Industry and Work in Contemporary Capitalism

Global Models, Local Lives?

Victoria Goddard, Susana Narotzky

• Publisher: Routledge
• Year: 2015
• Print ISBN: 9780367869410
• eBook ISBN: 9781317745211
• Edition: 1
• Topic: Social Sciences
• Subtopic: Sociology
• Index: Social Sciences

Throughout history and in every geographical location, the rise and fall of industry, which impact the fate of large populations, are tied to the development and cultural entanglement of particular models that are articulated with political power. Models are understood as knowledge devices – expert, theoretical, practical and commonsense – that are embedded in cultural and social environments and designed through struggles at various scales.

This book results from the collaboration of an interdisciplinary team bringing together specialists in anthropology, geography, sociology, economics, political science, mathematics and engineering around the theme of 'Models and their Effects on Development Paths'. Based on empirical research conducted on the heavy industries, Industry and Work in Contemporary Capitalism addresses how models that inform the organization of work and production and are created by powerful actors may diverge from, overlap with, or contradict the models articulated by less powerful actors on the ground, and how they are connected across material and cultural spaces. Careful observation of industrial work and production as they unfold in and across specific localities and affects people's livelihoods is complemented by analysis of how models circulate, through which channels of power, which institutional entities, which political connections.

This volume explores an extensive theoretical terrain and a number of empirical cases that show, from different perspectives, how ideas about the economy, about work and industry, materialize in specific practices and interventions that affect people's livelihoods.

I Models – what they are and what they do

2 Isomorphism and local interests in the diffusion of global policies

An enquiry into privatization policy adoption using computer modelling and simulation

Arianna Dal Forno and Edoardo Mollona

DOI: 10.4324/9781315794679-2

Introduction

How and why do countries adopt different economic policies in their industries? This is the subject of a heated debate. A large body of literature explored the global dissemination of privatization in the late 1980s and early 1990s. The phenomenon is what Bortolotti and Pinotti (2008) called the privatization wave. The literature, however, emphasizes two different aspects of the phenomenon. While some, mainly economists, support the thesis that global diffusion is the consequence of common underlying economic and technological factors, others advocate that mechanisms of coercion or imitation among countries induce a global institutionalization of privatization policy.

This chapter compares privatization patterns in the steel industries of Argentina, Italy and Spain. More precisely, we compare government intervention in the steel industry over the period 1945–2010. The comparison reveals a fairly evident similarity and raises questions as to the plausible common determinants.

The debate mentioned above focuses primarily on a simplified analysis of the similarity between privatization policy adoption processes. The focus is on the shift from previously adopted models of state intervention to privatization decisions in the late 1980s. What appeared to be lacking was an analysis that was able to speculate on the similarity of longitudinal patterns of policy adoption in the history of an industry.

The aim of this chapter is to explore whether and to what extent the three countries under consideration adopted similar policies for the steel industry. The idea is to capture candidate causal mechanisms that may generate similar policy adoption behaviours. To do so, we adopt an unconventional approach based on formal modelling and computer simulation. We first present our empirical analysis of steel privatization in Argentina, Italy and Spain. Then, we simulate plausible policies to produce specific privatization patterns. These simulated patterns are compared with the real ones to speculate on the extent to which the simulated policies provide a plausible explanation of the commonalities in the observed privatization behaviours. The chapter contributes to the literature on privatization by providing further evidence to support the neo-institutional approach. In addition, it proposes that a model that we label ‘market-driven’ may be a plausible candidate policy model to explain governments’ privatization behaviour in the period from the 1980s to the 2000s.

The chapter is organized as follows. First, we review economic literature that emphasizes country-specific precursors of privatization; then we present a view of policy adoption that examines the neo-institutional theory in sociology. Next, we present the collected empirical data, and then we provide and discuss a number of simulation runs. We close the chapter by speculating on the contribution that our work brings to the neo-institutional theory of policy-making.

The economics literature on privatization

Why do countries privatize their industries? The topic has been widely explored in the economics literature. Recurring arguments for privatizing state-owned firms refer to the increased efficiency of the incentives brought about by private ownership in competitive markets (Bos, 1991: 7; Vickers and Yarrow, 1997: 9), to the control on management operated through capital markets (Vickers and Yarrow, 1997: 11) and to the relief that revenues from privatization provide for states with high deficits and limited possibilities for bond sales (Vickers and Yarrow, 1991: 119). A rich body of empirical literature in economics, however, has examined how country-specific political contexts may induce or inhibit the adoption of privatization policies. At least three lines of research are worth mentioning.

First, economists refer to partisan theory and public choice theory to suggest that, in general, right-wing governments are associated with a higher likelihood of privatization while left-wing governments lead to the contrary (Biais and Perotti, 2002; Bortolotti et al., 2004; Bortolotti and Pinotti, 2008). Empirical studies exploring privatization processes in Organization for Economic Cooperation and Development (OECD) countries have found significant statistical evidence linking right-wing governments with a higher likelihood of privatization (Bortolotti and Pinotti, 2008). However, when tested in developing countries, the hypothesis that left-wing governments are associated with a lower likelihood of privatization does not find significant empirical support (Boubakri et al., 2005a, 2005b).

Second, Dinc and Gupta (2011) examined the role of region-specific political factors in influencing the likelihood of privatization. They found that privatization is significantly delayed if a firm is located in a constituency where the governing and opposition party alliances have won similar shares of the vote and thus political competition is intense. No firm located in the constituency of the minister with jurisdiction over it is ever privatized. Furthermore, the government also delays the privatization of firms that are located in districts where the opposition party has wider voter support. The authors argue that governments attempt to minimize the effects of a political reaction by delaying privatization in districts where the governing party faces more competition from the opposition; therefore, the dispersed benefits and concentrated costs of privatization appear to have a significant effect on the pattern of privatization sales.

Third, the ‘war of attrition’ argument (Alesina and Drazen, 1991; Spolaore, 2004) suggests that less political fragmentation favours executive stability and allows incumbent governments to expedite the privatization of a sizeable fraction of their state-owned enterprise (SOE) sector, as the constituency of ‘losers’ as a result of the policy change is less likely to enjoy bargaining power. Conversely, highly fragmented political systems tend to disperse decision-making power among different actors, so that executives are weaker and are characterized by higher turnover. In this context, the different political actors tend to have difficulty agreeing on how to distribute the burden of the policy change, and privatization will be delayed by a ‘war of attrition’. Political systems with a smaller number of parties and operating under majority electoral rules privatize sooner, while large-scale privatization is delayed in more fragmented democracies. In this vein, Bortolotti and Pinotti (2008) suggest that political fragmentation, which is related to the number of agents with veto power in a political system, may hamper the implementation of policies with distributional consequences, such as privatization. This prediction is tested by estimating a statistical duration model with data from a country-level study for 21 advanced OECD economies in the 1977–2002 period. The results are consistent with the empirical implications of the war of attrition theoretical model.

Neo-institutional theories of policy adoption

The institutional approach to the study of the international dissemination of privatizations dates back to the work of Ikenberry (1990). The author suggested that, in addition to global economic and technological trends which might also encourage international policies to converge, privatization policies are adopted internationally through the three mechanisms of external inducement, emulation and policy bandwagoning, together with social learning.

More recently, to explain the global diffusion of policies and practices, neo-institutional scholars extended the analysis of isomorphism from organizations to nation-states in a ‘world society’ approach (Jepperson and Meyer, 1991; Meyer et al., 1997). This thread of research applied the neo-institutional theoretical repertoire to the worldwide spread of independent central banks (Polillo and Guillén, 2005) and stock exchanges (Weber et al., 2009). To explain the adoption of neoliberal and market-oriented reforms in infrastructure industries in a sample of countries, Henisz et al. (2005) used a similar neo-institutional approach. They explored the role of international forces that push countries to adopt specific policies. The authors considered the role of typical neo-institutional mechanisms of isomorphism such as coercive isomorphism, normative emulation and competitive mimicry.

More specifically, in their empirical study, Henisz et al. analyse the adoption of neoliberal reforms in the telecommunications and electricity industries. Their hypothesis is that the mechanisms of isomorphism are precursors for predicting the occurrence of four dependent variables that define neoliberal and market-oriented reforms: privatization, formal separation between the regulatory authority and the executive branch, de facto elimination of executive political influence on the regulatory authority, and the opening of the retail market to multiple service providers. In their study, empirical testing strongly supported the hypothesis that privatizations in the electricity industry are determined by mechanisms of coercive isomorphism. More precisely, the authors found a strong statistical relationship between a country’s exposure to international lenders (such as the IMF) and the probability of privatizing the electricity industry.

Interestingly, the argument of coercive isomorphism also emerges in the empirical economics literature. Brune et al. (2004) suggest that there is a consistent and strong relationship between IMF lending and privatization, as privatization was more extensive in countries with larger outstanding obligations to the IMF. The study is based on empirical analysis of privatization over the 1985–1999 period. Their results show that privatization revenues were higher in the countries of East Asia and the Pacific (13.3 per cent of 1985 GDP) than in North America and Western Europe (8.9 per cent of 1985 GDP). Most importantly, the variable measuring outstanding obligations to the IMF was positive, large and statistically significant, whereas the estimated parameter for World Bank debt was negative and insignificant. The authors conclude that IMF lending had a positive impact on privatization revenues, inferring that the imposition of IMF conditions in a country won the approval of global capital markets for its privatization programme.

Comparing steel privatization in Argentina, Italy and Spain

To capture the state’s attitude towards the steel industry, we focus on the proportion of raw steel that is produced by privately owned firms. That is, for the 1945–2010 period, we first calculated the aggregate production of raw steel by privately owned firms in each year. To do so, we defined a firm as state-owned when more than 50 per cent of its equity was owned by the state either directly or through state agencies or a ministry....

Table of contents

• Cover
• Half Title Page
• Title Page
• Copyright Page
• Table of Contents
• List of illustrations
• Notes on contributors
• Acknowledgements
• List of abbreviatoons
• Part I Models – what they are and what they do
• Part II Scale and disjuncture
• Part III Innovation, technologies and power
• Part IV Policies and politics
• Index