The Political Economy of Performance Standards: Automotive Industrial Policy in Comparative Historical Perspective

ABSTRACT

A substantial body of literature holds that industrial policies work best when their beneficiaries are subject to demanding performance standards. By conditioning access to their low-cost loans and lucrative markets on foreign sales and local content, for example, East Asian officials forced their manufacturers to improve quality, cut costs, and develop linkages to allied industries – that generated jobs and foreign exchange revenues of their own – in the so-called miracle years. But the politics of performance standards are themselves unclear. Why are they more common in some countries than others? Are they more likely to be imposed by autocratic than democratic regimes? And, if so, why? I address these questions by examining cross-national data on export and local content requirements in the auto industry in 1980; find that they all but presupposed autocracy in labour-surplus – but not labour-scarce – countries; explore the interactions of political regimes, productive assets, and performance standards in South Korea in particular; and discuss their theoretical and methodological implications. The results not only imply that efforts to build new comparative advantages over the long run by means of performance standards that put existing comparative advantages at risk in the short run are unlikely to succeed in labour-surplus democracies but, in so doing, speak to the merits of ‘middle-N’ methods and typologies that try to reconcile the at times competing goals of generality and historical detail in cross-national research.

Acknowledgments

I’d like to thank Ken Shadlen, Ben Ross Schneider, participants in panels at the annual meetings of the American Sociological Association and the American Political Science Association, and the anonymous reviewers for helpful feedback on previous drafts. Replication data and code are available to bona fide researchers on request.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1. Amsden nonetheless finds fault with the World Bank’s ‘doctrinaire’ (1994, p. 628) interpretation of the Korean experience, and my point therefore is less to exaggerate than to acknowledge the similarities between the Bank’s ‘market-friendly approach’ and her more thoroughgoing critique of ‘minimalism’.

2. The countries identified by Amsden are Argentina, Brazil, Chile, China, India, Indonesia, Malaysia, Mexico, South Korea, Taiwan, Thailand, and Turkey (2001, p. 1). Her ambivalence about the Argentine case is discussed in a bit more detail in note four.

3. Amsden later equivocates by noting that India’s ‘democracy has been conditioned by the caste system and dosed with emergency powers wielded by New Delhi’, and ‘Mexico’s constitutional regime embodies decisive privileges for the ruling party’ (1990, p. 18), and in that sense her position is somewhat ambiguous.

4. See, inter alia, Zahralddin-Aravena (1998) on Chile, Sinha (2005, p. 79) on India, and Öniş (1995) on Turkey, in addition to the aforementioned countries and sources. Argentina holds an ambiguous position in both Amsden’s book and the literature on soft authoritarianism. While Haggard and Kaufman portray Juan Perón’s first administration as ‘soft’, they classify the military dictatorships that followed as ‘hard’ (2008, p. 86). But Amsden treats Argentina as the exception (2001, p. 11, pp. 147–149, and pp. 167–169) in her story of reciprocal control as well.

5. Johnson (1982b) provides a more thoroughgoing discussion of legitimacy including the possibilities, and risks, of violence, coercion, and terror.

6. While Stubbs notes that Johnson’s ‘original exposition’ (2009, p. 5) of the developmental state ‘was primarily, although not of course exclusively, institutionalist’ in orientation, he goes on to portray Manuel Castells – whose portrait of the developmental state Johnson later embraced (Johnson, 1995, p. 67) – as the principal champion of the ‘ideational’ approach (p. 6). See also Castells (2000, p. 198, note 113) on Johnson’s acceptance of the ideational approach as a ‘further refinement of his theory’.

7. I adopt the cut-off points of 6 and −6 from Nooruddin and Simmons (2009, p. 861); however the results are materially unchanged if I substitute the different cut-offs (5 and −5) used by Baker and Brown (2010, p. 8).

8. See Appendix Table A1 for a complete list of countries. One reviewer asked whether the analysis was likely to be ‘skewed’ by the inclusion of countries like Kuwait or Norway that ‘were unlikely to have any auto industry at all’. But my goal is to understand the standards, not the vehicles; I control for country size; and the likelihood of actual auto production is both endogenous to the standards and hard to predict in any event. For example, Norway did eventually develop a small auto industry (see, for example, Keefe, 2008).

9. Complete results and graph available from author on request.

10. Buckman notes that ‘local content rules have been fairly common in the car making industry’ in developing countries like China, South Korea, and Malaysia but that ‘high income countries hate local content rules and have consistently fought against them and challenged them through the WTO’ (Buckman, 2005, p. 61). One reviewer asked for a more ‘industry focused’ indicator of development, like the ratio of auto exports to local sales, but the latter would inevitably be endogenous to the level and types of performance standards, and I therefore retain the more conventional income indicator.

11. Balasubramanyam (2003, p. 80) recommends the use of GDP as a proxy for market size, or effective demand, in discussions of performance requirements; however, the results are materially unchanged by the substitution of population size for GDP in the models to follow.

12. Auty actually adduces four different reasons to believe that ‘developmental states are more likely to arise with a poor natural resource endowment’ (Auty, 2000, p. 350) than a rich one including: opposition to rent extraction among the subordinate classes and their allies; support for international trade among the dominant classes and their allies; the need for competitive manufacturing exports to compensate for the absence of natural resource rents; and systemic vulnerability that ‘places a premium on the efficient use of scarce resources and so promotes market discipline’ (p. 351) more generally.

13. Obviously, the indicator itself proxies the inverse of natural resources per head or, in a different rhetorical light, a comparative advantage in human rather than natural resources. See also Keesing and Sherk (1971) and Anderson (1992) on the suitability of population density as a proxy for resource endowments. In a few cases (for example, Taiwan, West Germany, Yugoslavia) I was forced to supplement the World Bank data with nationally specific sources; complete references are available from the author on request.

14. Muller and Seligson are missing data for Chile, Morocco, Bolivia, and Nigeria; I have filled in the missing observations from Frankema (2006), the World Bank (2003), and Oyvat (2013) respectively.

15. The data on the outcome variable were labelled ‘autumn 1980’; my analyses are cross-sectional and descriptive; and I am agnostic with regard to lag structures. I therefore use 1980 values of the key predictors.

16. I do not want to place too much faith in the negative results in Models 2–4. Not only are the standard errors in Model 4 questionable but Doner and his colleagues portray the ‘systemic vulnerability’ produced by ‘restive popular sectors under conditions of extreme geopolitical insecurity and severe resource constraints’ (p. 327) as a ‘necessary and sufficient condition’ (p. 330) for the formation of developmental states in the twentieth century, and thus make a deterministic argument that is not necessarily inconsistent with my findings but rests on different conceptual and epistemological foundations.

17. Of course, part of the problem lies in the difficulty of observing or measuring legitimacy independently of its alleged consequences (Przeworski, 1991, p. 54).

18. Others might treat the reform campaign less as the proactive effort of an autonomous policy-maker than as a reluctant response to foreign pressure, but Kim not only went beyond the demands of the multilateral development banks, according to Sandra Sugawara (1998), but actively encouraged, rather than simply tolerating, foreign investment and takeovers.