The Role of the State in Global Value Chains

A consistent critique of global value chain (GVC) theory is its limited attention to the role of the state in understanding industry governance and upgrading. Despite addressing the role of the state in industrial policy (Gereffi and Sturgeon 2013) and a growing emphasis on the role of public governance in complementing private governance (Mayer 2014), the GVC literature has yet to provide a framework to categorize and explain the different roles governments take in promoting the participation of local firms in GVCs and their economic, social and environmental upgrading. We argue that the role of the state in GVCs is an important concern for scholars in light of relatively strong and capable emerging economy governments in the Global South willing to exercise their power vis-à-vis global lead firms, and an increasing number of GVCs shifting to South-South trade.

We find that the state acts in five major ways on value chains: 1) as a rule-setter for competition (i.e., the institutional foundation), which is consistent with the original insights in the global commodity/value chain theory; 2) as the formulator and executor of GVC-oriented industrial policy; 3) as a network facilitator, in which the state acts as a match-maker between domestic and foreign firms; 4) as a buyer of goods and services for government procurement, which changes the role of the state from taking a supportive role in the value chain to being a quasi-lead firm in a buyer-driven commodity chain; and 5) as an active participant in the creation and development of state-owned enterprises (SOEs). We explore these roles using case examples from our research and draw implications to GVC theory and analysis. We examine the network facilitation role of the state using the example of the South Korean animation industry from 1990-2011. The procurement role of the state is examined using the case of water infrastructure construction in the United States from 2009-2013. The SOE role of the state is exemplified by the steel industry in China from 2001-2013. Thus, we conclude that states take multiple roles in value chains, ranging from laissez-faire to activist approaches, which are determined by the political economy in which they reside.