Varieties of state capitalism and their implications for economic performance

Interesting paper by Aldo Musacchio (of HBS) and Sérgio G. Lazzarini.

They compare state capitalism as a leviathan and show how state capitalism has evolved over the years. State holds stakes in companies in 2 forms: as majority investor and a minority investor. If former form has declined, States have overcome that by gaining in latter.

In this paper we document the extent and reach of state capitalism around the world and explore its economic implications. We focus on governmental provision of capital to corporations – either equity or debt – as a defining feature of state capitalism. We present a stylized distinction between two broad, general varieties of state capitalism: one through majority control of companies (e.g. state-controlled SOEs) and a hybrid form that relies on minority investments in companies by development banks, pension funds, sovereign wealth funds, and the government itself. We label these two alternative modes Leviathan as a majority investor and Leviathan as a minority investor, respectively. Next we differentiate between these two modes by describing their key fundamental traits and the conditions that should make each mode more conducive to development and superior economic performance.

Key points of the research are:

  • The form of state capitalism prevailing in the twenty-first century is different from that observed in the second half of the twentieth century.
  • Governments, particularly in emerging markets, have justified the rise of such forms of hybrid capitalism as a way to solve market failures. Private companies, in contrast, see the rise of new state-owned enterprises, firms with minority government ownership, and private companies backed by loans of development banks as threats.
  • Whether forms of state capitalism are regarded as benign or pernicious, very little has been known about these new forms of government intervention. Questions remain about the various institutional mechanisms by which states exercise control, why state capitalism reemerged and in which form, and its effects on both firm performance and state governance.

Nice bit. Shows examples from many countries on how they are using their own model of state capitalism..


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