From Hierarchical Capitalism to Developmental Governance: The Emergence of Concerted Skills Formation in Middle-Income Countries

Skills formation is a pressing issue for middle-income countries given the pace of technological change. In Latin America, scholars point to the hierarchical type of capitalism and its segmentalist skills formation system as the main roadblocks to exiting the middle-income trap. Yet we contend that focusing on national models of capitalism is limited because they do not explain within-country variations in highly unequal contexts. That is the case of the emergence of state-business cooperation for skills formation in the Mexican state of Nuevo León, which seems to contradict the national hierarchical pattern. Hence, subnational analysis might uncover alternative pathways. This paper presents a framework for understanding subnational dynamics in middle-income countries, where concerted skills formation systems may emerge. We claim that a combination of external competitive threats and state-led initiatives, like the creation of organizational clusters, can harness business collective action toward coordination in skills formation. To illustrate and further develop our model, we first identify Nuevo León's superior skills availability as well as its state and business associative capacities against the rest of the Mexican states. Next, we conduct a qualitative case study of Nuevo León as a pathway case to process-trace the operation of the hypothesized mechanisms. Our analysis underscores the joint relevance of local state and business associative capacities for skills formation in adverse institutional contexts.