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Oligopoly, Regional Development and the Political Economy of Separatism

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Oligopoly, Regional Development and the Political Economy of Separatism OLIGOPOLY, REGIONAL DEVELOPMENT AND THE POLITICAL ECONOMY OF SEPARATISM - with a case study of the United Kingdom and Scotland - By IVAN RAJIĆ Darwin College This dissertation is submitted for the degree of Doctor of Philosophy at the Centre of Development Studies, University of Cambridge Date of Submission: December, 2017 OLIGOPOLY, REGIONAL DEVELOPMENT AND THE POLITICAL ECONOMY OF SEPARATISM - with a case study of the United Kingdom and Scotland - IVAN RAJIĆ The present thesis aims to increase our understanding of the causes of separatism. The inspiration for this topic comes from the fact that separatist conflicts can become extremely destructive, and thus a better understanding of why they emerge may help us prevent much human suffering by pointing to ways in which separatism can be avoided. More specifically, the thesis aims to explain the link between separatism and regional development disparities. The argument presented is that inter-regional economic conflicts (such as about inter-regional fiscal redistribution) easily emerge between regions at different levels of development, and that under certain conditions, particularly prolonged recessions and austerity, such conflicts can become an important driver of separatist aspirations. This can happen in both poorer and richer regions. The thesis further argues that this entire process can only be fully understood if we analyse society through a class prism. Given that regional development disparities often lie at the root of inter-regional economic conflicts, one of the ways of avoiding such conflicts – and thus also separatism – would be to equalize regional development levels. In order to do so, however, we first need to understand why regional disparities emerge and persist. Focusing on capitalist countries, the thesis argues that the disparities emerge as a natural consequence of the operation of oligopolistic markets, which are the dominant market form in capitalism. Regional development policies are explored at length, and it is argued that they are generally insufficient to overcome the tendency of markets to produce regional disparities. All the topics in the thesis are explored at the general level and for a larger number of countries, but the main in-depth case study is of regional disparities in the United Kingdom and how they relate to Scottish separatism. To my father ACKNOWLEDGEMENTS A large number of people have helped this thesis come to completion. First and foremost, thanks goes to my supervisor, Ha-Joon Chang. I would like to thank my colleagues and professors from the Centre of Development Studies and the rest of the University. A lot of the ideas that made it into my thesis were made clearer thanks to our discussions. I would like to particularly thank Natalya Naqvi, Anne Henow, Rafe Martyn, Vasiliki Mavroeidi, Alicia Krozer, Vesna Stamenković and Nina Rismal for reading my chapters, giving comments, and suggesting cuts. Especially in the last couple of weeks before submission, I could not have done it without them. I would like to thank Donald Adamson, Lindsay Paterson and Mike Danson for taking the time to discuss my PhD with me at length. This has been tremendously useful. My partner, Sanja Serafimovic, deserves particular thanks for putting up with me while I was writing my thesis. I would also like to thank those who never get praise in these acknowledgments sections, but who have helped make writing every social science PhD I know much easier. First, all the wonderful people who develop the products without which a PhD would be far more arduous to write. Doing tables without Excel, writing without Word, and looking for literature without Google Scholar are all quite possible, but luckily not necessary anymore. I am particularly grateful to Google and Amazon for Google Books and Amazon’s “Look Inside” function, for all those times when I smartly forgot to note down the page number where my quotes were located. Second, everyone who has worked hard on making the various statistical sources I have used accessible and clear. I am particularly thankful for the massive improvements to the Office for National Statistics website during the time I was writing my PhD. Third, all the volunteers behind LibGen – both those who maintain the website and those who tirelessly scan books for us to download. Even with access to a library like the Cambridge University Library, LibGen has made things much easier. Thanks also goes to the University Information Services for not blocking access to LibGen, like our ISPs do. 1 TABLE OF CONTENTS PREFACE ......................................................................................................................................................... 5 1. INTRODUCTION ........................................................................................................................................ 6 2. BIG FIRMS, OLIGOPOLISTIC MARKETS AND ECONOMIC DEVELOPMENT ........................... 13 2.1 PRODUCTIVITY INCREASES, ECONOMIC SECTORS, AND DEVELOPMENT ...................................................... 14 2.2 STANDARD THEORY OF THE FIRM AND PERFECTLY COMPETITIVE MARKETS ............................................... 16 2.2.1 Standard theory of the firm .............................................................................................................. 16 2.2.2 The theory of perfectly competitive markets ..................................................................................... 19 2.3 BIG FIRMS AND OLIGOPOLISTIC MARKETS ................................................................................................ 21 2.3.1 The emergence of big firms.............................................................................................................. 21 2.3.2 Competition and planning in modern capitalism .............................................................................. 23 2.4 BIG FIRMS AND DEVELOPMENT ................................................................................................................ 27 2.5 DEVELOPMENT POLICIES ......................................................................................................................... 28 3. REGIONAL DEVELOPMENT AND OLIGOPOLIES ............................................................................ 34 3.1. MECHANISMS OF REGIONAL DEVELOPMENT AND UNDERDEVELOPMENT ................................................... 35 3.1.1 Growth poles ................................................................................................................................... 36 3.1.2 Interactions between richer and poorer regions............................................................................... 39 3.1.3 Regional redistribution in favor of poorer regions ........................................................................... 46 3.2 ARE SOME REGIONS MORE SUITABLE FOR DEVELOPMENT THAN OTHERS? .................................................. 47 3.3 OTHER THEORIES OF REGIONAL DEVELOPMENT ........................................................................................ 49 3.3.1 Location theory, regional science, and new economic geography .................................................... 50 3.3.2 Marxian geography ......................................................................................................................... 52 4. REGIONAL DEVELOPMENT POLICIES .............................................................................................. 54 4.1 PRE-1980S INTERVENTIONIST PERIOD ...................................................................................................... 55 4.2 POST-1980S DEREGULATION PERIOD ........................................................................................................ 60 4.3 NEVADA: A CASE OF SUCCESSFUL INDIGENOUS REGIONAL DEVELOPMENT ................................................ 65 5. REGIONAL DISPARITIES AND SEPARATISM ................................................................................... 72 5.1 COMMON ECONOMIC CHARACTERISTICS OF SEPARATIST REGIONS ............................................................ 75 5.1.1 Absolute levels of development of a region and its country .............................................................. 75 5.1.2 Regional level of development relative to the country average ......................................................... 76 5.1.3 Trade dependency ........................................................................................................................... 77 5.1.4 Decentralization .............................................................................................................................. 78 5.2 INTER-REGIONAL ECONOMIC CONFLICTS .................................................................................................. 80 5.2.1 Sources of separatist conflicts: economic policies ........................................................................... 80 5.2.2 Sources of separatist conflicts: unintended market consequences .................................................... 85 2 5.2.3 Sources of separatist conflicts: recessions and austerity .................................................................. 87 5.3 CLASS, NATIONALISM AND SEPARATISM .................................................................................................. 92 5.3.1 A short overview of nationalism....................................................................................................... 92 5.3.2 The
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