Public intervention to counter the relocation of production abroad: efficiency issues

di Alessandra Taccone Abstract: The economic and financial crisis that has hit the most traditionally industrialized countries has developed into the scope of a process of progressive change in the international specialization of labor that favors emerging countries. These countries, by virtue of different inputs, have gradually withdrawn shares of world production of the most industrialized European countries, who responded to the delocalization process with improper use of financial engineering instruments, adding to their instability. In such a scenario, the recovery of competitiveness can be facilitated by policies of reflation, together with incentives provided by public authorities to businesses to enable them to maintain production activities in the country. In this paper we call theory of incentives – which has developed models of the recent report “principal- agent” a useful guide for public policy interventions that aim to counter, in countries with older industrialization, the process of relocation of their industrial production and employment with them. La crisi economico-finanziaria che ha investito i Paesi tradizionalmente più industrializzati si è sviluppata nell’alveo di un processo di progressiva modifica della specializzazione internazionale del lavoro che favorisce i Paesi emergenti. Questi ultimi, in virtù del differenziale dei fattori produttivi, hanno man mano sottratto quote della produzione mondiale ai Paesi europei più industrializzati, che hanno reagito al processo di delocalizzazione produttiva con l’utilizzo improprio di strumenti di ingegneria finanziaria, aggravando la loro situazione di instabilità. In questo scenario il recupero di competitività può essere favorito da politiche di reflazione, unitamente a incentivi forniti dall’Autorità pubblica alle imprese per consentire loro di mantenere le attività produttive nel territorio nazionale. Nel presente contributo si chiedono alla teoria degli incentivi – che ha elaborato modelli recenti del rapporto “principale-agente” – indicazioni utili per le politiche di intervento pubblico che si propongono di contrastare, nei Paesi di più antica industrializzazione, i processi di delocalizzazione delle loro produzioni industriali e con esse dell’occupazione. Sommario: 1. Offshoring of productive activities; 2. An application of incentives theory under asymmetric information; 2.1. The basic model; 2.2. Multidimensional asymmetric information; 3. Model with participation constraints dependent on the type of agent; 4. The efficiency of public intervention to counter offshoring; 5. Indications for policy measures to counter offshoring. 1. Offshoring of productive activities The economic crisis that hit the world economy – a crisis whose lingering effects the traditional industrial countries in particular are still struggling to overcome in order to regain satisfactory rates of growth – had an evident financial expression [1]. However, the financial crisis developed in the context of an ongoing modification of the international division of labor. In a process begun some thirty years ago, the so-called emerging countries [2] have steadily wrested shares of world output from the older industrial powers thanks to the differential in labor costs (gauged by monetary costs in relation to productivity) but also by virtue of the differentials in other direct and indirect costs that burden firms (taxes and the like; costs due to inefficiencies in other sectors, especially government and distribution; costs stemming from legislation and regulations restricting firms’ choices regarding the use of territorial and environmental resources, production inputs, etc.) [3]. The simultaneous specialization of finance in the industrial countries in new products of financial engineering represented an “improper” (and disequilibrating) response to the migration of production towards the emerging countries [4]. Today and in the future, the economic policies of reflation proposed in the older industrial countries (with a return to the teachings of Keynes) risk having effects of only limited magnitude and duration on those countries’ growth rates and, especially, their employment levels. Reflation alone cannot remedy their deficient competitiveness vis-à-vis the emerging countries; and the new balance-of-payments deficits incurred in order to finance reflation fuel renewed global financial and exchange-rate instability, thus spawning risks of new crises. If a return to historical forms of protectionism is no longer a practicable solution today, then other strategies and instruments of policy have to be developed and made operational. A good starting-point for the study of such intervention is analysis of the agency relationship between government, which intends to give incentives to firms to retain production within the home country, and firms, which in the market economy make decisions based on their calculations of economic advantage. It appears legitimate to ask incentives theory, which has developed the most recent models of the principal-agent relationship, to provide useful indications for public policies, in the older industrial countries, aimed at countering the transfer of industrial activities to emerging countries and the associated migration of jobs [5]. Scarica l’intero contributo [pdf]