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

• In Event: 559 - Regular Session. Development

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 export performance and local content, for example, East Asian officials forced their producers to raise quality, cut costs, and develop linkages to ancillary industries that generated jobs and foreign exchange earnings 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 labor surplus—but not labor scarce—countries; explore the interactions of political regimes, productive assets, and performance standards in South Korea in particular; and discuss the implications for industrial policymaking in the twenty-first century more generally. The results imply that efforts to build new comparative advantages over the long run by adopting performance standards that put existing comparative advantages and employment at risk in the short run are unlikely to succeed in labor surplus democracies.

Author

• Andrew Schrank, Brown University