Situational state capacity for transformative industrial policy in dependent market economies

Abstract

The paper engages with ongoing debates in political economy on industrial policy (IP) and economic development in dependent market economies of Central Eastern Europe. More specifically, the paper focuses on how these countries are capable to implement transformative IPs given that they tend to lack important prerequisites of earlier successful developers. To answer this question, the paper synthesizes the existing literature on successful economic transformations into a conceptual framework of state capacity for transformative IP, which comprises of two components – developmental mindset and political mobilization. Based on this framework, one form of state capacity relevant to Central Eastern Europe – situational state capacity – is explored in more details. Building on insights from international relations and from nationalist-constructivist political economy, the paper proposes a model of conditions under which situational state capacity, defined as the ability of the state to mobilize and deploy existing policy and administrative resources effectively and legitimately in response to specific contextual conditions and with economic restructuring in mind, can emerge and result in mobilization of political elites toward pursuing transformative IP. The paper illustrates this model empirically with the recent case of semiconductor technology transfer from Taiwan to Lithuania.