The Business Side of Industrial Policy

Abstract

Under what conditions do businesses choose to reconsider their immediate, short-term competitive niches and engage in long-term, systematic thinking by searching for new business models? This crucial question is left aside by the contemporary literature on industrial policy insofar as it assumes that the problem of industrial upgrading and learning is one of states facilitating private firms’ pursuit of their already-established drives. Drawing from five cases in Latin America (two in Guatemala, two in Nicaragua and one in Colombia) where industries voluntarily broke free of inertial trajectories to seek new approaches to business, we find that conditions of “systemic vulnerability” (Doner et al. 2005) – a combination of shocks in demand, sectoral competitiveness and civil/social conflict – force business elites to reconsider their constituents and investment timeframes in a manner analogous to political elites in Doner et al.’s model. Based on these observations, we contribute to theories of industrial policy and industrial upgrading by identifying the factors that inhibit and encourage firms’ initiation of searches for new business models.