Nationalization of Strategic Industries and Finance-Industry Relationships

Nationalization of important branches of the economy

Many strategic branches of the economy were nationalized in many countries, for example, heavy industries like iron and steel or shipbuilding, network industries such as telecommunications and electricity (which were considered natural monopolies).

Finance/Industry relationship

●The Anglo-Saxon model is different and firms rely more on capital markets for the provision of finance.

●In Germany banks have been heavily engaged with industrial capital in durable relationships based on long-term success. The interlocking relationships between financial and industrial capital have provided stability, a healthy flow of information to the financial institutions which in turn has helped firms to obtain the necessary finance for investment on better terms than in disengaged Anglo-Saxon systems

There’s a Bank-finance centred around a Hausbank. Besides, Small and medium-sized firms, the backbone of Germany’s export industry – the so-called Mittelstand – have secured access to finance through local savings banks (Sparkassen). Above this structure of local banks sit the regional Landesbanken, which act as wholesale banks for the savings banks and can also provide more sophisticated services, such as hedging and offshore financing.

In France and Japan banks were nationalized after World War II to help industry. And in many developing countries such as Spain, South Korea, and so on, there was financial repression, forcing banks to invest in industry.

Collective Bargaining and Social Compact

Workers gained ground and collective bargaining was important during this period.

• Wages were higher
• Welfare state was strengthened on condition to accept new management techniques at work.
• Following the golden rule (wages keeping pace with productivity) workers were able to buy the new production.

During the 1940s-1950s the world, the Western world, changed. Before, workers’ sons and daughters were condemned to be workers. From that moment, education became more important and society became more open.

Unfortunately, most of humankind didn’t escape from poverty, and people from the South were not allowed to move north. If the same proportion had emigrated from the Global South since the Second World War as left Europe between 1850 and 1920, 800 million people would have moved north, expanding the total population of the more advanced countries by 70 percent.

Innovation Systems

The US developed a very important innovation system during this period (Mazzucato, 2015).

In Germany some research institutions with public fundings are universities, Max Planck Society, Helmholtz Association, Leibniz Association, and Fraunhofer-Gesellschaft.

Developing Countries and the Developmental State: The Korean Miracle

Japan applied a very active industrial policy through MITI (Ministry of International Trade and Industry). Korea was one of the poorest countries in the world in the 1950s. Poor countries usually suffer from a lack of infrastructure, institutions, and human resources.

The defining feature of the developmental model is the use of state power to meet designated national economic objectives.

The state employed means that are condemned by free markets ideology:

1. cheapening credit below the market price and channeling it to “strategic” industries
2. screening imports and foreign direct investment so as to prevent market penetration in these sectors by foreign capital
3. subsidies to create national champions (picking winners), etc.
4. That way enterprises didn’t become too confident on public aids and they had to react and be competitive.
5. The Korean government set up a public steelmaker: POSCO (Pohang Iron and Steel Company). Initially, the Korean government developed labor-intensive industries, but then, thanks to the effort made on education, also high-technology industries
6. Education was a core element

Through the Korea’s Economic Planning Board (EPB): The geopolitical context of US aid is an important factor that can make Korea’s experience unique. US foreign aid helped Korea develop the administrative capacity. The Americans set up many programs to train Korean public officials. The training produced a group of military elites who later became leaders in the government and businesses These bureaucrats were committed to development and avoided corruption.