, Miroudot, & Taglioni, 2013). As the papers in the SI show, in the world of TIRs, states have at best limited time to protect and promote specific sectors. States need new developmental capacities to help the evolution of productive developmental alliances between firms, research institutions, universities, and vocational training institutions. They need to develop business support organizations that could help to solve coordination problems among economic actors trying to find their way in the world of GVCs. Firms, research institutes, and local governments might have coordination problems regarding the pooling of resources. Economic actors might need help in overcoming obstacles of asymmetric information and collaborative formulation of interests among domestic and transnational actors. State capacities to design and implement upgrading reforms require institutions to coordinate, monitor, and reconcile the interests of multiple actors, and to help provide specific information (Doner & Schneider, 2016).

The politics of domestic institutional change determine whether institutions that can provide for the above-mentioned developmental capacities exist or whether they can form once they are needed. Here our theoretical framework draws on converging ideas on the political economy of development and the political economy of growth models (Amable & Palombarini, 2008; Baccaro & Pontusson, 2016; Bohle & Greskovits, 2012; Stark & Bruszt, 1998). What these pieces of literature have in common is a focus on the factors that help or hinder the emergence of alliances that either conserve or alter the institutions responsible for a specific developmental path. In some countries, powerful status quo-oriented actors capture the state, block institution-building, and conserve a suboptimal path of development (Amable & Palombarini, 2008; Doner & Schneider, 2016). Even if there is no dominating status quo-oriented alliance, change might not come. Potential beneficiaries of institutional change may not be capable of making effective demands on their states and altering the institutional status quo (Bruszt & McDermott, 2014). Institutional development might also vary because of differences in dominant ideas about the developmental role of the state (Ban, 2016).

The qualities of the dominating developmental alliances determine the content of institution-building strategies within the state. More inclusive alliances will build complementary institutions within the state and the economy, allowing for a broader range of social and economic actors that benefit from a change in developmental paths. Narrow coalitions between the strongest economic players and state actors will form exploitative alliances based, in a worst-case, on rent-seeking. Such coalitions will block the growth of developmental capacities and conserve the institutional status quo (Amable & Palombarini, 2008; Doner & Schneider, 2016).

In sum, lesser-developed countries have widely divergent state capacities before integrating into the market. Moreover, domestic political factors can be conducive or unfavorable to the undertaking of necessary institutional changes precisely at the time when these changes are needed to generate developmental capacities.

As we will discuss in the next section, TIRs can shape in principle nearly all the parameters of domestic institutional change discussed above. TIRs can push local developmental capacities in diametrically opposing directions depending on whether and how TIRs use their powers to alter domestic conditions. TIRs can push countries towards the emergence and strengthening of institutions that can help to change developmental paths. But their interventions can also lead to the further weakening of domestic developmental agency and push countries into developmental traps.

3. Transnational integration regimes and domestic developmental capacities

Most accounts in the literature discuss the different ways TIRs constrain room and capacity for development in the peripheries. Integration among economies at different levels of development creates a playing field tilted towards the more developed countries. The less competitive firms in the lesser-developed countries have to compete with the more competitive ones in the more developed countries. The imposition of transnational market rules, combined with full trade liberalization, takes away domestic ‘policy space’ for pursuing autonomous developmental strategies (Gallagher, 2007, p. 63; see also Wade, 2003). It is “kicking away the ladder” (Chang, 2002). Peripheral economies cannot use the same types of developmental strategies that were used by the most developed countries before integration started. Core countries set the rules of the integrated markets. These rules distribute the costs, vulnerabilities, and gains of integration in a highly unequal way on the ‘level playing field.’ The enforcement of the rules of the emerging regional markets forced states in the peripheries to privatize and to liberalize their markets. It also obliged them to honor new investment rules, drastically limiting preferential treatment of domestic firms. It also curtailed the powers of governments to impose higher local content requirements on MNCs. The same rules created new opportunities for core country MNCs, as they provided them with access to new and cheaper locations for production (Jacoby, 2010).

Besides purely economic causes, political factors also play a role in the unequal distribution of functions among core and peripheral countries in the GVCs. The lax implementation of state aid rules in the home countries provides the latter with leverage in bargaining with MNCs on investment decisions (Layan & Lung, 2004; Van Tulder, 2004). Further, MNCs depend on the stable regulatory influence of core country governments on market regulations within TIRs. Finally, the structure of transnational policymaking in the EU gives preference to market-extending policies over market correcting ones (Fabbrini, 2016; Höpner & Schäfer, 2012). All in all, the playing field on which lesser-developed countries have to find opportunities for development is a politically constituted playground tilted towards the core countries.

We take the above analyses as the point of departure for asking why TIRs would care about leveling the playing field, increasing opportunities, and altering developmental capacities in lesser-developed countries. The default strategy of TIRs dominated by core countries is anything but proactive. TIRs, as a rule, try to ‘nationalize’ the management of the disparities of integration, and leave it to the lesser-developed countries to cope with its negative developmental consequences. This strategy is often legitimated by the expectation that the incentives of markets will induce domestic actors to upgrade those institutions that could allow them to benefit from market integration (Bruszt & Palestini, 2016). For public and private actors in lesser-developed countries, the pull of the lucrative opportunities of extended markets, as Vachudova and Bradford correctly stress, can indeed be a powerful mechanism of changing economic and political institutions (Bradford, 2012; Vachudova, 2005).

But in countries with less autonomous states, weak developmental capacities, and high levels of inequality among domestic actors, the increase in economic opportunities resulting from the opening of the market and integration can become a mechanism of conserving the institutional status quo. Early winners may use their newly-acquired resources to capture the state to maximize their gains (Hellman, 1998; Hirschman, 1968).

TIRs, however, can have strong incentives to care about the potential negative developmental externalities of integration. The deeper integration gets, the stronger the economic and political interdependencies between the core and the periphery will become (Bruszt & Langbein, 2015, 2017). If economic actors or states in lesser-developed countries are not able or ready to play by a large number of shared rules, they might undermine the integrity of the common market. Weak state capacities in the peripheries will cause the loss of otherwise lucrative investment opportunities. If too many economic actors are not able to live by the shared rules, the negative social, economic, or political consequences of integration will spill over to the core countries. That can happen in the form of mass migration, political turmoil, and/or the need for higher financial transfers. Such kinds of spillovers can set in motion pressures to downgrade integration in core countries too, as the experience of Brexit has shown. Finally, having in place mechanisms that correct at least some of the disparities created by extended markets can be a political pre-condition to extending common markets in the first place. This is not to imply that increased interdependence will on its own force the more developed countries in the TIR to care about the systemic consequences of uniform rules. A constellation of economic and political factors shapes the probability that increased interdependence will lead to a more interventionist integration strategy, or to a stalemate (Jones, Kelemen, & Meunier, 2016). This is just to say that the incentives for core countries to level the playing field vary, and, under specific conditions more developed countries might be ready to invest in increasing the capacity of lesser-developed countries to benefit from integration.

The differences in the particular model of integration reflect variation in the perceived dangers of not managing the developmental externalities of integration in advance (Bruszt & Langbein, 2017). We introduce a distinction between shallow and deep EU integration strategies. The adjectives ‘deep’ and ‘shallow’ refer to differences in the goals and the means of integration (Bruszt & McDermott, 2014; for different conceptualizations see Evans, Kaplinsky, & Robinson, 2006; Thrasher & Gallagher, 2008).

The shallow model of integration was the dominant EU strategy before the Single European Act in 1986 and is the EU approach to countries without a (certain) membership prospect. Political and economic interdependencies are comparatively weak, and the dangers of the spillover of the costs of eventual negative developmental consequences of shallow integration are relatively low (Bruszt & Langbein, 2017). In this mode of integration, the EU aims at limited market opening and regulatory alignment solely in a few selected policy fields. Hence, the EU is less demanding in regulatory harmonization and less meticulous about detecting non-compliance, thereby providing more leeway for old developmental policies. More flexibility in adjusting to EU rules often come at the price of diminished access to the EU market. Limited assistance allowed states in these countries to implement EU market rules in a smaller number of regulatory areas. Creating or strengthening core state, midwifery, let alone husbandry capacities, is hardly part of the assistance programs (cf. Langbein, 2020; Langbein & Markiewicz, 2020).

We use the notion of a deep model of integration for the integration strategy employed after the Single European Act in the Southern member states and during the Eastern enlargement. Also, the EU engaged in a deep mode of integration towards Turkey during the short period when the country’s membership prospect was deemed credible (cf. Langbein & Markiewicz, 2020). Unlike under the shallow model, under the deep mode the EU aimed at an encompassing abolition of tariffs and comprehensive regulatory harmonization in dozens of policy fields. Thus, deep integration imposed stricter constraints on domestic policy space, but it also offered more opportunities. In the process of opening up their markets, lesser-developed countries could negotiate preferential treatment in some key sectors. The EU opened more significant parts of its market to associating states immediately upon signing the associating agreement. Such special treatment did not include agriculture and other ‘sensitive’ sectors, in which the weaker partners had a comparative advantage. In turn, the EU allowed these countries to dismantle their trade barriers more gradually (Jacoby, 2010). However, in the countries subject to the deep mode of integration, these transition periods tended to be comparatively shorter and were bound by strict liberalization schedules.

Moreover, states had to give up a large part of the national regulation of their domestic markets and considerable portions of control over their financial and monetary policies. These changes have limited their policy space for resorting to old developmental polices. At the same time, deep integration also offered access to development assistance programs designed to decrease developmental disparities and increase the chances of social and economic convergence. The range of assistance, however, dramatically differed during the integration of the Southern and Eastern peripheries of the EU (Bruszt & Vukov, 2017).

In the Southern fringes, the integration strategy took for granted that the would-be members have functioning states. Market integration has left pre-existing core state capacities intact. Also, the potential gains of joining the continental market were expected to incentivize domestic public and private actors in these countries to create or upgrade weak midwifery and husbandry capacities (Bruszt & Vukov, 2017). During the negotiation of the extension of market integration in the 1980s, the Southern member states have achieved a reform of EU developmental assistance aimed at reducing developmental disparities in the integrated markets. The changes initially targeted sub-national economic players with the goal to upgrade their market power and to reduce regional disparities within the lesser-developed member states. EU assistance has gradually evolved to include broader aspects of the husbandry capacities of the lesser-developed member states to improve their position in transnational value chains (cf. Šćepanović, 2020). While the EU integration strategy during the Southern enlargement was thus more ambitious both in terms of the depth of market integration and the means to assist the lesser-developed countries, in a key way this strategy was similar to the one applied to the countries without the prospect of membership. The lesser-developed states remained responsible for managing the developmental consequences of integration, and the primary responsibility of the EU level institutions was to control the implementation of the rules of the integrated market

The institution-building strategies of the EU in the CEE countries were based on the fear that leaving the integration of the lesser-developed CEE economies to the incentives of the market could cause systemic crisis in the EU, in addition to potentially causing social and economic disaster in some of the CEE countries (Bruszt & Langbein, 2015). Led by these fears, the EU developed supranational institutional capacities to manage the major potential negative developmental consequences of integration. Mobilizing thousands of experts and involving several IOs and using the developmental banks of the region, the EU developed a transnational institutional capacity for foreseeing and managing the largest potentially negative developmental problems of integration. Also, it invested in the upgrading of core state institutions in these countries and in enhancing the developmental capacities of domestic actors (Vachudova, 2005; Meyer-Sahling, 2004; cf. the paper by Bruszt et al., 2020). These interventions helped the respective states to create or strengthen much-needed core state and midwifery capacities (cf. Bruszt & Vukov, 2017; Markiewicz, 2020; Vukov, 2020). As an unintended consequence of simultaneously pressing demands on economic and political institutions, the EU strategy also contributed to limiting the room for exclusionary developmental strategies in these countries.

After accession, the EU integration strategy (originally worked out during the Southern enlargement) was also applied to the new member states from CEE. Coping with the negative developmental externalities of the Single Market became a member state responsibility, while monitoring and sanctioning the implementation of the uniform EU rules has remained the key function of the supranational institutions. After the 2008 monetary crisis, the EU did not consider any of the aspects of the proactive integration strategy used during the Eastern enlargement. Instead, it strengthened transnational monitoring and disciplining capacities, straitjacketed local developmental policies through deeper intrusions into economic policy making in the member states hit by the crisis, and encouraged (and in some cases, forced) domestic exclusionary strategies (Jones et al., 2016).

Table 1 presents an overview of the different modes of integration and how they shaped core state, midwifery, and husbandry capacities in the three peripheries.

Table 1. EU efforts to build developmental state capacities during the market integration of the three peripheries.

	Core state capacities	Midwifery capacities	Husbandry capacities
Pre-accession Central and Eastern European (CEE) member states	+	+	+
Southern European and post-accession CEE member states	0	0	+
States outside of EU w/o credible membership perspective	0	0	0

0 = No or very limited EU initiative; + = considerable effort.

Based on the above differences in integration strategies and the pre-existing developmental capacities of peripheral economies, we can expect diverse EU effects on the evolution and/or strengthening of developmental state capacities, both across Europe’s three peripheries and countries with stronger or weaker development state capacities at the start of the integration process.

The shallow model of integration offers new opportunities primarily to already better endowed economic players. Progress in integration thus redistributes wealth and opportunities to a group of economic players in the peripheral countries who already have stronger capacities and larger economic power (Hirschman, 1968; cf. Langbein & Markiewicz, 2020). The winners of market opening can use the increasing imbalance in economic power to capture the state and get institution-building and economic policy-making under control (cf. Langbein, 2020). Alternatively, a pre-existing rent-seeking alliance can use the leeway granted by the shallow model to implement protectionist policies to the benefit of its members (cf. Langbein & Markiewicz, 2020). Weak states lacking institutional safeguards against vested interests cannot create a predictable environment for investors who could challenge domestic rent-seekers. Such states can at best attract investments with low sunk costs. States that can resist capture and have stronger developmental capacities at the beginning of shallow integration can resist this ordeal (see Šćepanović, 2020).

Under the more proactive version of deep integration applied during the Eastern enlargement, countries that already had stronger state capacities might gain more from integration. They can do so primarily by better using the pre- and post-accession assistance programs (see Markiewicz, 2020; Medve-Balint & Šćepanović, 2020). The emergence of more inclusionary developmental alliances is also more likely in such a context. In countries with weaker initial state capacities and limited state autonomy, the EU-mandated upgrading of core state institutions can change the developmental path of lesser-developed countries (see Vukov, 2020). By tying the hands of the domestic state, the enforcement of EU state aid rules helped to liberate the state from the hold of the strongest local rent-seeking groups. Together with pre-accession EU assistance programs, the EU interventions helped to create elementary midwifery and husbandry capacities (cf. Vukov, 2020) and allowed even initially weaker states to play by the uniform rules of the integrated market and, simultaneously, benefit from their application (Bruszt & Langbein, 2015).

In the post-accession period, the EU has only limited capacity to help in synchronizing rule enforcement and managing the developmental consequences of implementing these rules. On the one hand, after the 2008 monetary crisis, the EU turbocharged elements of the original integration strategy for member states primarily by strengthening its monitoring and disciplinary capacities. On the other hand, the EU has limited control of whether and how EU funds are spent to cope with the developmental consequences of integration. In the post-accession period, the spending of EU funds is mainly a responsibility of the member states. What is more, in the post-accession period the EU is neither ready nor able to continue sanctioning elementary criteria concerning the quality of core state institutions. As a result, domestic developmental alliances determine whether the EU integration strategy helps to increase the capacity of domestic actors to improve their positions in the regional market, or whether it helps to consolidate rent-seeking alliances (Bruszt & Karas, 2020; Gallagher, 2009; Šćepanović, 2020). In general, the downloading of the responsibility to cope with the developmental consequences of integration to the member state level and the simultaneous extension of the EU’s room and capacity to monitor and enforce uniform rules provide a fertile ground for populism, illiberalism and economic nationalism (Börzel & Langbein, 2019; Börzel & Risse, 2018; Epstein & Jacoby, 2014; Johnson & Barnes, 2015).

In the next section, we discuss how the papers of the SI support our main findings. We also highlight key implications for transnational market integration and the evolution of developmental capacities in the peripheral economies of Europe and beyond.

4. Contributions to the special issue

The collection begins with five articles that focus on the automotive industry. They elaborate how different modes of EU integration shaped domestic developmental capacities in Europe’s three peripheries.

4.1. (Dis)advantages of different modes of integration

EU integration shaped the room for bringing about developmental capacities in all the countries under scrutiny. However, the precise influence of the EU differed significantly among its (new) members, candidates, and neighbors. The papers on Romania and Poland discuss two countries starting with dramatically different developmental capacities under the deep mode of integration.

As Vukov shows in the paper on Romania, the country was endowed with comparatively weak developmental state capacities due to dominance by vested interests when integration with the EU started. The process of integration has contributed to a departure from the status quo. The opening up of the market, together with pre-accession economic conditionality and assistance, helped the state to overcome resistance to change by inward-oriented trade unions and managers of automotive firms. Pre-accession assistance programs helped to create elementary state capacities, at least at a sectoral level, allowing the Romanian state to negotiate win-win deals with MNCs. Further, access to EU funds made MNCs invest in expansion and upgrading, rather than merely using Romania as an assembly platform. That said, the study also reveals the limits of deep integration in overcoming domestic politics. The neoliberal ideology guiding Romania’s economic policies yielded MNC-led development. That is, promoting development in Romania is primarily about supporting MNCs rather than strengthening local businesses. Also, the Romanian government is actively suppressing domestic labor (see also the paper of Medve-Balint & Šćepanović, which compares the use of EU structural funds in Romania and Poland).

The paper by Olga Markiewicz on the Polish automotive industry investigates the effects of the deep mode of integration on a state with comparatively stronger initial developmental capacities. She takes issue with scholarly accounts in which states in peripheral economies are merely servicing transnational capital. The paper proves that accounts that portray Poland as a champion of neoliberal reforms after 1990 are wrong. Markiewicz finds that the Polish state has used various industrial policies since the early 1990s to insert and position the automotive sector in European markets. It applied protectionist measures to prepare the local automotive industry for market opening, paving the way for a high share of foreign ownership. Also using EU regulations, the Polish state has strictly monitored foreign investors, preventing the latter from exploiting EU funds without upgrading the local automotive sector. What is more, and again in contrast to the neoliberal Romanian state, the Polish state developed industrial policies that prevented the sector from turning into a mere assembly platform for MNCs. Instead, it has pursued policies for developing a suppliers’ network with diversified forward linkages, thereby decreasing dependence on lead MNCs.

The paper by Julia Langbein uses the developmental pathway of Ukraine’s automotive industry as a case to investigate the evolution of developmental state capacities under the shallow mode of integration. Like Romania, Ukraine had a weak state that suffered from the dominance of vested interests at the beginning of integration. Yet shallow integration has left Ukraine’s pre-existing weak state capacities unaltered. À la carte trade liberalization and regulatory integration under the shallow mode did not help the fragile state to shield itself against capture by rent-seeking networks of the early winners of market liberalization. The EU only provided limited assistance for building developmental state capacities. Langbein concludes that peripheral economies need capable and autonomous states to be able to prevent these traps and use the opportunities offered by the shallow mode of integration.

The paper by Langbein and Markiewicz examines the developmental pathway of Turkey’s automotive industry. This country experienced several diverse integration strategies. The authors explore the ways in which the interaction between the pre-existing state-business alliance and different integration strategies shaped the evolution of developmental state capacities. They find that shallow integration conserved the institutional status quo, while deep integration helped to liberate the state from a rent-seeking alliance. At the price of playing by the rules of the EU market, deep integration provided lucrative new economic opportunities and external assistance for domestic business.

Finally, the paper on Spain by Vera Šćepanović finds that a relatively capable state could capitalize on the opportunities of different integration strategies. It did so by reshaping industrial policies and inventing new developmental institutions. In the period of shallow integration from 1970 to 1985, Spain pursued an old-fashioned, trade-based industrial policy, while obtaining open access to the Community markets. When Spain became exposed to the passive mode of deep integration in 1986, the relatively strong Spanish state reshaped industrial policy: from firm-centered to technology-centered; from national to regional; and from centralized to collaborative. The EU itself helped the transformation of national industrial policy by providing resources and creating supranational policy tools to support economic development. Šćepanović emphasizes that well-organized private actors, together with a capable state, were the key to the evolution of domestic developmental capacities.

4.2. Challenges for deep integration

Three contributions shed light on the links between deep market integration and the emergence and/or consolidation of domestic developmental capacities. It is worth zooming in on these aspects more closely, as they show the strengths and limitations of the EU’s ability to help bring about and/or upgrade developmental capacities in peripheral economies.

The paper by Bruszt et al. finds that the EU-mandated upgrading of the judiciary and bureaucracy contributed to significant improvement in developmental outcomes, as measured by the quantity and the quality of net exports. What Bruszt et al. define as “collateral benefit” is the unintended consequence of externally induced institutional upgrading of core state institutions aimed at improving the capacity of prospective member states to implement the rules of integrated markets. The authors also call attention to a significant weakness in the governance capacities of the EU. In the post-accession period, the EU has limited ability to prevent the manipulation of core state institutions by domestic elites. This weakness of the EU creates a perverse situation. By its own rules, the EU is obliged to transfer resources aimed at furthering convergence to member state governments. It continues to do so, even for states that are busy undermining the quality and independence of those very institutions that could create an institutional environment conducive to economic convergence.

The paper by Medve-Balint and Šćepanović examines the conditions under which the emerging transnational industrial policy of the EU creates new developmental opportunities for member states in the post-accession phase. The authors show that variation in domestic state strategies for building developmental alliances and creating supporting institutions shapes the use of opportunities provided by the EU. They analyze the distribution of EU funds to the automotive sector in Poland and Romania—a sector overwhelmingly dominated by large multinationals. They find that in Poland, where the state has created a dense institutional network supporting SME, the developmental agencies distribute funds more evenly across SMEs. A much larger share of the contracts has been signed with small and medium firms, providing a more inclusive developmental outcome. In Romania, the neoliberal state did not build a developmental alliance comparable to the Polish one. The network of supporting institutions is much weaker, and large companies get a significantly higher share of the automotive contracts.

Finally, the paper by Bruszt and Karas argues that in the world of GVCs, the focus on transnationalized HT sectors in the developmental literature underestimates the availability of policy space in lesser-developed countries. The room for industrial upgrading is higher in LMT sectors. More inclusive developmental alliances can make extensive use of this room. The authors examine the political factors affecting the emergence of developmental alliances and the way they use developmental opportunities offered by deep integration. An inclusive developmental alliance in Poland has upgraded sectoral state institutions and improved the industry’s value-added and export competitiveness. In Hungary, a comparable developmental alliance was absent. MNCs dominated the sector, marginalizing domestic producers. After MNCs left the country, the emerging exclusionary partnership between strongly capitalized Hungarian entrepreneurs and the de-democratizing political elite could not improve the position of the sector in the European markets. The authors show that the limited institutional interventions of the EU can have perverse unintended consequences. EU interventions in Poland strengthened a developmental alliance between the state and small producers. In Hungary, the same EU policies helped to consolidate a rent-seeking alliance while weakening small producers lacking organization and political representation.

5. Conclusions

Transnational market integration implies non-trivial political problems. Attempts to depoliticize the extension of transnational markets had negative political consequences both in the core countries and in the peripheries. The growing contestation of the economic and social consequences of various TIRs around the globe demonstrates this point. Market integration in the twenty first century is primarily about shared rules and policies. The system of common rules works if all participating countries are willing and able to play by these rules, and if all of them can benefit from implementing these rules. Synchronizing these two requirements demands political mechanisms and institutions that can turn the common rules into a common good by anticipating and alleviating potential frictions between the two requirements. The key problem is that such political mechanisms and institutions are in short supply.

Moreover, because of the dominance of free-market ideologies, there is little knowledge about what these mechanisms and institutions should look like or what specific problems they are supposed to manage. In this SI, our goal is to provide answers to these questions. We use the case of the EU, a TIR that, in global comparison, went the furthest in market integration among economies at different levels of development. The EU is the only TIR that experimented with three different integration strategies in its various peripheries. It used a shallow integration strategy in its neighborhood countries and two versions of a deep integration strategy in the (would-be) member states from Southern and Eastern Europe, respectively.

We looked at the dilemmas of market integration from the perspective of the lesser-developed countries. We took issue with the view that integration presents only constraints to these countries. We argued, first, that states vary in their capacities to insert their economies in transnational markets and to achieve a higher position in transnational value chains. Consequently, states in peripheral economies use and increase the available room for development in the world of GVCs and TIRs to a different extent. We listed specific state capacities that allow states to play an active developmental role, insert their economies in transnational markets, and improve their positioning in those markets. Second, we argued that domestic political conditions determine whether countries can achieve progress in creating the institutional foundations for these state capacities. The critical problem of development, we found, was that in many countries, local political conditions are inimical to changing developmental state capacities.

We argued, third, that TIRs can shape both the political and the institutional factors that could allow for changing domestic state capacities. The EU, as we show in the SI, employs various policies with such goals, and uses these tools selectively. The EU has applied the most encompassing and innovative tools for developmental interventions in the pre-accession period in CEE countries. By contrast, the EU used a relatively narrow set of interventions to build developmental capacities in the Southern peripheries and only a negligible part of it in the countries with no or uncertain membership perspective. As a result, the effects of EU integration strategies in the lesser-developed countries ranged from increasing state capacity to undermining even the weak pre-existing developmental capabilities.

More precisely, concerning the would-be member states, the EU tried to alter the quality of both the critical political institutions and the core state agencies prior to accession. EU conditionality linked to democratic rights and core state institutions was conducive, we argued, for creating state autonomy. Pre-accession EU conditionality also helped to get states out of the hold of the most powerful status quo-oriented groups. It limited the capacity of incumbents to use the state apparatus merely for the preservation of their political power. The increased autonomy and professionalization of the judiciary and the bureaucracy, moreover, created the necessary institutional background for the emergence of sector-level developmental state capacities and developmental alliances. The post-accession assistance programs provided opportunities to improve husbandry capacities aimed at offering both domestic and foreign investors incentives for upgrading.

All in all, we show that in the CEE member states, EU interventions facilitated upgrading in developmental state capacities and yielded developmental convergence among countries with dramatically different starting conditions. After accession, however, the EU does not use the powers of the TIR to guarantee conformity with the pre-accession criteria relating to democratic politics and core state institutions. The paradoxical effect of this situation is that the provision of post-accession developmental assistance strengthens the economic basis of de-democratizing governments that use the EU as a scapegoat for illiberal nationalist policies.

In general, even in the best cases, synchronizing the requirements for the implementation of the common rules with domestic developmental needs became the responsibility of domestic governments after EU accession. The EU, the largest and deepest TIR that is integrating countries at different levels of development, does not have the resources and institutions to promptly detect and manage the various negative developmental consequences of integration. Incumbents in these countries can use the actual or potential frictions to justify economic nationalism. They can mobilize against “Brussels” while using EU funds to strengthen their economic and political basis. While the EU’s weakness in managing developmental diversity provides incentives and opportunities for populism, illiberalism, and economic nationalism, the spread of these phenomena is highly uneven across member states (e.g. Bluhm & Varga, 2020; Greskovits, 2015). This indicates that whether and how EU-level incentives and opportunities translate to member state-level politics is shaped by diverse domestic economic and political factors. Support for the EU is high even in the two de-democratizing member states, Hungary and Poland (European Parliament, 2019). Nevertheless, the combination of relative deprivation vis à vis the EU core countries, the uneven distribution of the gains and losses of integration, and the feeling of ‘second class citizenship’ provide a fertile ground for political entrepreneurs in the peripheral countries to use the strategies of the Hungarian and Polish illiberal incumbents (Börzel & Langbein, 2019; Börzel & Risse, 2018; Epstein & Jacoby, 2014).

The danger of the further spread of populism is aggravated by the institutional weaknesses of the EU. While the EU’s pro-active pre-accession integration strategy analyzed in the SI has contributed to economic convergence among the Eastern member states and to softening core-periphery disparities, the enlarged EU is not prepared to manage the manifold diverse developmental problems in its peripheries. While the TIR does not have regional level economic policies, the rigid enforcement of the uniform rules of the EU market limits member state level developmental experimentation. Moreover, the EU’s limited capacity to preserve the quality of core state institutions helps illiberal leaders to consolidate their powers. The weaknesses of the EU policies we have described in this SI point to the deficiencies of the polity that produces them. The inter-governmental decision-making structure of the EU provides little room for the emergence of the complex market-correcting mechanisms that could make the common market a common good (Bruszt & Vukov, 2017). The key lesson from the case of the EU is that the extension of market integration requires political institutions that can manage the developmental consequences of liberal markets. Otherwise, we will continue to see the increasing contestation of liberal ideas both in the core and, above all, in the peripheries.

Acknowledgements

We would like to express our gratitude to Rachel Epstein—in her capacity as member of RIPE’s editorial board—for her great guidance and patience. We would also like to thank Cornel Ban, Dorothee Bohle, Wade Jacoby, Brigid Laffan, Olga Markiewicz, Gergö Medve-Balint, Martin Rhodes, Vera Šćepanović, Visnja Vukov, and seminar participants at two workshop organized by the Robert Schuman Centre for Advanced Studies at the European University Institute, as well as three anonymous reviewers for their excellent comments and suggestions on previous drafts.

Disclosure statement

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

Notes

Additional information

Funding

This work was supported by the European Union’s Seventh Framework Programme for research, technological development and demonstration under grant agreement no 320115. Financial support by the Robert Schuman Centre for Advanced Studies at the European University Institute as well as by the Center for International Cooperation at Freie Universität Berlin is also gratefully acknowledged.

Notes on contributors

László Bruszt

László Bruszt is Professor of Sociology at the Central European University (Budapest). His more recent studies deal with the politics of market integration. His latest publications include Leveling the Playing Field: Transnational Regulatory Integration and Development (Oxford University Press, 2014; coedited with G. McDermott); Varieties of Dis-embedded Liberalism. EU Integration Strategies in the Eastern Peripheries of Europe, Journal of European Public Policy (with Julia Langbein); and Making states for the single market: European integration and the reshaping of economic states in the Southern and Eastern peripheries of Europe (with Visnja Vukov).

Julia Langbein

Julia Langbein is senior research fellow at the Center for East European and International Studies (ZOiS), Berlin. Her research focus lies in the field of comparative political economy (with a focus on Eastern Europe), European integration and institutional development. Her latest publications include Transnationalization and Regulatory Change in the EU’s Eastern Neighbourhood (Routledge, 2015); Varieties of Dis-embedded Liberalism. EU Integration Strategies in the Eastern Peripheries of Europe, Journal of European Public Policy, 2017 (with László Bruszt); and Core-periphery disparities in Europe: Is there a link between political and economic divergence?, West European Politics, 2019 (with Tanja Börzel). Langbein’s work has also appeared in Governance, the Journal of Common Market Studies, Europe-Asia Studies and Eurasian Geography and Economics.

Notes

1 https://www.opendemocracy.net/can-europe-make-it/andrea-pet%c5%91-zolt%c3%a1n-vasali/%e2%80%98laboratory%e2%80%99-called-hungary-challenge-for-understanding (last accessed 22 January 2019).

2 https://www.politico.eu/article/the-polish-case-for-economic-illiberalism-stability-development/.

3 We define peripheries purely in terms of economic development. By peripheries of Europe we refer 1) to the Eastern neighborhood countries of the EU (Armenia, Azerbaijan, Belarus, Georgia, Moldova, Ukraine) and Turkey, 2) the ten EU member states from Central and Eastern Europe, and 3) the three Southern EU member states: Greece, Portugal and Spain. The latter two groups of countries are also known as the cohesion countries, in need of EU assistance for social and economic catch-up with the most developed core countries.

4 We thank an anonymous reviewer for calling our attention to this fact.