State capitalist impulses: the rise, fall, and rise again of sovereign wealth funds in Ireland

ABSTRACT

State-owned investment funds have grown in number in recent years. This growth is curious in that it comes at a time when the barriers to the free flow of financial capital across borders is extremely low and capital is generally in abundance. Although it is certainly relevant that capital does not always flow to the most socially and economically useful places, which could justify the need for some form of state intervention, such intervention is puzzling with so much abundance. In short, what explains the joint and concurrent expansion globally of the state’s role as promoter, supervisor and owner of capital? Contrasting arguments that take the emergence of new state financial institutions as indicative of some countermovement to neoliberal globalisation, or as catch-up development, this article provides an explanation based on a reflexive reading of ‘state capitalism’ whereby the development and expansion of different forms of state financial institution are material manifestations of state capitalist impulses rooted in the state’s ongoing political mediation of global capital accumulation. This article focuses empirically on the development and evolution of state financial institutions in Ireland, specifically the National Development Corporation, the National Pensions Reserve Fund, and the Ireland Strategic Investment Fund.

KEYWORDS:

• State capitalism
• sovereign wealth funds
• conjunctural analysis
• Ireland
• strategic investment funds
• uneven and combined development

JEL:

• G23
• O16
• O25

1. INTRODUCTION

In May 2023, the Irish government announced that it intended to establish a new sovereign wealth fund (SWF). With so many multinational corporations funnelling their profits via Ireland, reflecting the highly uneven distribution of planetary surplus, the public purse has ballooned. For the government, the windfall poses an issue of absorptive capacity (i.e., the capacity of the economy to effectively channel the windfall productively and without stoking further inflation). The government also recognises that this income is not assured over time, as corporate profits are volatile. It is also possible that the regulatory advantages Ireland has will be challenged by other jurisdictions. Hence, Ireland’s position in a changing geography of global capitalism affords the state the capacity to absorb global surplus. The government is now proposing to recycle this surplus, by putting it in motion as financial capital through a new state investment fund.

But this looks like a moment of history repeating itself; Ireland already has a SWF and has had comparable funds in the past. Yet, the Irish case is not unique. The growth of various forms of state-owned or controlled investment institutions across emerging and advanced economies in the last two decades has been significant. Since the early 2000s, the number of SWFs has increased to over 100 funds from a handful before the turn of the millennium, with assets increasing from roughly $1 trillion to over $9 trillion.¹ While most SWFs are mainly diversified portfolio investors, there is a growing number with a strategic investment mandate to advance national industrial and development policy (Schena et al., 2018). Likewise, conventional development finance institutions have increased nearly two-fold since the 2008 global financial crisis, with most of the growth taking place in national development and policy banks; national development banks are four times as large as the multilateral development banking system (Kring & Gallagher, 2019; Marois, 2021a). In Europe, we have seen the growth and expansion of existing national development banks, such as the German KfW, but also the emergence of new institutions such as Bpifrance, CDP Equity in Italy, the Ireland Strategic Investment Fund and EU-level initiatives, namely the 2015 Investment Plan for Europe, also known as the Juncker Plan (Mertens et al., 2021). The COVID-19 pandemic most recently served to reinforce the growth we have seen of state financial institutions and direct investment mechanisms.

The growth of state financial institutions is curious in that it comes at a time when the barriers to the free flow of financial capital across borders is extremely low. There is not a dearth of investable capital looking for bankable projects and assets. Arguably, there is no lack of asset managers with the human resources, experience and expertise to funnel capital to where it is needed (Clark & Monk, 2017). For developing economies with shallow capital markets, the case for state support is certainly stronger, as risk-adjusted returns are often unappealing for private capital and the transaction costs too high. For advanced economies, the availability of finance and financial institutions from the private sector is typically not in short supply. This does not mean that regional disparities and the existence of regional equity gaps in advanced economies are insignificant (Klagge & Martin, 2005). Such disparities matter, particularly for more centralised national financial systems. And such disparities are often an important component motivating the increase in state financial institutions. Yet, such regional disparities cannot alone explain the massive growth of state financial institutions.

Why are we seeing the emergence of so many state financial institutions across countries – rich, poor, democratic, authoritarian or otherwise – at a time of so much ‘finance’? Typically, the answer to this question comes in three forms. Firstly, such growth and development of state finance is portrayed as catch-up development (Griffith-Jones & Ocampo, 2018). This can be applied easily to developing and emerging economies where the state is seen as providing a helping hand, often with the private sector, to catalyse and speed up economic development by identifying, prioritising and ‘de-risking’ growth opportunities, as seen, for example, in the World Bank’s Maximising Finance for Development agenda (Alami et al., 2021; Gabor, 2021). The catch-up development argument can be applied likewise to more advanced economies, often with the focus as aforementioned on tackling regional financial and developmental disparities, and most recently with regard to catching-up to the ‘future’, with a focus on energy transitions and achieving the Sustainable Development Goals (Marois, 2021b). Second, the growth of state financial institutions is portrayed, or at least implied, in terms of a Polanyian double-movement, which reproduces the binary of state and market as separate spheres (Dolfsma & Grosman, 2019). The state, taken as a separate sphere from the market, is stepping in to stabilise, counter and ultimately reverse the deleterious effects of globalisation and financialisation on society (Boyer, 2020). However, state financial institutions are market actors, rendering such claims problematic and unsatisfying. A third explanation, which aims to develop an appreciation of state financialisation as part of and mutually reinforcing of private sector financialisation (see, e.g., Schwan et al., 2021; Trampusch, 2019). This work is primarily focused on the role of ideas, particularly the emergence of a shareholder value framework and the influence of financial economics in economic policymaking. However, as a concept financialisation has disparate approaches, some of which has a materialist focus, which has led some to argue that it is substantively limited (Christophers, 2015). A full discussion of the financialisation literature is beyond the scope of this paper.

While these explanations are useful for unpacking what is happening at the national level in terms of domestic political-economy variables and in terms of organisational transformations in state finance institutions or the role of ideas, they still do not provide an adequate material explanation of the why now question and why across so many countries and different political economies. In short, we are left with an inadequate explanation for the joint and concurrent expansion globally of the state’s role as promoter, supervisor, and owner of capital. This article, in addressing this deficit, makes an empirical contribution to advancing Alami and Dixon’s (2023) and Alami et al.’s (2022) relational approach to the study of state capitalism – or simply the aggregate expansion of state-controlled or guided capital and muscular forms of statism – as a world-historical phenomenon. This approach sees state capitalist impulses, such as the development and expansion of different forms of state financial institution, as embedded in the state’s political mediation of capital accumulation, social antagonism, and crisis tendencies. The expansion of the state’s role as promoter, supervisor, and direct owner of capital is a means, among others, to overcome the blockages to capital accumulation. Hence, the growth of state financial institutions in the current conjuncture can be seen as emanating from the historical-geographical transformations in the material forms of production of surplus value on a world scale.

This article applies this framing empirically to the development and evolution of state financial institutions in the case of Ireland. Specifically, the article focuses on three state financial institutions: the short-lived National Development Corporation, which was operational from 1986 to 1991; the obsolete Ireland National Pension Reserve Fund, which existed from 2001to 2014; and the current Ireland Strategic Investment Fund formed in 2014. As a small open economy on the periphery of Europe that is sensitive to changing global conditions – and through employing a method of ‘incorporated comparison’ (McMichael, 1990) and conjunctural analysis (Peck, 2023) – the Irish case provides analytical simplicity for understanding and locating the historic arc in the global trajectories of state intervention. The analysis of each of the three funds is based on archival research, specifically the role of the Irish government and parliament, as well as insights gathered from semi-structured elite interviews conducted with key informants.

The article is organised as follows. The next section provides a framework for understanding the aggregate expansion of state investment institutions as a world-historical phenomenon. Preceded by a short methodological interlude, the article presents and discusses each of the Irish funds in their conjunctural context. The final section concludes.

2. UNEVEN AND COMBINED STATE CAPITALISM

Over the last decade there has been a growing usage of the term ‘state capitalism’ across various social science disciplines to describe and explain more visible manifestations of state involvement in the economy through state-owned enterprises (SOEs) and SWFs, and to characterise certain types of national political economy. For example, international business and strategic management scholars have been focused on understanding the increasing growth in numbers and size as well as the competitiveness of SOEs on a world-scale (Wright et al., 2021). This work has been valuable in terms of challenging expectations from neoliberal management theories that state firms are likely to perform less well than private counterparts, and for providing insight into the modernisation of SOEs. Work in the comparative capitalism tradition has focused on identifying the institutional features of a ‘state capitalist’ ideal type (Fainshmidt et al., 2018; Nölke, 2014). This work has been useful for debating the significance of national institutional features in shaping the modalities of state intervention and the importance of state-business relations and networks. Work in international political economy has focused on implications for and threats to the liberal international order of the rise of ‘state capitalist’ countries, namely China (Kurlantzick, 2016). This work has been useful in understanding the co-existence and co-dependence of different forms of political economy in the international system and the limits of convergence theses toward greater political liberalism from deeper economic integration.

While there is much to draw from these debates in understanding ‘state capitalism’ as an empirical object and theorising it as such, there are several limitations. First, much of the literature tends to exaggerate the novelty of ‘state capitalism’ in the current conjuncture, undervaluing historical usages of the concept of ‘state capitalism’, as well as previous manifestations of state intervention across various types of political economy (see Sperber, 2019). Second, much of the literature is centred mainly on the national scale, which is insufficient for understanding the spatial strategies and practices of state capital across various scales and their interconnection. Some of the literature likewise produces a geographical imaginary that sees state capitalism as a largely ‘Eastern’, ‘authoritarian’ or ‘political’ form of capitalism (Milanović, 2019). This, as a result, forecloses an appreciation of the manifestations of ‘state capitalism’ in the Western core of the global economy, while also limiting the possibility of seeing state capitalism as a global phenomenon, and allowing for a discussion of the inter-referentiality, interconnections and combination of forms of state-controlled capital and muscular forms of statism. Third, much of the literature takes for granted any theory of the state, often portraying state capitalism as existing as a form of strong state involvement in organising the economy, owning and controlling capital, or influencing capital accumulation more broadly. The problem here is that what counts as strong is difficult to define without clarifying the normal and ordinary role of the state in capitalism. Hence, without a robust theory of the state, it is impossible to adequately reflect on the specific conditions and the implications thereof of a strong role of the state.

To move beyond these limitations of existing state capitalism studies, Alami et al. (2022) construe state capitalism as a problématique, which acts as a sensitising device to help address the theoretical, political and geographical puzzles posed by the expansion of repertoires of state intervention as an historical totality. In short, this work helps provide an answer to the why now question. Building on Peck’s (2019) reflections of plastic categories, this problématique is not an exercise in rigid boundary making around specific models of state capitalism or binary categories, but a flexible means of problematising and interrogating the object of enquiry, which here is the re-articulation of state capital relations and the multiplicity of political, institutional, organisational and spatial forms these take, and their role in the (geo)political re-organisation of global capitalism. Introducing such conceptual plasticity and abstaining from overly rigid binaries (e.g., state vs. market) also allows for a more adequate reflection of what constitutes the ordinary separation of the state in relation to the public and private spheres, which is an issue of the basic functions that all (capitalist) states must perform and the limits to state power set by legitimacy constraints emanating from domestic and international constituencies (see, van Apeldoorn & de Graaff, 2022).

Alami and Dixon (2023) go a further step in spatialising the problématique by bringing in the concept of uneven and combined development (UCD). UCD is not employed as a theory but as a fact (see, Rioux, 2015). In other words, UCD brings into relief the unstable, constant and multi-scalar geographical remaking of capitalism. This methodological predisposition starts from the view that capital accumulation is a global process. The analytical task is hence to locate the emergence and aggregate expansion of state capital hybrids (e.g., various forms of state investment institution) and muscular forms of statism in this global process. This analytical move means not starting from the perspective of a state-capital institution or a specific country as the unit of analysis as instantiations of state capitalism but seeing state capitalism in a global perspective. This avoids the methodological nationalism of much of the literature on state capitalism. Moreover, in this global process and as reflected in the historical record, the state constantly reinvents and expands its modalities of intervention, sometimes very significantly, to unlock capital accumulation.

Here, and this is an important point that readers must take note of to avoid confusion, it is necessary to separate out the capitalist state from state capitalism. These concepts do not operate at the same level of abstraction. The former is taken as logically prior to the latter. The capitalist state is the political form of capitalist social relations and whose material reproduction is part of the expanded reproduction of such relations (Bonefeld, 2017; Clarke, 1991). As such, the capitalist state aims to remove impediments to capital accumulation, managing capitalist crises and class conflict in the process. This means generally, but not exhaustively, altering and expanding the state’s involvement in economic and social processes, influence over non-state economic actors and even, in some instances, taking direct control over the process of capitalist production, including expanding the territorial scope thereof.

In this frame, state capitalism is an immanent potentiality that manifests as a set of impulses contained in the form of the capitalist state. As Alami and Dixon (2023, p. 85) note, this allows for, ‘redirecting characterization efforts away from constructing ideal-typical models of state capitalism juxtaposed to other (conventional) varieties of capitalism, and towards identifying circumstances and conditions in which this potentiality is actualized as well as its concrete temporal and spatial parameters.’ This likewise addresses a critique that all capitalism is state capitalism, which effectively negates state capitalism to the realm of bogus concepts.

2.1. State capitalist impulses

Alami and Dixon (2023) identify three state capitalist impulses that are relevant for analysing the Irish case below: a productivist impulse, an absorptive impulse and a stabilising impulse.²

The productivist impulse takes the form of the state intervening in production arrangements and competitive dynamics of productive capital. This impulse, for example, can be channelled through a state investment fund, offering preferential credits, equity participation and strategic advice to domestic firms to raise the competitive position of these firms in global production networks, or simply to help them keep pace with shifting geographical-cum-competitive dynamics of global value chains (Haberly, 2017).

An absorptive impulse can be seen in the uneven distribution of surplus across the world economy, which has allowed some states to become significant owners of capital. For example, export-led growth in East Asia has resulted in the massive accumulation of foreign exchange reserves, some of which has been channelled into new SWFs, such as the China Investment Corporation, thus transforming them into financial capital (which could be used to further state prerogatives). The absorptive impulse can also come in the form of state banks taking on the bad debt of private banks, as well as the massive central bank quantitative easing that has been in place since the 2008 financial crisis. As we will see in the case of Ireland, the country’s preferential tax and regulatory environment has made the country a major hub for multinational corporations. The tax take from these companies for the Irish government purse reflects not the economic product of Ireland but that of the global markets these corporations trade in.

The stabilising impulse results from the disruptions to the national scale from the tension between global capital accumulation and the national form of the state. The stabilising impulse comes in the form of the state producing new scales and geographies of intervention as a means of retaining sovereignty and protecting domestic political orders (Carney, 2018). A SWF can be used, for example, as a form of insurance for the state to mitigate the costs of economic transformation and crises on domestic populations, thus maintaining fealty to the extant political order.

When analysing these impulses, the point is not to see them as occurring in isolation. Taking uneven and combined development seriously, these impulses need to be seen as occurring in a totality that is the multi-scalar transformations of global capitalism. As such, it is necessary to examine them in the context of interdependence and co-development at scales that transcend the national.

2.2. Why now?

Alami and Dixon (2023) identify two secular transformations of global capitalism that are driving state capitalism now. First, the revolution in information and communications technologies from the 1980s onward has supported the increasing automation, digitalisation and robotisation of large-scale and globally networked industry. This has had important ramifications for the geography of production at a global scale. In advanced economies, this has led to the growth and prioritisation of service-oriented, or knowledge-based sectors in finance, law and accountancy, and sectors at the leading-edge of the technological frontier. Geographically, this has benefited major world cities and regions, such as New York, London, Singapore and Hong Kong for finance, and regions such as Silicon Valley and Shenzhen in technology. These cities and regions also benefit from hosting the transnational corporations that coordinate the various stages of production along criss-crossing value chains and global production networks, and in the process have accumulated massive profits. Ireland, as already mentioned, has positioned itself as a corporate hub to tap into this dynamic geography.

Traditional manufacturing centres, such as the American mid-west or the north of England, saw further acceleration of deindustrialisation and a hollowing-out of local economies, which had already begun as far back as the 1960s when manufacturing shifted to other peripheral regions in search of lower labour costs, namely Asia. By the 2000s, fuelled by China’s rapid ascendence as the factory of the world, the centre of the global economy shifted firmly from the North Atlantic to the Pacific Rim. The late-industrialising East Asian economies (South Korea, Taiwan, Singapore) quickly moved up the value chain into high-technology sectors, while low-skilled labour-intensive manufacturing concentrated further in China and other parts of southeast Asia, such as Vietnam, Indonesia, Thailand and the Philippines.

Second, accompanying this changing geography of global production has been what some economists have referred to as ‘secular stagnation’. In short, advanced economies have entered a period of economic malaise that began before but was accelerated by the 2008 global financial crisis. Growth is hence slow, as is investment. A key contributing factor, as is argued by more conventional economists, is the vitality of manufacturing in emerging markets, particularly China. By contrast, heterodox economists and historians claim that secular stagnation is part of a generalised crisis of overproduction, which began in the 1970s at the peak of the so-called Golden Age of capitalism after the Second World War. The expansion of the international division of labour, and the intensification of competition through new entrants, namely China, has only served to intensify this process. But the boom in China has also now peaked, with clear signs of an overaccumulation crisis. This points to a secular stagnation of capitalism globally.

This means that making profit is more difficult. Corporations, as a result, have turned to short-term financial speculation and other forms of financial engineering, which some refer to as corporate financialisation, to boost profits. For example, after the 2008 global financial crisis, major central banks began massive quantitative easing programmes, which significantly reduced the cost of capital for firms. Rather than investing in R&D, new markets or productivity gains, many public corporations bought back their shares. Doing so boosted the share price, making corporations look healthier and more profitable than they otherwise would be. Corporations have also sought to boost profits by acquiring competitors, rather than investing in new production, while also erecting barriers to competition by locking in monopoly control through aggressive patenting practices.

Overall, there has been a massive, if not unprecedented, centralisation of capital in a smaller number of firms, as an attempt to squeeze out more profit from an increasingly competitive world market. Here is where we see the emergence of state capitalism. State capitalism must be understood as a process of self-transformation of capitalist states as they politically mediate these global but regionally uneven long-term changes in capitalism. This process of political mediation has involved significant changes in pre-existing landscapes of state intervention, a rearticulation of the relations between states and the circuits of capital, and a dramatic aggregate expansion of their role as supervisor, regulator and as direct owner of capital.

3. CONJUNCTURAL THINKING

The short vignettes in the following sections, all in the case of Ireland, provide a means of comparing the introduction and operational objectives of state-sponsored financial institutions as a state-capitalist impulse in different world-historical conjunctures. The aim is not to observe cross-case variation for evaluating hypotheses, in a conventional comparative case methodology, which assume that social phenomena appear as discrete and uniform units that comprise corresponding cases that can be compared. Furthermore, conventional case studies tend to abstract cases from their historical and geographical dimensions. Rather, the analysis of these cases follows a method of ‘incorporated comparison’ (McMichael, 1990), which focuses on exposing underlying processes that influence change and differentiation across different contexts.

In this respect, the aim is to advance a recent reprisal and development of conjunctural analysis in economic geography and heterodox political economy research (see, Dixon et al., 2023; Peck, 2023). Conjunctural analysis is a methodological orientation that aims to historicise through the interrogation of multiple temporalities and periodisations; to disentangle, in parallel, multiple spatialities to trace connections and interdependencies beyond the immediate; to problematise moments of crisis to probe structural tendencies and countertendencies; and, to operationalise meanings of articulation (e.g., variable articulations between state and capital), in the discursive (e.g., the legitimacy of state capital) and material sense. Put otherwise, conjunctural analysis is an invitation to contextualise and condition theory claims, such as the conceptualisation of state capitalism, exercised through different impulses, as an immanent potentiality of the capitalist state.

These short vignettes in the Irish case are derived from an analysis of primary documentation, supported by 10 semi-structured elite interviews conducted in Dublin in 2016. The analysis is also informed by more than 15 years of close and repeated interactions and discussions (for method, see, Clark, 1998) with government representatives, fund representatives and industry experts in the field of SWFs, primarily through attendance and participation in multilateral and industry forums on strategic investment and SWFs.

4. THE NATIONAL DEVELOPMENT CORPORATION

Like other Western European countries, Ireland experienced rapid growth and industrialisation after the end of the Second World War through to the 1970s. In the 1960s and 1970s, the size of the Irish economy nearly tripled. With a history of massive emigration, the 1970s saw the population increase for the first time in that century. From the 1950s, the Irish economy became increasingly open, reversing the protectionist measures instituted after independence in 1921 that were aimed at reducing the country’s exposure to (and dependence on) the British economy – a similar economic strategy adopted later by other post-colonial peripheral states (Barry, 2014). By 1964 restrictions on foreign investment were fully removed. The state also took an active role in attracting foreign investment as a development strategy. The Industrial Development Agency, established in 1949, successfully attracted increasing flows of foreign direct investment (FDI), particularly from US multinationals, facilitated by low tax incentives and no limits on the repatriation of profits. Ireland became hence an important platform for American capital to reach the European market, which further intensified when Ireland joined the European Economic Community in 1973 (Barry & Ó Fathartaigh, 2015).

In the 1970s, the post-war Golden Age of capitalism, whose expanding global linkages Ireland astutely linked itself to, started to unravel (Ó Riain, 2014). For Ireland, economic performance was relatively strong through the 1970s but became worse by the end of the decade. The period 1980–1987 was one of prolonged recession, which saw a worsening of living standards, one in five unemployed, a resumption in emigration, and a trebling of the national debt. This was the most severe economic recession since 1921. Ireland had become dependent on FDI, but transnational corporations were disinvesting as part of a broader global capitalist restructuring, which fuelled stagnation at home. This proved a major test to Ireland’s strategy for navigating the re-organisation of global value chains at the time.

In July 1980, the National Economic and Social Council, a government advisory body, contracted the Boston, Massachusetts-based consultancy Telesis, to review Ireland’s industrial strategy (Telesis, 1982). One of the key recommendations of the 1981 Telesis Report was the need to support the development and growth of domestic firms in the traded sector. Non-traded domestic firms had benefited from the influx of FDI, but this left the economy still dependent on foreign capital. By contrast, the Telesis Report stressed the need for domestic firms with specific technological and marketing functions that would give them an edge over foreign competitors without similar competencies. The problem is that this could not happen without greater scale, something a small economy like Ireland lacked. Moreover, particularly due to the economic malaise, there was a lack of investment funds in the Irish economy.

In 1986, well into the 1980s recession, the National Development Corporation (NADCORP) was established, after having been first mooted in the late 1970s. The thinking at the time was that the Irish state could provide equity financing to start-ups and small- and medium-sized enterprises, which are typically less served by traditional bank lending. NADCORP was given a specifically commercial mandate, with the main criteria for investment in a firm being profitability and efficiency, or at least reasonable prospects for ‘profitability, development, expansion, growth or providing viable employment’.³ NADCORP was equally given a business development remit. In addition to providing capital, NADCORP could manage and assist (financially or otherwise) in the establishment, promotion, and development of profitable or likely profitable enterprises. In this manner, NADCORP was designed to act and operate in a functionally similar manner as a venture capital or private equity firm, but in this case owned and operated by the state. NADCORP was prototypical of contemporary state-owned strategic investment funds.

There are three remarks that can be made about the design and mission of NADCORP. First, NADCORP is an example of a productivist state capitalist impulse. The Irish economy had become dependent on FDI, which had produced significant benefits, but insufficient protection in the face of significant global capitalist restructuring in the 1970s and 1980s. While still committed to fostering FDI, upgrading domestic industry to be globally competitive was seen as a necessity to Ireland’s globalisation strategy. NADCORP was to become an important component of Irish industrial policy at the time. Second, the form NADCORP took as a financial institution was specifically local, filling a specific function in unlocking capital accumulation not already existing domestically. The third remark is that the legitimacy of NADCORP as a state entity operating in the private economy was underwritten by Ireland’s already active state apparatus, as exemplified by the Industrial Development Authority, which had been successful in attracting FDI (specifically non-UK investment) (Donnelly, 2010). Even though NADCORP had a broader remit than the Industrial Development Agency (IDA), in being closer to a private-sector organisation, it was not necessarily a completely novel organisational development in the Irish political economy.

NADCORP’s run was, however, very short-lived. By 1991, it was clear that NADCORP was not meeting its expectations. Firstly, NADCORP struggled to move capital, rarely drawing down its budget allocation. NADCORP had only invested 26 million Irish pounds, with shares in 57 companies, which employed roughly 2000 people. As such, it was difficult to observe a major economic impact. Secondly, in the intervening years the private venture capital market in Ireland had expanded. The global economic situation likewise improved, which helped Ireland return to growth.⁴ Given the lacklustre performance coupled with an improved economic environment and greater access to private venture capital, the need for NADCORP ostensibly decreased.

In 1991, NADCORP’s assets, liabilities and commitments were transferred to the IDA. To a certain degree, the dismantling of NADCORP and its amalgamation with the IDA can be seen simply as an effort to consolidate and rationalise the Irish state’s industrial promotion activities. By this account, the productivist impulse did not disappear. But the experiment in a state venture capital fund approximating the functions and behaviour of a private-sector counterpart did. In other words, realising a productivist impulse through a state-capital hybrid taking the form of a private capitalist financial institution had its limits. It would be another thirty years and another major crisis before the state re-attempted a strategic investment fund. But NADCORP, although not a success, arguably laid some of the groundwork for further development and scaling up of a competitive venture capital market in the Irish economy (Flinter, 2005).

5. THE NATIONAL PENSION RESERVE FUND

In the period 1994–2000, Ireland achieved growth rates higher than any time in its post-independence history (Ó Riain, 2014). With one of the fastest growth rates in the world, this period was a major contrast from the economic malaise of the 1980s, which saw mass unemployment and outward migration. During this time, Ireland came to be known as the Celtic Tiger, in a nod to the fast-developing economies of East Asia referred to collectively as the Asian Tigers (South Korea, Hong Kong, Singapore and Taiwan) that also made massive strides in industrialisation and economic growth. Writing at the time, Ó Riain (2000) attributed the growth to two distinct forms of global economic engagement. Firstly, Ireland was able to embed locally global corporate networks, particularly in the high-tech sector. Secondly, Ireland successfully integrated local domestic firms into global technology and business networks. In both cases, national neo-corporatist institutions managed the relation of the macro-economy and unionised workers with the global economy, negotiating wage restraint and public spending limits. In effect, Ireland inserted itself and achieved a beneficial position in the changing international division of labour, which was dominated increasingly by post-Fordist high-technology firms and services.

With massive economic growth providing increasing tax receipts, the Irish government saw growing fiscal surpluses by the late 1990s. Low interest rates with the entry into the European Monetary Union significantly improved fiscal sustainability. Simultaneously, a programme of privatisation was turning the national balance sheet increasingly into cash that needed a home. What to do with the growing surplus hence became an important topic of debate within the government and economic policy elites (Lane, 1999). Across developed welfare states at the time, the issue of demographic aging and the viability of unfunded state pension systems was becoming a growing but contested issue (Blackburn, 2002; Minns, 2001; Palier & Bonoli, 2000). In Ireland, government reports published in 1997 and 1998 noted the looming pensions liability for the state and the associated costs for the economy from an aging population.⁵ This provided an opportune backdrop to retain the surpluses, rather than redistribute them through tax relief or higher government spending and investment and risk overheating the economy and stoking inflation.

In 2000, legislation was introduced for the establishment of a ‘National Pension Reserve Fund’ (NPRF). At the second reading in the Seanad Éirann, the upper chamber of the Irish parliament, the finance minister Charlie McCreevy, who would later in 2004 become a European Commissioner, stated that the introduction of the fund would mark, ‘a radical departure in the management of the public finances and introduces a new strategic long-term element into budgetary planning’⁶ Although a commitment underwriting the future costs of pension commitments was a motivating factor, with the legislation stating that drawdowns of the fund would only start in 2025 and continue to at least 2055, other motivations were at play. To paraphrase one interviewee who was part of Ireland’s economic policy elite, the NPRF was never ring-fenced; the point in calling it a pension fund was to get buy-in from the public, as the surplus would lead to demands for tax cuts.⁷ Equally, there was a concurrent move to limit what the government could do with the surplus, especially given calls from the left to increase government spending.

The NPRF, which came into operation in 2001 with an initial allocation of €6.5 billion and legislation requiring annual contributions from the central budget of 1 percent of GNP to 2055, was placed with the National Treasury Management Agency as the manager of the fund, which allocated the assets to international investment managers in mainly overseas equities and bonds. The NPRF was prohibited from holding Irish government debt. Investing in Irish public equities was allowed, but the allocation remained less than 1 percent of the portfolio. In effect, the NPRF was set up to be a globally diversified portfolio investor, with an investment strategy comparable to other large pension funds. As such, the surplus was put to work in global markets outside the reach of local domestic interests, including the public. In other words, the NPRF took on a form that was global (as opposed to a local orientation).

An absorptive state capitalist impulse was, arguably, displayed in the establishment and design of the NPRF. Ireland had benefited massively from the shifting international division of labour around high-tech and services led sectors. While this observation is obvious, the form of the NPRF is also revealing of the legitimacy constraints within Ireland. As the economy was booming and access to international capital was not an issue, the rationale for funnelling capital into domestic spending and investment was minimal. Notwithstanding, the government as well as critics of the NPRF emphasised the point of limiting domestic investment, as this would leave the fund open to politicisation (Lane, 2001). It would be wrong to claim that this was motivated specifically by some apprehension to an active state. Indeed, consider again Ó Riain’s (2000, p. 158) theorisation of Ireland as a flexible developmental state at the time, one that nurtured ‘post-Fordist networks of production and innovation, to attract international investment, and to link the local and global technology and business networks together in ways that promote development’. What this does suggest however, as Palcic et al. (2022) put it, is that state intervention in Ireland or the Irish impulse to state capitalism is reluctant in nature.

The global conjuncture at the time, at least across the developed world, where the state was being rolled-back generally through privatisation of state assets and welfare state retrenchment, which to be sure, was driven by neoliberal ideology that undermined the legitimation processes for more explicit forms of statism. For Member States of the European Union, privatisation was partly driven by the requirements of membership and the creation of a competitive Single Market. A long-term savings fund invested following practices common to cognate institutional investors, namely pension funds, with the purpose of limiting future fiscal pressures on the state, arguably operates in the realm of the acceptable in such a (geo)political and regulatory context (Harmes, 1998; Preda, 2005).

Here too, it is important to consider how global financial markets were developing at the time. Institutional investment was taking off and becoming increasingly global. Portfolio diversification, following principles of modern portfolio theory, meant not simply diversifying national holdings, but allocating greater capital to foreign markets. Starting in the 1990s, foreign ownership of publicly traded companies took off in advanced economies, particularly in the EU, where the Single Market project facilitated greater ease in moving capital across the block. Large Anglo-American institutional investors were becoming major owners of European shares, attracted by (but also driving) changing corporate governance regimes that offered greater protection of minority shareholders (Clark & Wójcik, 2007). There was also greater confidence in the prescriptions of neoclassical financial theory in underwriting financial innovations (e.g., new derivative products and asset-back securities) to improve market efficiencies and risk management. The NPRF was established in a world of financial possibilities that was increasingly global. There was no need to look inward.

Robust economic growth in Ireland continued through the early years of the twenty-first century. The NPRF likewise had strong performance, with annualised returns of 6.5 percent since its inception. By the end of 2006, with its annual report published on the eve of the global financial crisis, the NPRF had assets of €18.6 billion, which was 12.6 percent of GNP.⁸ As the global financial crisis unfolded, and within Ireland the extent to which the country’s main banks were overextended in commercial and residential property became clear, the days of the NPRF were ultimately numbered. Unemployment reached levels not seen since the late 1960s. The budget deficit exploded. And the Irish financial system was in freefall. As part of the Irish government’s contribution to the IMF/EU rescue plan, €17.5 billion of NPRF funds was used to capitalise Irish lenders. Although this transfer did not reduce the NPRF portfolio completely, with roughly €5 billion left in the global portfolio, the purpose of the NPRF had been altered significantly. Saving and stabilising the economy from the brink took precedent over securing future pension costs.

6. THE IRELAND STRATEGIC INVESTMENT FUND

In 2011, the Irish government announced its intentions to create a strategic investment fund that would redirect resources from the NPRF into sectors deemed of strategic importance to the Irish economy. The economy was still climbing out of the depths of the crisis, and access to capital was still severely constrained. The Irish government wanted to unlock capital accumulation and it was looking for ways that it could do so. Redirecting resources from the already raided NPRF looked like a viable option. Global finance had just experienced a serious legitimacy crisis, and there was a palpable need to boost growth and job creation at home. As one informant indicated, the demographic aging and pensions issue could have been used to retain the NPRF in its initial form. However, the lack of available capital to Irish firms coupled with a moribund economy and high unemployment easily trumped future economic concerns.⁹

In 2010, the government established a new co-investment venture capital platform, Innovation Fund Ireland, with the intention of drawing additional foreign venture capital into the country. NPRF along with Enterprise Ireland were to manage this fund, with the NPRF allocating an initial tranche of €125 million. NPRF already had a private equity allocation of close to €1 billion at the time, but only four percent of which was in Irish venture capital funds. Moreover, the NPRF was only a limited partner in its private equity investments, keeping in line with its model of delegating asset management to third parties, which is common among large, diversified asset owners. With the Innovation Fund Ireland, NPRF would be moving into the space typically occupied by general partners in private equity investment, which raise capital from limited partners, identify and close investment, and typically have some form of active involvement with the management of investee firms. This represents a different organisational and investment governance proposition than an investment policy focused on diversified global portfolio investment that is primarily delegated to third parties. A new strategic investment fund with a more aligned organisational design would, however, be a more appropriate mechanism for making more targeted and active investments.

In 2014, after a long legislative process, the NPRF was wound up and its remaining assets were transferred to the new Ireland Strategic Investment Fund (ISIF). This represented a major policy shift and organisational redesign. Like the NPRF, the new ISIF would operate as a unit within the National Treasury Management Agency, which is the government agency tasked with managing the assets and liabilities of the Irish state. Whereas the NPRF was designed to preserve and grow wealth in a broadly diversified global portfolio, the ISIF was given a mandate to help develop the Irish economy and jobs through strategic investment in Irish firms and other venture capital funds investing in Ireland. The ISIF was also given significant room for manoeuvre as an investor, with the capacity to invest anywhere in the capital structure of a firm, providing debt and equity, as well as the scope to invest in other general partners as a limited partner, and to establish co-investment platforms with other sovereign investors. ISIF as such should not be compared with other enterprise agencies, such as Enterprise Ireland, which provide strategic advice and some forms of financial support, often in the form of subsidies, to help firms and entrepreneurs innovate or access new markets. A productivist state capitalist impulse was at play.

In 2014 when the ISIF legislation finally made its way through the Irish parliament and the fund could begin its work, the Irish economy had recovered from the depths of the crisis and foreign capital was not in short supply. As such, it was not clear whether the ISIF was necessary. If foreign and domestic venture capital and private equity firms were in abundance, flush with increasing amounts of cash (and access to loans and debt at extremely low interest rates) looking for investment opportunities, ISIF would face significant challenges in placing capital. The labour market for financial workers had also recovered. Would a state-owned investment fund, operated by a (independent) government agency have access to the most promising deal flow, or be the preferred partner for an investee firm? Could a state-owned fund attract sufficient talent and expertise to compete with the deep pockets and perks of the private sector? These questions were on the minds of those directly involved and across the Irish economic elite. NADCORP failed to launch. NRPF was decommissioned. Would this be the fate of the ISIF?

The ISIF has lasted longer than these forebears, without seemingly significant problems in moving capital. Indeed, as of end 2021, since inception ISIF has made 166 investments with a committed capital of €5.6 billion, which have brought an additional €9.4 billion of co-investment commitments.¹⁰ The ISIF, at the behest of the government, has stayed relevant, reflecting an ongoing state capitalist impulse that is reinforced by continued geopolitical transformations and global crises that constrain capital accumulation. In 2018, for example, the minister of finance added a focus on firms adversely affected by the UK’s departure from the EU to a new list of ISIF priorities.¹¹ In 2020, ISIF established a €2 billion Pandemic Stabilisation and Recovery Fund to invest in Irish businesses impacted by the COVID-19 pandemic. In short, recent crises have reinforced the role of state power in capitalist production and accumulation, with the state expanding its role as promoter, supervisor and direct owner of capital.

The conjuncture when ISIF was first mooted has parallels with the period of the early 1980s when NADCORP was established. If the NPRF reflected an absorptive state capitalist impulse, the ISIF recalls a productivist impulse, a similar one reflected in the design of NADCORP. Here, it is also important to consider the stabilising state capitalist impulse at play. NPRF capital was used to stabilise the Irish banking system, and thus the Irish economy (for more background on the Irish banking crisis, see, e.g., Donovan & Murphy, 2013; Grossman & Woll, 2013). The creation of the ISIF, at a time of significant economic uncertainty at home and globally, was part of this stabilising and then productivist impulse. The aim was to produce new possibilities of intervention in the Irish economy to preserve the gains the country had made in its relative position in the global division of labour since the 1990s. What is more, while the NPRF clearly took a global form, the ISIF returned to the local form and focus like that of NADCORP.

7. IMPLICATIONS AND CONCLUSIONS

This paper began by noting how the growth of various forms of state-owned financial institution appears in a period where capital and the financial services sector are abundant. How can we explain this? Why are we seeing more ‘state capitalism’ now? Reflecting on an account of ‘state capitalism’ as an immanent potentiality of the capitalist state that eschews the construction of ideal-types and situates state capitalism as a variegated form situated in a world-historical totality, this article utilised the case of Ireland and three state financial institutions to consider the emergence (and decline) of state financial institutions in the current conjuncture and in historical context. Firstly, the aim was to consider the novelty and/or lack thereof in the establishment of state financial institutions. Secondly, the aim was to situate these developments in their global conjuncture. As such, this paper contributes to recent efforts to understand state capitalism as an empirical phenomenon and as an analytical device, while also contributing to the development of conjunctural analysis.

The paper offered and identified, in the three financial institutions, a set of state capitalist impulses: productivist, absorptive, stabilising. These impulses, as forms of intervention but also as analytical concepts, are useful for underlining the variegated and contingent nature of the state’s role as promoter, supervisor, and owner of capital. NADCORP and ISIF manifest a productivist impulse, whereas the NPRF manifested an absorptive and then a stabilising impulse. Importantly, these impulses were not presented as occurring in isolation but as occurring in, and influenced by, the multi-scalar transformations of global capitalism and crisis moments.

Future research in state capitalism studies and financial geography can apply these concepts to articulate different forms of state intervention across time and space. Indeed, in contrast with approaches that seek to identify state capitalism as a variety of capitalism, the approach offered here eschews such efforts at classification which leave the state in capitalism under-theorised while paying insufficient attention to global dynamics and relations. This does not mean, however, that other approaches such as financialisation cannot also be used to provide insight and explanation.

ETHICS STATEMENT

This research includes insights gained through elite interviews. Interviewees were provided information electronically about the scope and aims of the research prior to the interview and prior to giving consent for interview. Interviews were not recorded but notes were taken. No direct quotes are used in this paper and there is no personal identifying information.

ACKNOWLEDGEMENTS

This research was supported by the European Research Council (ERC) under the European Union’s Horizon 2020 research and innovation programme (grant agreement no. 758430) and through the Leverhulme Trust British Academy Small Grants Scheme [grant number SG142828]. The author would like to acknowledge Ilias Alami, Milan Babić, Imogen Liu, Heather Whiteside and Jamie Peck, for discussions and collaborative work on ‘state capitalism’ and conjunctural analysis that have greatly influenced this work. Any errors or views are the author's.

DISCLOSURE STATEMENT

No potential conflict of interest was reported by the author(s).

Additional information

Funding

This work was supported by the Leverhulme Trust/British Academy [Grant Number SG142828]; also the European Research Council (ERC) under the European Union’s Horizon 2020 research and innovation programme [Grant Number 758430].

Notes

1 According to the International Forum of Sovereign Wealth Funds: https://ifswfreview.org/about-our-data.html.

2 Alami and Dixon (2023) offer a fourth impulse they call the disciplinary state capitalist impulse, which focuses on state efforts to manage surplus populations.

3 National Development Corporation Act 1986, part II, section 10 paragraph (b).

4 Based on remarks made by the Minister for Industry and Commerce, Desmond O’Malley (Progressive Democrats) at the reading of the Industrial Development (Amendment) Bill, 1991: Second Stage. Tuesday, 17 December 1991, Seanad Éireann Debate. Vol. 130 No. 17.

5 See, Interim Report, Commission on Public Service Pensions, Dermot McAleese (Chair), Dublin Stationary Office, 1997; and see, Securing Retirement Income, National Pensions Policy Initiative Report of The Pensions Board to the Minister for Social, Community and Family Affairs, May 1998.

6 National Pensions Reserve Fund Bill, 2000: Second Stage. Seanad Éireann Debate, Vol. 164, No. 13.

7 Personal interview conducted in Dublin on 6 April, 2016.

8 National Pension Reserve Fund Commission 2006 Annual Report and Financial Statements, 8 May 2007.

9 Personal interview, Dublin April 2016.

10 See, National Treasury Management Agency Annual Report & Financial Statistics 2021.

11 See press release regarding Paschal Donohoe’s, Minister for Finance and Public Expenditure and Reform, announcement regarding refocus of ISIF. Available at: https://merrionstreet.ie/en/news-room/releases/minister_donohoe_to_refocus_the_ireland_strategic_investment_fund_to_better_meet_the_needs_of_a_strong_growing_economy.html (Accessed 08 November 2022). ISIF’s policy mandate was re-focused on five key economic priorities: (i) indigenous industry; (ii) regional development; (iii) sectors adversely affected by Brexit; (iv) projects to address climate change; and (v) housing supply.