Economic Development in the Agricultural Sector: Causes and Effects of Institutional Variation at the Sub-National Level
Dissertation Proposal
Ryan Denniston
Department of Sociology
DukeUniversity
06-06-2005
Version 3.3
Committee: Gary Gereffi, Chair
David Brady
Bai Gao
Suzanne Shanahan
Kenneth Spenner
Table of Contents
I. Introduction
II. Literature Review
III. Theory and Hypotheses
IV Design, Data and Methods
V. Case Selection
VI. Preliminary Research
References
I. Introduction
The process of economic organization is a central theme of research within the social sciences and a particularly important topic in light of increased economic activity across national borders. A number of research traditions have explored this issue at the level of individual organizations, at the industry level, and at the level of national economies, and efforts to link the micro and macro levels of research represent some of the most advanced work in this field. I aim to contribute to the understanding of how economic organization unfolds, and more directly the development of localized specialization in productive activities, through an exploration of the shifting location of agricultural production in the United States. Specifically, I compare and contrast select industries and their spatial evolution within the United States throughout the twentieth century, a period marked by large swings in market expansion, productive investment, and in the relations between components of the agricultural sector. Such an exploration sheds light on the process of industry evolution within the Untied States, while the period under study captures distinct phases in the nature of market construction and expansion at the national and international level.
A study of the process of economic organization provides a clearer picture of the formation of industries and helps to explain the diversity in structure that is apparent at the cross-national level. According to the markets as politics perspective (Fligstein 1996, 2001), economic actors actively work to shape their environments, and these activities often take the form of political acts. In the field of agriculture, these activities largely result in a diversity of national political protections, including legal restrictions on trade, changing relations between various industry actors, and special appropriations made by the public sphere. In the case of agriculture, the power of state governments to mediate market conditions was especially prevalent relative to most other industries. This power enabled the formation of sub-national variation not only in terms of the prevalence of agricultural production, but in political structures and institutional understandings under which industries operate. These actions have often helped to preserve or promote production where producers were threatened, and these actions become formative to further developments in the relations between industry actors.
[[Fligstein]As capabilities to trade beyond national borders increased, pressures on producers to compete for expanded markets against an expanded field of producers created a number of important developments. In strictly economic terms, concentration into localities takes place, as heightened competition requires price competition for survival. The presence of surplus or costly productive activity alongside competitive activity creates divergent interests in the field of liberalized trade and the role of government among efficient and inefficient producers. An unanswered question on this aspect of development concerns what issues these fractions form along….
However, in contrast to efforts to mediate the expansion of markets at the national level, local political actors can only exert indirect influence on national policy. Instead, local actors are forced to mediate the effects of liberalized markets without necessarily having the choice of participation. This should further facilitate the formation of local diversity in political actions oriented toward agricultural policy, even if the aim varies. Further, this approach suggests that the process of market expansion across national borders is not a natural outcome of economic forces, but is the manifestation of competition among producers. Economic policy, whether protectionist, liberal, or mixed, reflects the interests of producers.
The markets as politics approach is less clear when divergence in interests within industries exists. Agricultural producers are highly dependent on the processing component of the industry, which operates in a very different fashion. Changes in this component of the industry directly impact the structure of producers. An approach that details and incorporates both components of the sector is essential to understanding the evolution of any industry in this sector. The global commodity chains approach explicitly conceptualizes patterns of relations between producers geared toward separate activities within a single industry. Incorporation of the unfolding relational patterns within an industry allows for clearer assessment of industry interests and their relation to political developments.
Such a conception of the process underlying economic organization provides insight for several wider debates within the literature. First, this conception treats the process of market creation and expansion as one of active, political acts, rather than as a natural outcome. While support for this conception already exists at the international level, few studies have explored sub-national variation in this process. Second, a focus on the sub-national level sheds light on the process of globalization and how it unfolds at the local level. In this literature, the impacts of globalization are generally treated at the national or industry level, but few studies have attempted to trace the development of globalization or insulation from globalization at the local level.
Finally, studies of economic organization generally treat industries as unitary entities, rather than as packages of relationships between actors carrying out different activities. How the relationships between actors within industries are structured both reflect important aspects of the process of production and influence how the industry as a whole interacts in the political sphere. Changing patterns within industries are reflected in changes in concentration, the location of production, and the political activities that industries undertake to produce and expand markets.
Organization and the Case of Agriculture
Throughout most of human history, agricultural production has taken place within or close to consuming populations. Through advances in communication, transportation, and production, societies have exposed their populations to new sources of agricultural products, new agricultural products not previously available, and declines in the amount of labor required to produce these products. Additionally, transportation technologies have enabled products to travel farther distances, widening markets for individual producers and increasing the efficiency of production at the industry level. These developments over time lead to shifts in where specific products are produced, but they also lead to dramatic changes at the local level, as producers adjust to increasing competition and opportunities.
The agricultural sector remains one of the most protected and subsidized sectors within the economies of the United States and other developed nations, but differences within this sector and differences over time in terms of protection and opportunities are vast. Nowhere are these differences clearer than national policy on trade in agricultural products, as evidenced by the multitude of special protections placed on many agricultural products. Differences in policy also exist at the sub-national level, as actors create and adjust to the expansion of markets for goods produced within their locales through efforts aimed at promoting or mitigating competition. How and why these differences emerge is an important question for this study.
A second question concerns the relationship between market expansion and the concentration of production. The expansion of available markets reduces the reliance of producers on proximity to consuming populations. Over time, the importance of resources at the local level became increasingly important for producers to consider. As the population engaged in agricultural production declined, surviving producers either relocated production of specific products to environments that are more favorable or switched production to other products where possible. However, it is also possible that policy preserves production through various mechanisms. This may especially be the case where threats are widespread and, potentially, any locality can become threatened by market expansion. This issue raises a second reason behind the incorporation of a long historical period into the study. Over time, the population employed in this sector has declined substantially, changing the receptivity of political actors to the interests of producers.
At the level of localities, states vary in their intervention in this sector. As competition for available markets increases, actors lose the benefits of captive markets, leading to competition based on efficiency and efforts to slow change in many cases. In the markets as politics framework, this intervention depends on the extent to which market expansion leads to instability. It is also the case that intervention is dependent on previous styles of intervention (Dobbin 1994). This factor necessitates a comparative approach across multiple states that vary in terms of a number of variables, including patterns of previous intervention.
Agriculture is especially amenable to investigation due to the wide differences across products in terms of how production is structured. As previously stated, industries are not unitary actors, but are composed of multiple firms arranged in productive activities. Small family farms increasingly compete with corporate farms to produce for markets, and both farming and processing activities are required to produce final goods. The relationships between these stages of production are critical to understanding the evolution of industries over time, as well as to understanding the actions industries and components of industries undertake at the political level.
This study compares the evolution of case industries over the course of the twentieth century. Beyond the selection of industries based on variation in theoretically important variables, additional case selection will take place at the level of states within the United States. This will narrow the coverage to an extent where qualitative policy analysis can be conducted. The guiding questions to be addressed are as follows. First, to what extent has specialization in production of agricultural products actually taken place at the national level in light of the expansion of available markets? Over time, is a shift away from proportional representation of production based on population evident? Is there evidence of increasing price competition among producers, and is this phenomenon related to the expansion of markets across national borders?
Second, what are the causes behind these changes? How can vast differences in specialization and policy across industries and locales be explained? Third, how are industries affected by their environments over time? Do political and institutional developments affect the relationships that exist within industries? To what extent is this relationship reciprocal, as predicted by the markets as politics approach? Finally, using globalization as a modern day manifestation of market expansion, how does the incorporation of a political foundation behind the process of market expansion change our understanding of the process of globalization?
The dissertational proposal that follows elaborates on the theoretical motivation and research design. The next section expands the theoretical underpinnings of the proposal through a discussion of relevant literature. Next follows the theory and hypotheses section, which addresses the relevant literature as it pertains to this study. The methods and data section follows, which covers the specific design of the study. Given the nature of the study, case selection of industries is especially important and is discussed in a separate section. Finally, preliminary results are discussed.
II. Literature Review
Introduction
The subject of economic and industrial organization has been approached from a variety of perspectives, from the organizational level to comparisons across nations. Several aspects of organization are critical to understanding the process of institutional formation and how it is related to industry evolution. First, this study casts the industry as the central unit of analysis, but does not necessarily treat industry actors with the same interests. A conception that captures the complexities underlying the operations of industries expands beyond the treatment industries receive in many literatures while integrating the relationships that exist between firms. This complexity is necessary in order to trace the relationships between different segments of the industry, the changes that take place within industries due to interaction between these firms, and the relationships between these firms and their environment. Especially important to the development of this conception are transaction cost economics at the firm level, commodity chains at the industry level, and the markets as politics approach.
Second, industries and their constituents interact with and help to create the environments within which they exist. The process of market formation and expansion entails both an understanding of how firms and industries behave within changing markets as well as a conception of firm responses as they shape evolving markets. Agriculture industries do not exist in isolation, but are highly related to one another within localities, leading to policies that impact multiple agricultural industries. Additionally, in many locales, agriculture competes with manufacturing and service industries for resources and attention from policymakers. Finally, some locales contain only producers, while others also contain significant processing activities. In all of these cases, producers can be expected to behave in different ways in response to environments, and over time, environments can evolve in different ways, leading to further departures between locales within the same industry. At the firm level, population ecology and organizational institutionalism are discussed in detail, while at a more macro level, the markets as politics approach is most useful.
Finally, political acts are central to the markets as politics approach. Firms work primarily to achieve external and internal stability, and where firm survival or rules regulating the relationships between firms are uncertain, firms appeal to political authorities, the legitimate arbiters of conflicts and enforcers of market rules in the modern world, to intervene. In the process, relationships between firms participating in specific markets become institutionalized, as do relationships between firms and political authorities. Industries of producers also look to the actions of one another and to related fields of production in order to gauge instability, appropriate rules governing relationships, and appropriate courses of action, bringing an important cultural element to understanding the evolution of industries over time.
Two aspects of the study highlight the importance of the political-cultural approach to an explanation of changing industrial structure and response to market expansion. First, local, sub-national variation in political intervention exists, which are both the result of efforts to achieve stability in markets and causal for future efforts. Second, the decline of farming and the United States’ relative strength in food processing vis-à-vis the international economy is argued to have changed the relationship between producers and processors. As a result, these two components of the industry will have different interests and will time their activities differently from each other.
While several bodies of literature address the role of the generalized state and the creation of institutions central to market operation, few empirical studies of political authority below the level of the nation-state exist. From the markets-as-politics approach, sub-national variation should come as no surprise. As local political authorities generally hold considerable redistributive power, they become targets for interest group activity. Environments, such as business climate, the size of population employed in agriculture, and the types of farming undertaken, differ by location, leading to the possibility of differing outcomes in business-government interaction. Over time, differences in these developments can lead to differing relationships between government and economic actors and different economic developments.
The outlined perspective requires theoretical elaboration in regards to three issues. First, how should industries be defined? The global commodity chains approach is used to conceptualize industries as coherent stages of production, each with different value contributions toward final products. From this perspective, the stage of production translates into power within the production chain accrued to firms within the stage. Industry dynamics and change can be the result of the activities of firms within an industry and their ability to shape the evolution of the industry through their relationships with other firms in the industry.
At the same time, industries do not exist in isolation, but interact with other industries and interact within specific environments. The markets as politics approach relates industries to one another by conceptualizing markets as fields of action. Actors may be more or less similar to one another due to the nature of production and the patterns that lie behind interaction with other. As a result, firms look to proximate firms in order to gauge success, consider various types of action, and create strategy more generally. In addition to a conceptualization of industries as relations of production containing power dynamics, the environment within which firms and industries are located must also be conceptualized.
Finally, the role of the state and the interaction between the political and economic realms is considered. As previously stated, the state contains authority that can supercede authority that exists in the marketplace, but in order to do so, it must be generally recognized that the state plays a role and that this role includes intervention for various purposes. How this understanding develops and how it is affected by globalization is critical to an understanding of the phenomena studied.
Conceptualizing Industries
Industries generally represent the set of productive activities and firms used to generate end products. Difficulties in defining the boundaries and constituents of an industry revolve around two issues. First, firms within an industry vary in the range of the productive activities undertaken to produce a given product, creating differences among firms in the participation within an industry and across multiple industries. These differences lead to the second definitional difficulty, the issue of defining activities that compose industries apart from related or supporting industries. Industries can be treated as aggregates of firms, but they can also be treated as groups of related activities, with internal dynamics and asymmetric relations between parts of the industry. Most treatments of industries do not fundamentally question the constituents of the industry under investigation, and industries are generally treated as product markets. While this treatment is conducive to broader questions of industries at a cross-national or historical level, it overlooks changes that take place within industries and that shape the evolution of industries over time. The global commodity chains perspective is especially useful in conceptualizing components of industries.