A bridge over troubled water: A Structural Political Economy of vertical integration

Abstract

In his classic 1973 article, Luigi Pasinetti formalised the algorithm of vertical integration. The algorithm ("logical process") shows the link between representations of industrial interdependencies, originating in Quesnay's Tableau économique and systematized by Leontief (1941, 1951), von Neumann (1945-6) and Sraffa (1960) among others, and vertically integrated representations such as those implicit in the classical theory of value, Keynesian macroeconomics and important strands of marginalist economics. 2 In industrial economies, production is carried out through interdependent processes. For example, agriculture produces corn, which is used in agriculture as seeds and in manufacturing for the subsistence of workers. Manufacture produces steel, which is used in manufacture to make steel and in agriculture in the form of ploughs. The fact that each industry provides inputs for other industries, and acquires the output of other industries as inputs, is what is referred to as industrial (or circular) interdependencies (CI henceforth). Vertical integration (VI henceforth) is the logical process whereby intermediate commodities are eliminated and attention is concentrated on primary inputs and final commodities. Corn is 1 The research leading to this article began with the presentation "The political economy of circular interdependencies and vertical integration: Opening the black box of 'national interest'" at the conference The Economics of Structural Change: A Conference in Honour of Luigi Pasinetti, 12-13 September 2012, Gonville and Caius College, Cambridge, and the SSRN working paper with the same title (Cardinale, 2012). 2 The dualism between industrial interdependencies and vertically integrated representations provides a fundamental lens to interpret different traditions in economic analysis (see contributions in Baranzini and Scazzieri, 2012a (1 st edn. 1990) and in particular Baranzini and Scazzieri 2012b, 2012c and Landesmann and Scazzieri, 2012; see also Scazzieri 1990, 1996). This paper's focus on vertical integration does not mean to privilege vertically integrated representations over those based on industrial interdependencies, but rather to concentrate on the possibility to switch back and forth between the two representations, which was highlighted by Pasinetti's (1973) formalization. attention to the socio-political dimension of the structure of division of labour-a layer that is connected, but not reducible, to the material dimension emphasized by the 20 th-century revival of structural analysis.

Vulnerability, Resilience and ‘Systemic Interest’: a Connectivity Approach

“…their dependence upon the interests of different stakeholders. The key contribution of the paper lies in the use of the concept of systemic interest (Cardinale 2015(Cardinale , 2017(Cardinale , 2018b to characterize a dimension of vulnerability and resilience that is (or should be) shared across stakeholders, exploring how this depends on features of network connectivity. Systemic interest was described as the interest of stakeholders in keeping the system viable.…”

“…as receiving wages or profit (see Baranzini and Mirante 2013 for a broader discussion of the definition of social groups that are compatible with different economic models). The BStructural Political Economy^(SPE) approach (Cardinale 2015(Cardinale , 2017(Cardinale , 2018b; Cardinale and Landesmann 2017; Cardinale and Scazzieri 2018) aims to provide a more general framework to analyze the socio-political dimension of economic systems, revealing manifold possibilities to identify relevant stakeholders. In fact, from an SPE perspective, models of division of labor can be seen as maps of constraints and opportunities for different stakeholders (Cardinale 2018b).…”

“…The BStructural Political Economy^(SPE) approach (Cardinale 2015(Cardinale , 2017(Cardinale , 2018b; Cardinale and Landesmann 2017; Cardinale and Scazzieri 2018) aims to provide a more general framework to analyze the socio-political dimension of economic systems, revealing manifold possibilities to identify relevant stakeholders. In fact, from an SPE perspective, models of division of labor can be seen as maps of constraints and opportunities for different stakeholders (Cardinale 2018b). For example, input-output representations of connectivity model the economy as a set of interdependent industries, whereby the output of each industry provides inputs to other industries.…”

“…For an industry, the opportunity might be associated with a higher value added accruing to that industry, independently of how it is then distributed between categories of income (rent, profit, wage, etc.) across income earners within the industry (Cardinale 2018b).…”

“…3 In this sense, it is true that Bwhat constitutes improvement or detriment is observer dependent^ (Helfgott 2018, p. 853;see also Carpenter et al 2001). However, this paper argues that the concept of Bsystemic interest^ (Cardinale 2015(Cardinale , 2017(Cardinale , 2018b can help identify a dimension of vulnerability and resilience that is likely to be shared across stakeholders. Systemic interest is the interest of stakeholders to preserve the viability of the socio-economic system within which they act.…”