1 in SEARCH of NEW STATE CAPITALISM: Reflections on New
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IN SEARCH OF NEW STATE CAPITALISM: Reflections on New Paths of SOE Management in China, Brazil, and Turkey Mustafa Ozgur Bozcaga Abstract: There is an evolving consensus in today’s world indicating that economic markets need greater state presence and tighter regulation. Such sentiments have naturally followed the implosion of financial markets in the late 2000s. For most of the 20th century, national economies had “ideological blueprints” to sustain economic growth and development. However, the evolving consensus on state presence in national economies does not have an identifiable blueprint. Without a directive format, novel forms of state capitalism emerge, not similar to the state capitalism of the past, where states had full ownership of numerous major state-owned enterprises (SOEs) operating nearly in all sectors of the domestic economy, and regulated the economy with its “visible hand”. In these new forms, states do not regulate the economy through full ownership of these SOEs. Instead, they either hold majority shares of SOEs following a partial privatization, or they hold minority (but still significant) shares of certain firms. This paper seeks to probe the practices of recently rising new state capitalism through new forms of state ownership in SOEs in three distinct developing nations. It will examine the forms and the concentration of state assets in the SOE shares in the aftermath of the neoliberal transformation with a focus on China, the champion of state capitalism in the 21st century, along with the two emerging markets: Brazil and Turkey. It will claim that, starting from the late 1990s, the role of the state in the economy has evolved into a new kind of state capitalism concentrating on majority shareholding in firms operating in the upstream sectors with strategic importance. I. Introduction: In search of New State the current rise of state capitalism is an Capitalism open threat to liberal capitalism, and that When communism collapsed, bells toll for the free market economy neo-conservative and neo-liberal circles (Bremmer, 2010). Nonetheless, there is proclaimed that it was the end of history, an evolving consensus in today’s world liberal democracy is the “final form of indicating that state presence and tighter human government” (Fukuyama, 1989, regulation of the markets is severely 4) and capitalism prevailed over other needed, following the implosion of forms of economic order. It is ironic that financial markets in the second half of after the 2008 financial crisis, scholars the previous decade. Implications of this from the same intellectual vein posit that emerging consensus are also reflected in 1 government policies for major bank different parts of the developing and bailouts and liquidity injection developed world. Following this, there amounting to billions of dollars to came a neo-liberal wave with the financial and car manufacturing sectors, economic crisis of 1970s. Nearly every which are “too big to fail,” even in national economy rushed to deregulate, countries deemed to be the “avatars” of privatize, and shrink the size of the state state capitalism (Acemoglu & Robinson, in order to be more efficient. 2012). Following this trend, major Predominantly, international monetary questions are related to how extensive, institutions like the IMF and the World for how long and in what form should Bank provided blueprints for these state regulation and intervention be policies. And yet, rising state capitalism enacted. does not have a blueprint today. As For most of the 20th century, capitalism garnered certain doubts after national economies had “ideological the crisis and as command economies blueprints” to sustain economic growth have been stigmatized as unfeasible and development. Following the (Przeworski, 1991: 133), there is an financial crisis of the 1930s and the urgent need for an alternative in simultaneous success of the Soviet managing national economies and economy, Western economies were locating the status of the state in this new attracted to the basic tenets of planned picture. Apparently, governments aiming economy in order to sustain economic to increase some degree of state presence growth under dire crisis conditions. in the management of their national Following WWII, newly emerging economies do not have a guide to follow. independent countries of the third world In this regard, the rise of new state were allured by the economic capitalism through varied state performance of developing countries that shareholding and privatization schemes were implementing policies of planned in SOE management comes as an economy and asserting a certain level of alternative answer to the current dirigisme. Planned economy and impasse. dirigisme were appealing for poor newly Without a guiding blueprint, state independent nations to attain high levels capitalism comes in novel forms, unlike of modernization without going through the state capitalism of the past in which the painful process that the economically states had full ownership of numerous developed Western countries went major SOEs operating nearly in all through in most of 18th and 19th century. sectors of the domestic economy, and The blueprint for developmentalism and regulated the economy with its “visible developmental states was generally hand." In these new forms, states do not influenced by the communist central regulate the economy through full command economies, and the variations ownership of these SOEs. Instead, they of this model were implemented in either hold majority shares of SOEs 2 following a partial privatization or they and increasing through the post-WWII hold minority (but still significant) years, the blueprint provided by shares of certain firms. command economies and influence of This paper will examine the forms Keynesianism induced many Western and the concentration of these state economies to nationalize companies in assets in the SOE shares in the aftermath their utilities sector and also to invest in of the neoliberal transformation with a major manufacturing sectors as an focus on China, the champion of state entrepreneur (Toninelli, 2000). Though capitalism in the 21st century, along with criticized by scholars such as von Mises the two emerging markets: Brazil and as a simple relabeling of socialist Turkey. It will claim that, starting from command economies (Von Mises, 1981: the late 1990s, the role of the state in the 257), state capitalism became the hype economy has evolved into a new kind of in the post-crisis years. Dirigiste state capitalism concentrating on economic planning in France, creation of majority shareholding in firms operating SOEs in the coal sector in Britain, and in the upstream sectors with strategic large nationalizations in Italy and Spain importance. The cases of China and are some examples of this trend among Brazil show that resource-based sectors many others (Hall, 1986; Schmidt, demonstrate a trend towards sustaining 2003). bigger asset concentrations in The idea of state capitalism as a state-owned enterprises (SOEs). The variation between socialist command second strand of my investigation, economies and capitalist free market minority shareholding, demonstrates economies came under intense varied outcomes in different contexts, intellectual scrutiny with the rise of East which demonstrates the necessity of Asian economies in the 1970s and further research in the area.1 1980s, also known as “Asian Tiger miracle.” However, it must not be II. Brief Introduction on State dismissed that previously some of Max Capitalism in the Past and Today Weber’s work focused on various State capitalism is neither a bureaucratic institutions necessary for recent phenomenon nor a concept complementing free markets at the end confined to explain developmentalist of 19th century (Weber, 1978). In the goals solely of the late-comers in the post World War II years, works by 1960s and 70s. Beginning in the 1930s, Hirschman and Gerschenkron emphasized the role of state presence in 1 It must be noted that this inquiry may the economy as a factor of industrial suffer from selection bias and the highly expansion (Gerschenkron, 1962; descriptive character of the work may gloss over several aspects of the current situation on the Hirschman, 1958). However, state ground. Nonetheless, the objective of this paper capitalism with a development focus, or is a descriptive inference, rather than a causal one and it can help to derive useful conclusions “capitalist developmental state,” is for future research. 3 thoroughly explored initially in Chalmer 1970s and 1980s. Consequently, the rise Johnson’s work on the effect of Ministry of state capitalism and emphasis on of International Trade and Industry creating and investing in SOEs were (MITI) for enabling domestic halted in the 1980s. Higher inflation coordinated economy of Japan in the levels both in developing and developed post World War II period. He explains countries pulled SOE profitability to the Japanese state capitalism model as lower levels, and governments began to neither a socialist command economy subsidize losses of these firms through nor a capitalist mixed economy, but their respective national budgets. rather a model based on “plan-rational” Increased budget deficits caused acts of the state, allowing the existence subsidization of these low performing of private property with state guidance firms and were politically and (Johnson, 1982). economically costly for governments. Amsden and Wade further Moreover, IMF and World Bank