The political economy of conditionality and the new industrial policy

Conditionality was a central concern in the development literature of the 1990s. With the massive expansion of targeted public support to private firms since the Great Financial Crisis, the question of conditionality is once again at the center of industrial policy debates. Despite the growing interest in the concept, the existing literature does not provide a systematic conceptualization of conditionality in the context of industrial policy, nor does it outline the political factors that facilitate the introduction of conditionality by state actors. This paper addresses this gap by offering a systematic political economy of conditionality. We provide an overview of the literature on conditionality, focusing on different industries, historical periods, and national contexts. In doing so, we make three contributions to the debate on industrial policy. First, we distinguish between two broad instruments of conditionality: performance standards and corporate control devices. Next, we map the coalitional, institutional, ideational, and global contextual factors that facilitate conditionality. Finally, we offer two vignettes of recent industrial policy initiatives in the EU and the US as illustrative cases. We make two arguments. First, the presence of conditionality is not primarily a technical matter of political design, but is shaped by combinations of political economy factors. Second, industrial policy conditionality provides an important theoretical lens for assessing how and where the recent revival of state activism represents a substantive break from the neoliberal order.