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Global value chains and global production networks in the changing international political economy: An introduction
Jeffrey Neilson1, Bill Pritchard1 and Henry Wai-chung Yeung2
1School of Geosciences, University of Sydney, Sydney, Australia
2National University of Singapore, Singapore
The emergence of global production and distribution systems, which bring together diverse constellations of economic actors through an increasingly complex regime of global corporate governance, widespread outsourcing of productive functions, and new international divisions of labour, has stimulated the rise of corresponding conceptual models to explain these developments in International Political Economy (IPE). Global value chains (GVCs) and global production networks (GPNs) have been particularly useful as explanatory frameworks for understanding the global market engagement of firms, regions and nations. These interrelated approaches explain geographical patterns of value creation, retention and capture in the global economy primarily through the conceptual architecture of chain governance and network dynamics â crucial theoretical shorthands for the ability of lead firms to coordinate the value-added activities of a multitude of economic actors (Gereffi, 1994; Henderson et al., 2002; Gereffi et al., 2005). Through these theoretical frameworks, global market engagement is reconceptualized from a passive process involving the reaction of independent actors to market signals, as in international trade theories (e.g. Grossman and Rossi-Hansberg, 2008), to a set of industrial transformations constructed within system-wide dynamics of coordination and control by economic and non-economic actors.
A key feature of global economic reorganization presented in these conceptual models is the progressive outsourcing by lead firms in developed countries of their peripheral, and frequently low-value, productive functions to low-cost countries and regions, while maintaining control of core nodes of value creation and retention in their home countries. Despite spatially diverse production systems and the fragmented ownership of different productive functions, lead firms have continued to dictate the terms and conditions of participation in networks and chains through different types of governance that act upon participants âat-a-distanceâ. The generalized trend, highlighted two decades ago in a seminal book chapter by Gereffi (1994), was the increasing prominence of buyer-driven commodity chains in the global economy. The US retail behemoth Wal-Mart (along with its European counterparts Tesco from the UK, Carrefour from France, and Metro from Germany) was emblematic of this emergent form of economic organization, reflecting the massive transformation of the retail sector in North America and Western Europe, and the enhanced purchasing power of advanced economies, while simultaneously off-shoring production to other countries â primarily those in East Asia, Latin America, and Africa (see also Hamilton et al., 2011). These dual processes of continued high rates of consumption in the affluent world and expanding economic opportunities for value chain participation elsewhere in the world have provided the bedrock for the attendant models of global economic organization. Indeed, the phenomenal economic rise of East Asia over the last quarter century was predicated upon these exact processes.
Since Gereffiâs (1994) initial work, academic research on GVCs and GPNs has grown substantially and entered into a mature phase in the 2010s. This journal has published two of the most influential theoretical papers in this genre of research in the social sciences (Henderson et al., 2002; Gereffi et al., 2005). In recent years, the lexicons of global value chains and global production networks have also received significant attention from major international organizations such as the World Bank (Cattaneo et al., 2010a), UNCTAD (2013), World Trade Organization (Elms and Low, 2013), OECD (OECD-WTO-UNCTAD, 2013), and elsewhere. A 2010 World Bank report on the post-2008 world economy further claims that âgiven that production processes in many industries have been fragmented and moved around on a global scale, GVCs have become the world economyâs backbone and central nervous systemâ (Cattaneo et al., 2010b: 7). The time is now ripe for a critical reappraisal of the conceptual development and the empirical manifestations of GVCs and GPNs as the core feature of the international political economy. In December 2011, we organized a workshop in Singapore bringing together many of the leading researchers in the GVC-GPN platform that led to this special issue of Review of International Political Economy. The eight articles in this special issue reinforce our assertion that now is a critical moment to ask major questions about state functionality in the context of fundamentally restructured global production systems, changing international political economy in the face of significant market shifts, and future prospects for theory development in this genre of IPE research. In what follows, we discuss each of these three major questions in light of the papers in this special issue.
First, the conceptual prisms of GVCs and GPNs have long prefigured central questions about the role of the state in shaping the international political economy. To date, however, explicit theorization of the stateâs role has been somewhat lacking in the GVC and GPN literatures. State action and inaction is often a key aspect of GVC/GPN research narratives (about firms, regions, nations), but is rarely placed in the foreground, and even more rarely, given due theoretical consideration. While the original GVC formulation tends to treat the state as a context for firm-specific action, GPN researchers are more explicit in their incorporation of state institutions in shaping the constitution of global production networks. We argue that global economic change is increasingly demanding a greater prominence of such considerations. The state is clearly not a unitary entity, but a constellation of functions and capacities. Importantly for the subject at hand, the enactment of these functions does not always crystallize in consistent signals for global engagement and potential upgrading. State action, and inaction, inherently comprises the contradictions that are intrinsic to the complex exercise of sovereign powers. The absence, as much as the presence, of the state might be a crucial shaper of the (dis)enabling environments for articulation into GVCs and GPNs. In particular, state action and inaction creates the enabling conditions that shape whether and how firms, regions and nations are able to engage with global markets, and their capacities to upgrade these engagements. Most obviously, this includes such policy arenas as wage-setting, tariffs, taxes (and tax concessions), infrastructure provision, education, training and research, and spatial planning (such as the establishment of free trade zones and business hubs).
On the one hand, GVCs/GPNs are emergent artefacts from state action: they always âtouch downâ somewhere, and in every âsomewhereâ, there is always the hand of the state (either in its presence or its relative absence). Yet also, GVCs/GPNs impact recursively within the arenas in which they are connected. Processes of global competition associated with participating in GVCs and GPNs may place pressures on the state to dilute or liberalize wages policies; may inspire the state to beef up research or training capacities; or may entice states into entrepreneurial strategies such as provisioning firms with tax holidays or even taking a direct equity stake in these firms, in the attempt to capture a âbetter sliceâ of a GVC/GPN. Normative stances on the appropriate role of the state have, of course, featured prominently within ongoing debates around development models, as with the Washington Consensus and the perceived need for a post-Washington Consensus. In this special issue, the papers by Gereffi (2014), Neilson (2014) and Yeung (2014) offer a useful reinterpretation of the stateâs role in GVCs and GPNs. While Gereffiâs paper argues that the emergence of contending centres of political institutions and power in the post-Washington Consensus era has led to a more diffuse role of state capacity, Yeung argues for a fundamental shift in partnership between economic actors and state institutions in favour of non-state actors in global production networks. Neilson questions the way that GVC theory and practice have, perhaps unwittingly, repositioned the role of the state as an agent of development. Taken together, these conceptual papers point to the changing role of the state in a global economy coordinated through GVCs and GPNs. Empirically, Lee et al.âs (2014) paper provides a nuanced analysis of the reconstituted role of the South Korean state in supporting the articulation of its domestic LCD industry into global production networks. Instead of the all powerful developmental state cajoling domestic firms â the dominant leitmotif in earlier studies of East Asian development (e.g. Amsden, 1989; Evans, 1995), Lee et al. argue that the South Korean state plays an intermediary role in facilitating the strategic coupling of domestic economic actors with global lead firms.
Second, rapid market shifts have fundamentally reshaped the international political economy in recent years, particularly since the 2008 global financial crisis. The relationship between economic development models and the changing realities of global economic organization has been a feature of much research using the frames of GVCs and GPNs. Accelerating globalization in the 1990s and 2000s was reflected in GVC/GPN research into international subcontracting networks in sectors such as clothing and footwear, electronics, consumer goods, automobile assembly and agri-food systems. These complexes were sectoral expressions of the geo-economic shifts in the trade balances of countries in the global North (especially the US). The rise of China as âfactory to the worldâ and, to a lesser extent, India as the âworldâs back officeâ were contingent upon the global expansion of captive forms of chain/network governance in manufacturing and services. As lead firms headquartered in the global North ruthlessly relocated upstream activities to lower cost production sites in the global South, they manufactured the global conditions of debt and imbalance that, arguably perhaps, lay at the heart of recent global economic turmoil. A vital question at the current moment is how global-scale shifts in consumption and production relations (particularly if and when the Chinese Renminbi is re-valued against the US dollar) will reverberate upon GVCs/GPNs.
The global financial crisis of 2008, ongoing economic stagnation in many parts of Western Europe and Japan, the rapidly growing economic (and geopolitical) influence of China, and the end of Washington Consensus development models have raised new questions about whether the organization of the global economy is entering a new phase. Perhaps most significant in this regard is the shifting end-markets for consumer goods as the balance of purchasing power shifts towards Asia and other emerging economies (e.g. Brazil, South Africa, Russia, and elsewhere). This shift is characterized by the widespread expectations that Chinese demand will be the prime catalyst capable of leading the world out of economic stagnation. If this is indeed to occur, then the corresponding shifts in corporate and geopolitical power are profound, and we would argue, have not yet been fully conceptualized in IPE. As long as the architecture of global economic organization aligned with the political priorities of developed states, there was little cause for friction: but this may be changing. In this special issue, Yangâs (2014) article tackles specifically how Chinaâs shift from export-oriented industrialization to growing its own domestic market may have significant implications for understanding how foreign and domestic firms rearticulate and reconfigure value-adding activity in their production networks. At the international level, Gereffiâs (2014) paper observes that such a geo-economic shift towards very large economies in the Global South may reshape the power relations between global lead firms and their suppliers. Some of the latter have grown significantly to become major producers in their own right, partnering rather than depending on the former to succeed in global competition. Both papers point to the cascading effects of how market shifts are transmitted through value chains and production networks in different industries.
Third, theoretical advancement in GVC-GPN research seems to be lagging behind a large number of empirical studies of different value chains and production networks in the global economy. While several of the pioneering papers are highly influential in empirical research, they remain fairly typological and categorical. One group of these papers (Gereffi, 1994; Gereffi et al., 2005) tends to focus specifically on the governance of different types of value chains; another group of theory papers (Henderson et al., 2002; Coe et al., 2004; Yeung, 2009) offers a range of conceptual categories such as territorial embeddedness and strategic coupling for understanding economic development. Still, none of these provides the necessary causal explanation of why and how economic development takes place in different regional and national economies. In this regard, two papers by Mahutga (2014) and Ponte and Sturgeon (2014) seek to advance theory development in GVC-GPN research. In particular, Mahutgaâs paper develops an exchange-theoretic conceptualization of inter-firm power in order to explain the different configurations of global production and, by implications, the diverse developmental trajectories of national economies. Going beyond inter-firm exchange relations, Ponte and Sturgeon propose a modular theory development process that incorporates both inter-firm relations and broader institutional, regulatory and societal processes to arrive at a more comprehensive theory of GVC governance.
While these two papers by Mahutga (2014) and Ponte and Sturgeon (2014) help refine our existing theoretical understanding of inter-firm power dynamics and chain governance, they remain broadly confined to a âproductionistâ understanding of GVCs and GPNs. Seeking to break new theoretical ground, Coeâs (2014) paper shifts our conceptual and empirical attention away from manufacturing industries to logistics both as a service industry with its own distinctive value-generation networks and as a critical link enabling value activity in different global industries. This expanding conception of âproductionâ in GVC-GPN thinking beyond mere manufacturing activity is a welcome move to underscore the critical importance of intermediaries in such chains and networks. Apart from providers of logistics...
