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Thinning and Thickening: Productive Sector Policies in The Era of Global Value Chains

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Abstract

Effective insertion into global export markets offers the potential for sustainable income growth. However, inappropriate positioning in global markets may well lead to immiserising growth. The key to achieving the beneficial outcome lies in the capacity to identify, appropriate and protect rents, and in the context of intense global competition, to develop the capacity to master dynamic capabilities in order to generate rents on a sustainable basis. This rent policy agenda is necessarily contextual. We argue that the current temporal context is one in which an increasing share of global trade occurs within global value chains (GVCs), and that this is widely recognised. Less widely recognised (and we believe that this is the value added in this article) is the key sectorial distinction between vertically specialised GVCs and additive GVCs. These two families of GVCs require different corporate strategies and different forms of policy support. We refer to the two strategic agendas as ‘thinning’ (in the case of vertically specialised GVCs) and ‘thickening’ (in the case of additive GVCs). The additive GVCs tend to be relatively more important in low- and middle-income economies, particularly in Africa and Latin America and parts of South and East Asia. Critically, since effective policy support applies to the agricultural, resource, manufacturing and services sectors (and to the interconnections between them), we argue that ‘industrial policy’ is a misnomer, and instead we conceive of the policy agenda as one that addresses the ‘productive sector’.

Abstract

Pour récolter les bénéfices de la mondialisation, il faut la capacité d’identifier, de s’approprier et de protéger les loyers, et dans le contexte d’une concurrence mondiale intense, de développer la capacité à maîtriser les dynamiques afin de générer des loyers de façon durable. Cet ordre du jour politique des loyers est forcément contextuel. Le contexte temporel actuel est tel qu’une part croissante du commerce mondial se produit dans les chaînes de valeur mondiales (CVM). Au sein des secteurs, nous distinguons les CVM spécialisées verticalement et les CVM additives. Ces deux familles de chaînes de valeur mondiales exigent des stratégies d’entreprise et un soutien politique différents. Pour nous référer aux deux agendas stratégiques, nous utilisons les mots ‘éclaircissement ’ (dans le cas des chaînes de valeur mondiales spécialisées verticalement) et «épaississement » (dans le cas des chaînes de valeur mondiales additives). Les CVM additives ont tendance à être relativement plus importantes dans les pays à revenus faibles et moyens. Nous soutenons que «politique industrielle» est un terme impropre, et qu’à la place, nous estimons que l’ordre du jour politique se doit de traiter du ‘ secteur productif ’.

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Notes

  1. Schumpeter defined entrepreneurship as the commercial exploitation of inventions (Schumpeter, 1934). However, not all created rents are driven by the quest for profit, since many social actors apply knowledge-based inputs in order to achieve social objectives, for example, in socialised health-care and educational systems.

  2. For example, in the apparel sector, Nike outsources all production and operates as a buyer-driving governor, whereas Zara’s command over its chain arises from its competences in production and logistic organisation.

  3. For example, whereas Walmart and Tesco exert meta-governance in their fruit and vegetable GVCs, there is also a degree of countervailing producer-driven power by the firms governing logistics in these sectors.

  4. An important caveat needs to be made to this oft-cited example. This is that these numbers only reflect the first round of disaggregation. However, many of the inputs imported into China are themselves a product of vertically specialised sub-chains, so that the overall value added in China (and indeed in all the countries reflected in Figure 1) is likely to be rather different from those reported by Xing and Detert. Rather than undermining the analysis by Xing and Detert, this caveat reinforces their central observation of the fracturing of GVCs.

  5. For other examples of contrasting patterns of geographical dispersion in additive GVCs, see Kaplinsky and Morris (2014) and Morris and Fessehaie (2012).

  6. The recognition in mainstream economics of the need for industrial policy to respond to market failures began to receive prominence more than two decades ago in a response to the role played by the state in Japan and the east Asian newly industrialised countries (Page, 1994).

  7. Strategic support for the military sector is clearly evident across many economies and this has spawned a number of technologies of commercial importance (including the internet) (Mazzucato, 2013). Other examples of sectoral incentives are the UK support for the automotive sector, the United States for the hydrocarbon and processing sectors and Germany for renewable energy.

  8. Unfortunately, space constraints do not allow us to extend this analysis of rent exploitation, generation and protection in GVCs. Reference is, however, made in the text to the wider literature from which these insights are drawn.

  9. The innovation literature distinguishes between innovations that are new to the firm, new to the economy, new to the sector and new to the world.

  10. For example, selling furniture into smaller retail outlets offers greater scope for producers to design and brand their own products, although with much smaller volumes than those involved in serving IKEA and other global multiples.

  11. In Henry Ford’s mass production River Rouge plant constructed in 1927, virtually the whole value of the car was added in a single plant from the unloading of iron ore, through the manufacture of steel and the manufacture and assembly of the components into the final vehicle.

  12. Much of the international financial institution’s policy agenda relating to GVCs focuses almost exclusively on trade policy and fails to address the importance of these complementary policies (World Economic Forum, 2012; OECD Trade and Agricultural Directorate Trade Committee, 2014).

  13. For example, between 2011 and 2013, the number of firms supplying batteries for the iPhone in China doubled from 8 to 16, and local firms began to produce formerly imported inputs such as acoustic components (Mishkin, 2013). Although undocumented, the value added in China in the production of the iPhone5 is almost certainly much greater than the $6.50 incorporated in the early versions of the iPhone4.

  14. Examples of such complementary polices can be found in Morris et al (2012) and Kaplinsky and Morris (2014).

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Authors and Affiliations

  1. University of Sussex, East Sussex, UK

    Raphael Kaplinsky

  2. University of Cape Town, Cape Town, South Africa

    Mike Morris

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  1. Raphael Kaplinsky
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Kaplinsky, R., Morris, M. Thinning and Thickening: Productive Sector Policies in The Era of Global Value Chains. Eur J Dev Res 28, 625–645 (2016). https://doi.org/10.1057/ejdr.2015.29

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