Crisis of globalisation and imperialist structures

Herr, Hansjörg Article Crisis of globalisation and imperialist structures European Journal of Economics and Economic Policies: Intervention (EJEEP) Provided in Cooperation with: Edward Elgar Publishing Suggested Citation: Herr, Hansjörg (2025) : Crisis of globalisation and imperialist structures, European Journal of Economics and Economic Policies: Intervention (EJEEP), ISSN 2052-7772, Edward Elgar Publishing, Cheltenham, Vol. 22, Iss. 2, pp. 223-238, https://doi.org/10.4337/ejeep.2025.0150 This Version is available at: https://hdl.handle.net/10419/329938 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ Journal compilation © 2025 Edward Elgar Publishing Ltd © 2025 The Author Invited Article Received 8 December 2024, accepted 1 February 2025 This is an open access work Growth models, growth strategies, and power blocs in Turkey and Egypt in the twenty-first century Ali Rıza Güngen Social Sciences, Columbia College, Canada Ümit Akçay Institute for International Political Economy, Berlin School of Economics and Law, Berlin, Germany [email protected] Analysis of the growth patterns in the Global South in the twenty-first century suggests there is room for authoritarian states to search for new growth models. Authoritarian states, such as Turkey and Egypt, benefited from global financial circumstances in the early 2000s and experienced shifts in growth strategies in the 2010s, suppressing political space further. Our main research question, thus, is focusing on what the main domestic political economy causes of these growth strategy and model changes are. To explain the changes in growth strategies and models amid the strength of reinforced authoritarian regimes in these two countries, we employ a hybrid research strategy, tying growth model changes to conflicts within the power bloc. We argue that in the mid-to-late 2010s, peripheral goods producers gained the upper hand in Turkey, while a military takeover in Egypt was followed by the promotion of exports and new investments. We also contend that power bloc reconfigurations in the last decade and the rise of new growth strategies both in Turkey and in Egypt aimed to change previous domestic demand-led demand and growth models. Keywords: comparative political economy, growth models, growth strategies, Turkey, Egypt JEL codes: B52, E65, E66, F43, O43, P52 1 INTRODUCTION Authoritarian states in Turkey and Egypt rejuvenated themselves in the 2010s. This was a development contrary to the widespread expectation that when faced with deep economic crises and brewing social discontent, authoritarian regimes are less likely to maintain their power. This study elaborates on the growth models of Turkey and Egypt in the twentyfirst century. Despite significant differences regarding export capacity and macroeconomic indicators, political economic developments converge in various aspects in these two countries. Moreover, the authoritarian regimes in both Turkey and Egypt maintained their power while increasingly suppressing the political space in the 2010s (Tuğal 2016). We describe authoritarianism as a set of practices that isolates key policy-making processes from democratic oversight and excludes large groups such as working classes, ethnic minorities or subaltern groups from institutional politics (Salgado 2022). From a critical political economy perspective, authoritarian practices cannot be conceived as clearly cut from Research Article This isan open access work Received 8 December 2022, accepted 7 November 2023 European Journal of Economics and Economic Policies: Intervention, Vol. 21 No. 1, 2024, pp. 151–171 First published online: April 2024; doi: 10.4337/ejeep.2024.01.09 Journal compilation © 2024 Edward Elgar Publishing Ltd © 2024 The Author European Journal of Economics and Economic Policies: Intervention, Vol. 22 No. 2, 2025, pp. 223–238 First published online: April 2025; doi: 10.4337/ejeep.2025.0150 Crisis of globalisation and imperialist structures Hansjörg Herr* HWR Berlin, IPE Berlin, Germany and FMM Fellow The aim of the article is to show that although most countries in the Global South have been able to reduce absolute poverty, with a few exceptions they have not succeeded in catching up with the countries of the Global North. The conclusion of the article is that, especially after the neoliberal revolution in the 1980s, exploitative structures between developed and less developed countries have intensified, which in several dimensions resemble imperialism before World War I. The expansion of global value chains and foreign direct investment from the 1990s onwards has done nothing to change this. This result is explained by various theoretical approaches – absolute and comparative cost advantages, increasing economies of scale and global value chains. Only comprehensive industrial policy and ultimately an alternative model of globalisation can change the current crisis of globalisation. Keywords: globalisation, underdevelopment, trade theory, global value chains, foreign direct investment, imperialism JEL classification: B1, F60, O11 1 INTRODUCTION World trade (sum of exports and imports of goods and services) in per cent of world GDP increased from 24 per cent in 1960 to over 60 per cent at the beginning of the financial crisis 2008 and then stagnated at this level. In 2023, trade to GDP was 63 per cent in high-income countries, 47 per cent in upper middle-income countries, 56 per cent in lower middle-income countries and 50 per cent in low-income countries (World Bank 2025). The promise that deregulated and global product and financial markets lead to convergence in the world economy has not been fulfilled. This also applies to the increasing importance of global value chains (GVCs) including the associated increase in foreign direct investment (FDI) since the 1990s. Especially the massive increase in FDI has raised hopes of a rapid catch-up of all countries following a free market approach. Expectations were not fulfilled. In many respects, the current constellation is comparable to the analysis of globalisation at the beginning of the 20th century, which was conducted under the name of imperialism. At that time, some of the former colonies, such as the USA, succeeded in liberating themselves from the colonial powers, but most of the then underdeveloped countries were unable to initiate a catch-up process. This article will, therefore, discuss key points of the classical imperialism debate and compare the current situation with that before World War I. * Email: [email protected]. European Journal of Economics and Economic Policies: Intervention, Vol. 22 No. 2224 Journal compilation © 2025 Edward Elgar Publishing Ltd © 2025 The Author There are a several economic theories that can explain the failure to catch up of most countries in the Global South.1 Even the basic theories of international trade, absolute and comparative advantages, provide convincing arguments for the difficulties of catch-up development. More modern trade theories complement the argument by taking economies of scale into account. In many areas, GVCs are at the centre of international trade. This places power asymmetries and the effects of FDI at the centre of the analysis. In this article, absolute and comparative advantages, increasing economies of scale and the effects of GVCs will be analysed to determine the extent to which they provide arguments for the lack of catch-up processes in many countries of the Global South. Not discussed in this paper are development problems linked to currency hierarchy, which include currencies with a low level of trust typical for countries in the Global South.2 The dependency theory that emerged after World War II, which at many points comes to similar conclusions as in this article, is also not explicitly discussed.3 In Section 2, an overview of global developments is given. Section 3 discusses absolute and comparative advantages as well as the effects of economies of scale on trade. Section 4 focuses on GVCs and their effects on development. It follows in Section 5 a comparison of the present situation with the debate about imperialism in the early 20th century. Section 6 concludes. 2 A WORLD OF NO CONVERGENCE Looking at GNI per capita measured in purchasing power parity (constant 2021 international US dollar), it becomes obvious that there is no economic convergence in the global economy (see Figure 1).4 Even China could not manage to achieve a catch-up; however, the absolute increase in GNI per capita between 1995 and 2023 was in China almost the same as in high-income countries. In 2019, around 16 per cent of world population belonged to high-income countries, for upper middle-income countries the numbers were 34 per cent, for lower middle-income countries 40 per cent and for low-income countries 9 per cent (World Bank 2019). Measured in purchasing power parities in 2021, US dollar in 1990 USA had a share of world GDP of 20.1 per cent and China of 3.8 per cent. In 2023, the figures were for the USA 14.9 per cent and for China 18.8 per cent (World Bank 2025). Of course, GDP per capita is no perfect measure for the stage of development of a country, as, for example, income distribution within countries is not captured. But it indicates how average productivity as the backbone of development in countries over longer periods develop. Population growth has been different in different country groups. In high-income countries, population increased from 907 million in 1960 to 1.18 billion in 1990 and to 1.4 billion in 2023. The corresponding figures for lowand middle-income countries are 1.98 billion, 3.80 billion and 6.87 billion (World Bank 2025). 1 . The global South is not a homogeneous group of countries. We use the term here for the typical developing country that has been unable to initiate a catch-up process. 2 . See for this debate Herr 2018, Herr and Nettekoven 2022, De Paula et al. 2024 or Alami et al. 2023. 3 . It is no place here to discuss the dependency theory that has many different streams and includes also more political dimensions. For an overview about new developments in the dependency theory, see Kvangraven (2021) or Porcile et al. (2023). 4 . A constant international US dollar buys the same quantity of goods in all countries at constant prices. Crisis of globalisation and imperialist structures 225 Journal compilation © 2025 Edward Elgar Publishing Ltd© 2025 The Author Using purchasing power parity and international-US dollar at 2017 prices income per person of below $2.15 a day is considered as absolute poverty. Using this measure, extreme poverty decreases from 40 per cent of world population in 1990 to 9 per cent in 2022. Without China, the reduction was from 28 per cent in 1990 to 11 per cent in 2022 (World Data 2024: 1). From 2018 on, reduction of extreme poverty has been stagnating. More important are higher poverty lines. ‘At a poverty standard more relevant for upper-middle-income countries ($6.85 per person per day), 44 percent of the world’s population lives in poverty. The number of people living under this higher standard has barely changed since 1990 due to population growth. At the current pace of progress, it would take decades to eradicate extreme poverty and more than a century to lift people above $6.85 per day’ (World Bank 2024a: 1). The global Gini coefficient for disposable income was 0.69 in 1980 remained at around this level until the early 2000s, then fell also due to emerging middle classes in upper-middle income countries slightly to 0.67 in 2022 (Our World Data 2025).5 Wealth inequality is, as expected, much higher. In 2022, 52.5 per cent of the world’s adults had assets below $10,000 and a share of global wealth of 1.2 per cent. And 1.1 per cent of adults with wealth over 1 million owned 45.8 per cent of the world’s wealth. This group, the high-net-worth individuals, increased its share on global wealth from 35 per cent in 2000 to almost 46 per cent in 2022 (Shorrocks and Davies 2023). To sum up, over the past decades, absolute poverty in the world could be substantially reduced, overall poverty ($6.85 per person per day) not. Almost all countries in the world could increase their real GNI per capita, also the extreme poor countries. However, absolute increases in GNI per capita in high-income countries were much higher than in the 5 . To get a feeling what a Gini coefficient of 0.67 means look at the examples in Piketty (2014: 247f.). The top 1 per cent get 25 per cent, the next 9 per cent get 35 per cent, the middle 40 per cent get 35 per cent and the bottom 50 per cent get 5 per cent of total income. Source: World Bank (2025). Figure 1 Gross national income (GNI) per capita, purchasing power parity, constant 2021 international US dollar European Journal of Economics and Economic Policies: Intervention, Vol. 22 No. 2226 Journal compilation © 2025 Edward Elgar Publishing Ltd © 2025 The Author rest of the world; China is one of the few exceptions as China could increase GNI per capita roughly as in high-income countries. Due to the high population growth in parts of the Global South, the share of global GDP of high-income countries substantially decreased, with the corresponding geopolitical consequences. Income inequality on a global level as well as wealth inequality are extremely high. Of course, the Global South is no homogeneous group. The asymmetrical relationships between countries that are developed below exist also within the countries of the Global South. 3 TRADITIONAL ECONOMIC MODELS Absolute and comparative advantages represent the economic core of the explanation of international trade. Taken to their logical conclusion, these approaches provide convincing arguments as to why latecomers in development find it so difficult to reach the level of development of the world’s leading countries. This is shown in this section. As soon as economies of scale are assumed, the approach of absolute and comparative cost advantages is fundamentally modified.6 This aspect is also discussed in this section. 3.1 Absolute and comparative advantages Adam Smith (1776) developed a model of absolute advantages of countries. For example, if country A has a better technology to produce manufacturing goods and country B has natural resources country A does not have, it is obvious that international trade will increase the welfare of both countries. It is also obvious that if the market mechanism is allowed to work the two countries will exchange natural resources against manufacturing goods. David Ricardo (1821) introduced the concept of comparative advantages. He made clear that international trade makes sense even if a county has absolute disadvantages in all traded goods and services. Let us take computers and garment and assume that country A has a technological advantage over country B in the production of both products, but a greater advantage in producing computers. In this case, free trade leads to in country to the export of computers and in country B of garment. For the same global production volume, international trade saves inputs and increases global welfare. In a static approach, Smith and Ricardo certainly are correct.7 However, the argument changes fundamentally under a dynamic perspective. Let us start with absolute advantages. In many cases, countries in the Global South have absolute advantages in the field of natural resources or the cultivation of certain agricultural products. Following the market mechanism and concentrate production and 6 . This is comparable to the models of pure and monopolistic competition, which, under internal economies of scale, must make way for oligopolistic market forms or monopolies. 7 . On neoclassical basis Eli Heckscher (1919) and Bertil Ohlin (1933) explained international trade by comparative advantages, which were based on different endowments of capital and skilled and unskilled labour. Technological knowledge is assumed to be the same in all countries. Developing countries with low levels of capital and a higher share of low-skilled workers will concentrate on low-skilled-labour-intensive productions, whereas developed countries will concentrate on high-skilled-capital-intensive productions. Under ideal conditions, free trade leads to the same remuneration of capital and workers in the whole world (Stolper and Samuelson 1941). Unfortunately, this cannot be seen empirically (see Section 2). Obviously technological knowledge is not the same in all countries. Crisis of globalisation and imperialist structures 227 Journal compilation © 2025 Edward Elgar Publishing Ltd© 2025 The Author exports on such products and import industrial products (and high-level services) from more developed countries is certainly not a good recipe for development. Coffee plantations or the cultivation of mangoes can certainly stimulate the creation of jobs and exports, but these sectors will not make a decisive contribution to the technological catch-up of an underdeveloped country. Big absolute advantages can exist in the export of natural resources from oil to lithium. If the country exports natural resources, for the industrial sector the market mechanism leads to an overvaluation of the exchange rate with the result that manufacturing goods are imported. Industrialisation will not take place or suffers and thus also development. In addition, prices of natural resources are very volatile creating shocks for the economy. As tax revenues depend on the natural resource sector, this volatility makes sustainable government policy difficult. Last not least in countries with high oil and gas reserves, rare earths etc., there is the danger that elites try to capture the high rents earned, in many cases shared with foreign multinational companies (Humphreys et al. 2007; Herr 2016). Comparative advantages for countries in the Global South typically exist in the production of simple industrial products with simple technologies and skills. The production of clothing or shoes is typical. This leads to the outcome that the market mechanism concentrates low-tech, labour-intensive and low-value-adding activities in the Global South and high-tech-high-skills and high-value-adding productions in the global North. Absolute and comparative advantages concentrate for development unpromising sectors in less developed countries, thus preventing an economic catch-up process with the world’s leading countries. The most dynamic sectors at the frontier of innovation become located in the Global North. In these sectors, learning and synergy effects, innovative strength and value added are high and make economies in the Global North permanently more productive compared to less developed countries. Friedrich List was one of the first economists stressing this point. ‘I saw clearly that free competition between two nations which are highly civilised can only be mutually beneficial in case both of them are in a nearly equal position of industrial development, and that any nation which owing to misfortunes is behind others in industry, commerce, and navigation, while she nevertheless possesses the mental and material means for developing those acquisitions, must first of all strengthen her own individual powers, in order to fit herself to enter into free competition with more advanced nations’ (List 1841: xl). And: ‘It is a very common clever device that when anyone has attained the summit of greatness, he kicks away the ladder by which he has climbed up, in order to deprive others of the means of climbing up after him. In this lies the secret of the cosmopolitical doctrine of Adam Smith … and of all his successors in the British Government administrations’ (List 1841: 295f.). It is worth remembering that before England advocated free trade, it developed through protectionist measures (Chang 2002). Paul Krugman (1981), taking economies of scale into account, added an important argument. Innovations and productivity development in general are driven by the so-called external economies of scale. Examples are the Silicon Valley cluster, the Yokohama Mitsubishi cluster, the Shenzhen–Hong Kong–Guangzhou cluster or the Munich-BMW cluster. Such clusters have in common that they are a network of technological leading firms with high-skilled employees, closely connected suppliers, close collaboration between firms with research institutes and universities, a pool of qualified labour and a good infrastructure and government support. In clusters between firms, typically a mix between cooperation and competition exists. Clusters are centres of positive external effects, which result from synergy and network effects and focused government support. The problem is that ‘a small “head” start for one region will cumulate over time, with exports of manufactures from the leading region crowding out the industrial sector in European Journal of Economics and Economic Policies: Intervention, Vol. 22 No. 2228 Journal compilation © 2025 Edward Elgar Publishing Ltd © 2025 The Author the lagging region. This process, I would argue, captures the essence of the argument that trade with developed nations prevents industrialisation in less-developed countries’ (Krugman 1981: 149). Based on this argument, Krugman develops a model that shows that the market mechanism concentrates innovative power in the Global North. Based on the market mechanism, less developed countries have no chance to catch-up. He also pointed out that to maximise profits firms in the Global North at a certain development stage carry out FDI in the Global South to produce simple goods cost effectively. The argument becomes even stronger when internal economies of scale are added. The latter leads to enormous advantages of early movers and to oligopolistic markets or even monopolies. In such market forms, rents by firms are high and profits are generated based on market power. Economic clusters then include the interaction between large and small companies, both with potentially high innovation capacity. In such markets, the entry of latecomers by pure market processes is almost excluded. 4 GLOBAL VALUE CHAINS In GVCs, new dimensions of international trade come into play. This is because in GVCs asymmetric power relations exist and FDI is substantially stimulated. And, as already emphasised, there are high hopes for FDI as a channel for catch-up. The logic of GVCs is that the production of a product including services is cut in different tasks, which are produced in various countries. In case of FDI production of supplies takes place in subsidiaries, in case of subcontracting in legally independent suppliers.8 The World Bank (2022: 19) calculated that in 1970 the share of GVCs in the total volume of global trade was around 36 per cent, then increased to 52 per cent at the beginning of the financial crisis in 2008 and then stagnated. FDI followed a similar trend. From 1970 to the mid-1980s, it was barely higher than 0.5 per cent of world GDP. Then there was a sharp rise with spikes of 4.6 per cent in 2000 and 5.3 per cent of GDP in 2007, after which FDI as a percentage of GDP fell to relatively low levels (2023 to 0.75 per cent) (Macrotrends 2025). In the centre of GVCs are multinational companies (MNCs) as lead firms and organisers of product and financial flows in GVCs. Taking the 10,209 largest companies in the world in 2024 measured in terms of their market capitalisation in US dollar, 3,703 of them come from the USA, 2,781 from the EU including Switzerland, the UK and Norway. Other developed industrialised countries such as Japan, Canada, South Korea and Taiwan account for 1,743 MNCs, Arab oil countries for 565 and Hong Kong and Singapore for 222. From the remaining 1,175 MNCs, 588 come from India and 321 from China (CompaniesMarketcap.com 2024). In industrial production, MNCs are thus located to an extreme extent in the Global North, with India and China the only bigger exceptions. There are two types of GVCs, however, depending on the product or service many different variations in between exist. In one extreme case, parts for the final product are produced in different countries by specialist firms and in the lead firm the various parts are assembled. An example is the production of airplanes. More typical and more important for the Global South is the case when a lead firm with the motivation to cut costs outsources various production stages of a product to different countries. An example is the garment industry when, for example, weaving, dying, cutting or sewing is outsourced to 8 . This section is based on Dünhaupt and Herr (2022) and Dünhaupt et al. (2022). Crisis of globalisation and imperialist structures 229 Journal compilation © 2025 Edward Elgar Publishing Ltd© 2025 The Author different countries. An example is also the Apple iPhone where the production of hardware by the lead firm is completely outsourced to foreign countries. 4.1 Comparative advantages in GVCs The model of comparative advantages can be applied to GVCs. Simple tasks are outsourced to countries with relatively low technological standards, low skill levels of the workforce and no innovation clusters as in these countries wage costs as well as costs arising from tax payments and environmental or occupational health and safety requirements are typically lower than in the home country of the lead firm. High quality tasks like design, branding, research & development (R&D) or marketing are kept in lead firms. Lead firms like Apple and Samsung, to make an example, take over software development, design and marketing and capture 30–49 per cent of total value added, whereas assembly activities are outsourced to less developed countries which capture only 3–4 per cent of total value added (Van Assche 2020). Rungi and Del Prete (2018) analysed financial data of two million firms and found with some variations the same pattern. GVCs have been stimulating industrialisation in some countries of the Global South. First, it is more likely to have a comparative advantage in the production of a simple task than in the production of a whole product. Second, export channels are opened by lead firms which otherwise would be difficult to find. Third, outsourcing of tasks can help to overcome disadvantages in the field of economies of scale as, with the help of lead firms, production facilities can take over the production of larger volumes. Most countries in the Global South managed to increase employment in industry as a share of total employment whereas GVCs certainly supported this development. From 1991 until 2022 in the world, the employment share in industry increased from 21 to 24 per cent. It remained almost the same in low-income countries (9–10 per cent), however, increased substantially in upper middle-income countries (22–28 per cent). The increase from 14 to 23 per cent was dramatic in low middle-income countries as well as the decline in high-income countries from 31 to 22 per cent (World Bank 2025). Thus, we can speak of a deindustrialisation in high-income countries and a shift of industrial job to the Global South. 4.2 Governance and monopsonistic structures Trade in GVCs is not between independent anonymous economic units, as implicitly assumed in models of absolute and comparative advantages. Gary Gereffi et al. (2005) distinguish between five types of governance according to the degree of explicit personal interaction in GVCS. In case of traditional markets, personal interaction between sellers and buyers is minimal, and switching costs to new partners are for both parties low. In modular governance, suppliers deliver tasks to a costumer’s specification, but the supplier has the competence to take full responsibility to deliver the task. In relational governance, the task is characterised by high specificity and needs close interaction between supplier and demander. In captive governance, the lead firm to a large degree monitors and controls the production of the typically simple task produced abroad and there are high switching costs for suppliers. Finally, hierarchical governance exists in the case of subsidiaries of MNCs. From markets to captive and finally FDI, the degree of power asymmetry between the lead firm and the unit producing the outsourced task increases. Besides FDI typical in GVCs with suppliers in the Global South are captive structures. Apparel and footwear are a typical example where large fashion companies take on design and then subcontract specified tasks. In the automotive industry between lead firm and first-tier suppliers, the so-called original equipment manufacturers (OEMs), European Journal of Economics and Economic Policies: Intervention, Vol. 22 No. 2230 Journal compilation © 2025 Edward Elgar Publishing Ltd © 2025 The Author typically relational governance exists whereas OEMs are MNCs as well. First-tier or third-tier suppliers with modular or relational governance outsource tasks under captive structures. Asymmetric power relationships are related to monopsonistic structures. This means that lead firms have an influence on the price of their suppliers’ products, as the latter are dependent on one or a few buyers. Classical examples are suppliers in the clothing industry, where there is fierce competition between suppliers in Vietnam, Cambodia, Türkiye, Bangladesh, Ethiopia and other countries to sell tasks to MNCs. Economic modelling gives a clear picture what happens in case of monopsonies or oligopsonies. Prices and profits of suppliers are reduced to a minimum. This in turn increases the pressure on suppliers to push wages as low as possible, worsen working conditions or fail to fulfil ecological or safety requirements (Milberg and Winkler 2013). 4.3 Upgrading in GVCs Economic upgrading is measured in terms of higher productivity and real income levels of a country. Hopes are that FDI become a major channel to transfer technologies and capabilities of employees and management. FDI is used by lead firm when no technically and organisationally qualified suppliers exist, or knowledge should not be transferred to other companies. Otherwise, subcontracting is more advantageous for lead firms as they can shift much of the burden of volatile demand to suppliers. John Humphrey and Hubert Schmitz (2000) distinguish between (a) product upgrading, having a high quality of the task taken over; (b) process upgrading, produce the task in an efficient way with permanent high quality; (c) functional upgrading, take over higher value creating activities in GVCs like design or research; and (d) inter-sectoral upgrading, move to related industries or use knowledge to enter new industries. There can be no doubt, not only in case of FDI but also in case of subcontracting, that lead firms have an interest in supporting product and process upgrading by transferring technology and training to subsidiaries and even subcontractors. But there also can be no doubt, that lead firms have no interest to transfer key knowledge and higher value-adding functions to subsidiaries or subcontractors. ‘Producers in developing countries are more likely to operate in chains characterised by quasi-hierarchy. (…) Having made the investment, it is in their interest to maintain the relationship and asymmetry’ (Humphrey and Schmitz 2000: 30; Schmitz 2004). To take over simple tasks in GVCs is a strategy for development in a country to start industrialisation in a specific sector or improve a low level of industrialisation. But it should be clear that the market mechanism also in case of FDI keeps the country at a level of simple and low-value-adding productions. No functional upgrading can be expected and no development of national firms with the capability to become national champions. In addition, there is the danger that foreign companies and the introduction of free trade undermine the existence of promising national companies that are not yet able to compete with foreign companies. Dani Rodrik (2018: 14) correctly summarises the effects of GVCs for catching up: ‘New capabilities and productive employment remain limited to a tiny sliver of globally integrated firms’ (Rodrik 2018: 14). 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