“You can’t leave it entirely to the market”

In his landmark 2023 book The Future of the Factory economist Jostein Hauge investigates how industrialization has been shaped by technological developments, new forces of globalization and the threat of ecological collapse. It also charts new opportunities for industrial policy and global governance. He spoke to the OPEC Fund Quarterly in a telephone interview. 

OPEC Fund Quarterly: Let’s start with China and its impact on global industrialization. How does the rise of China to become the “factory of the world” influence development in other developing countries and their chances to join the world market? 

Jostein Hauge: China is obviously challenging the global dominance of Western-based corporations. In the past 20 years or so, China has massively increased its manufacturing capacity and is now close to accounting for 40 percent of global manufacturing production. If you have a big manufacturing sector, you have a lot of power in the world economy. In that sense, China is emerging as a global economic superpower. 

But China is not yet rivalling the global dominance of large US corporates in the digital and high-tech spaces. Currently, global corporate power remains highly concentrated within the US. So, the degree to which China will challenge Western economic hegemony remains to be seen – it has certainly caught up in some areas already. 

For the Global South more broadly, we need to keep our expectations realistic. The process of development from low to high income has always been arduous and challenging. Think about the number of countries that have transitioned from low income to high income since World War II: there are not that many. 

We’re living in a world economy that is organized around the principles of competition. The countries that are best aligned will succeed and China has been competing impressively. But let’s not forget that consumers and transnational corporations based in high income countries have benefitted massively from efficient production systems and cheap labor in China. Additionally, many developing countries have built mutually beneficial trading relationships with China. Overall, the global economy has benefitted greatly from China’s industrialization. 

OFQ: You started your PhD in 2013, when neoliberalism was the dominant doctrine. This seems a completely different era now. How do you see the world today in terms of trade pacts and economic unions such as the BRICS, especially for developing countries? 

JH: I believe that neoliberalism is still very much alive, but we can also describe what is happening now as a sort of neomercantilism. The area where we see a change is trade. US President Donald Trump does not align himself with free trade. His favorite tool is tariffs, even though the economic rationale is not always clear. He is burning a lot of bridges and in that sense, he can be called a neomercantilist. 

However, as an ideology, neomercantilism is about using trade policy and industrial policy strategically. The strategic economic element seems to be missing from Trump’s tariffs, so in that sense the neomercantilist label is questionable in his case. 

Likewise, the EU is turning towards more neomercantilism in response to China. The worrying thing for developing countries is that states with huge financial firepower and capabilities are expanding their national economic power to the detriment of many other countries. Most developing nations simply can’t match the financial muscles of regions like China, the US and the EU. 

Where does this leave the rest of the world? In some ways, it is good that we see greater acceptance of the role of the state in developing countries. But the Global South needs to come together more strongly to form economic alliances like trade blocs. The evidence is pretty clear: Countries that are on similar income levels generally benefit more from trade agreements with one another. 

We should also be cognizant of the fact that institutions that globally govern trade, finance and development like the World Bank, IMF and WTO are largely controlled by the most powerful sovereign states, usually based in the Global North. We need alternatives to this model of global governance and we need to democratize global governance if we want to promote the interests of developing countries with less power in the world economy. 

OFQ: You already mentioned the role of the state: What role can national development banks play in the industrialization of developing countries and how can multilateral development banks like the OPEC Fund provide additional support? 

JH: National development banks provide capital to go into risky ventures that the state sees as important for economic development. You can’t leave it entirely to the market, who is driven by short-term returns. This is partly why development banks have been so important in countries that have developed rapidly and successfully. If you want some kind of control over the direction and over strategic industries, you need some kind of state ownership in the economy. 

A famous example of utilizing state ownership for the purpose of economic development is POSCO, the South Korean steel producer, which was set up as a state-owned enterprise in the 1960s. At that time, the World Bank said the country had no competitive advantage in specializing in steel and did not support the idea. The country went ahead regardless because steel was important for developing its manufacturing sector. Today, POSCO is one of the largest private steel companies in the world. 

OFQ: Speaking of successful industrial policy, do you see a role for artificial intelligence (AI), the so-called fourth industrial revolution, in developing countries? 

JH: One of the key differences between rich countries and poor countries is that the rich countries are for the most part producers of high tech and poor countries are only consumers. So if we’re simply talking of giving developing countries access to technology as consumers, that’s not going to kickstart a path to prosperity and development. Low-income countries need to become producers too, because the process of economic development is a process of developing technological capabilities domestically. 

OFQ: One of the most important parts of your book is a topic that is causing both a lot of discussion and misunderstanding, namely degrowth. In times of factory closures and financial stress it becomes an even hotter topic. Could you guide us through it? 

JH: I’m glad we’re talking about this. Degrowth is about a reduction in resources and energy to bring the economy back into balance. It’s about living within planetary boundaries, and it’s about looking at social objectives and ecological objectives. 

A common misconception is that degrowth is about shrinking the GDP. In fact, the degrowth movement recognizes that lower income countries in general need more growth, yet these countries cannot grow if high income countries use or appropriate the ecological commons of the earth. In some ways, therefore, the case for degrowth in the Global North is also a case for development in the Global South, recognizing that to some degree development must entail increased energy and resource use. 

However, this does not mean that developing countries should only pursue environmentally harmful policies. We see a lot of opportunities in the green transition for developing countries, so-called “green windows of opportunity.” For instance, China has become a world leader in renewable energy manufacturing, while Brazil and in general South America are very well positioned to take advantage of the green transition. 

Development within planetary boundaries means scaling down certain industries, for example fossil fuels, while scaling up others, for instance renewables. We also need to talk more about producing for public rather than private benefit: we need more electric buses, not more private electric cars. Similarly, we need to think seriously about climate remittances from the North to the South. How do we achieve this? We need to democratize decisions, both globally and within countries. International surveys reveal that the scientific community and the public support post-growth principles. The green transition is important for people all around the world. 

OFQ: Do you believe this is achievable within our lifetime? 

JH: In the words of Nelson Mandela, “It always seems impossible until it’s done.” When I talk to people about degrowth, many people agree with the principles, but say that the implementation is unrealistic. But if you look at systemic social change throughout history, it happened through movements that were unpopular among political elites, like the anti-apartheid movement in South Africa, the civil rights movement in the USA or the suffragette movement in the UK. They challenged the status quo, but eventually prevailed because what they fought for was grounded in strong public support. 
 

Jostein Hauge 

Jostein Hauge is a political economist and an Assistant Professor in Development Studies at the University of Cambridge, UK, based at the Centre of Development Studies and the Department of Politics and International Studies. He is also the Director of the MPhil in Development Studies program and a Fellow of Magdalene College. His research lies at the intersection of international political economy and development economics. He has published in various academic journals and works with governments and international organizations.