State Capacity for Transformative Industrial Policy in Central Eastern Europe

The paper engages with ongoing debates in comparative and international political economy on economic development and industrial policy in dependent market economies of Central Eastern Europe (CEE). While these economies are now members of the group of advanced economies, many studies still emphasise their semi-peripheral status in the international economy, a result of their deep dependency on inward foreign direct investment and deep integration into lower value-added activities within global value chains. Large body of the development-oriented comparative political economy literature agrees that to move up the value chain these economies need some sort of strategic directionality to guide further economic restructuring through industrial development and technological upgrading and through increasing the innovation potential. Many of these developments must come from transformative industrial policies and in turn trough capabilities of socio-economic and political actors to mobilise towards their design and implementation. Thus, strategic directionality implies that political and socio-economic actors pursue similar goals and act in a coordinated way to achieve them. In short, a certain degree of state capacity is needed. The earlier literature linked the capacity of the state to achieve its development goals notwithstanding opposition of some powerful groups to a variety of socio-political configurations. Notable examples of these configurations include strong, often autocratic developmentally minded state leaders as in the case of late industrialisers in East Asia or state-business-labour concertation as in the case of small states in West Europe and Israel. Many of these forms of state capacity, however, became less feasible in the 21st century due to growing democratisation, the decline of unions, and changing conditions for development brought by globalisation of production, trade and finance. Given such a context, a specific focus of the paper is on how CEE countries are capable to implement transformative industrial policies given that they tend to lack important prerequisites of the state capacity of earlier successful developers from East Asia and North Europe. To answer this question, the paper synthesises the existing literature to investigate ideational, institutional, political and geo-political conditions in CEE countries that have shown conducive to result in sufficient state capacity for building higher value-added economies there. The paper proposed for presentation is a part of an ongoing project that aims to develop a conceptual framework and a typology of state capacity for transformative industrial policy tailored to the specific contexts of the CEE region. Consequently, the presentation will included preliminary findings from the project.