Introduction to the Special Issue: The Rise of State Capitalism

Ten years after the 2008 global financial meltdown, sufficient experience had been gathered to evaluate the long-term economic policy responses to the crisis. It seemed that developed market economies had returned to business as usual. Only minor improvements to the regulatory framework and tighter prudential control over financial institutions’ activities were introduced. Increasing consumer awareness of the risks involved in certain financial transactions was considered a sufficient response (Helleiner, 2014). On the other hand, despite widespread monetary easing and a high level of liquidity in financial markets, economic growth remained stalled in the most developed economies. Though emerging market economies kept on growing, their growth also decelerated. Risks to the growth model became obvious even in places that maintained higher growth levels, like China or Brazil (Ricz, 2017; Szunomár, 2020). Alongside the problem of environmental sustainability, serious political and social problems also emerged in the aftermath of the crisis. Sluggish economic growth induced a rather nervous reactions towards emerging new competitors. The U.S. establishment entered new conflicts with practically the whole world, from China, Iran and the European Union, to neighboring Mexico (Kwan, 2019).

In this environment, many researchers noticed that state intervention was on the rise. The emergence of economic nationalism, the reintroduction of Keynesian demand stimulus policies, the powerful advance of various “state-permeated market economies” (Nölke, 2014), and the emergence of governments in entrepreneurial roles (Mazzucato, 2013) were cited as examples. Other authors highlighted the potential political and economic risks of the alternative growth model of state capitalism. Kurlantzick (2016) described the nature and potential drawbacks of increased state-business collusion in developing countries. Musacchio and Lazzarini (2014) wrote about the same phenomenon focusing on state-owned enterprises (SOEs). Szanyi (2019) analyzed the sudden U-turn of East-Central European (ECE) transition economies from their liberal development direction towards increased state intervention in business. An archetypical model of state-dominated business development was described by Yakovlev (2006) in Russia’s business capture. The “blurring of boundaries” between the state and the economy, and the use of the economy for political ends (Bremmer, 2009), were widely lamented.

At the same time, critical voices have long argued that the blurring of boundaries between state and market is a feature, not a bug, of the capitalist system as a whole. For critical theorists of globalization, for example, political elites serve the interests of global capital by opening new markets to trade, investment, and privatization of assets (Farazmand, 2002; Harvey, 2005). Farazmand (2002) highlights the process of “agencification” by which institutional reforms in public administration have transformed public servants into agents of global capital. Mitchell (1999) identifies the very boundaries between “the economy” and “the state” as an important site of political struggle, an insight drawing on Polanyi ([1944]2011) which the new literature on state capitalism has not successfully incorporated. From this point of view, one can argue that all capitalism is state capitalism, since states create markets and support particular kinds of property rights over others.

From this perspective, the current rise of state capitalism would be seen as a backlash to the “corporate globalization of the world” (Farazmand, 1999, 2002) that has been occurring since the 1990s, with market institutions as its dominant organization, backed up and supported by state power in developed and developing nations. “Dependent market economies” (Nölke & Vliegenthart, 2009) in Eastern Europe are the starkest manifestation of this dynamic, but even in core economies like the U.S. we see political authorities courting global corporations for investment: witness the competition in 2017–2018 among U.S. cities to host Amazon’s second headquarters. From a historical perspective, too, the laissez-faire market supremacy of the post-Fordist era was an exception and “state capitalism looks like the historical norm” (Alami & Dixon, 2020, p. 87). In short, the state has always been and will continue to be the dominant power in (1) serving the market institutions of capitalism, and (2) stepping in to save them when faced with crises. For this reason it has been argued that there is no such thing as a free market or pure capitalism (Farazmand, 1999).

Thus, while orthodox and critical analyses agreed that economic policy in the post-crisis world would continue to rely heavily on active state policies, important questions remained about both the novelty and the desirability of the phenomenon. The European Association of Comparative Economic Studies (EACES) and the HSE International Center for the Study of Institutions and Development (ICSID) held a workshop in Moscow in 2019 to discuss these questions regarding state capitalism. This special issue contains contributions from selected authors participating in the program.

The contributions to this special issue approach state capitalism as a distinct “variety” within the framework introduced by Peter Hall and David Soskice, and more recently expanded by Andreas Nölke and his co-authors. The original theorists of Varieties of Capitalism (VOC) identified two main types: liberal market economies (LMEs) like the United States and United Kingdom, and the coordinated market economies (CMEs) prevailing in Continental Europe (Hall & Soskice, 2001). Efforts to expand this framework beyond the developed world led to two additional types: the dependent market economies (DMEs) common in postsocialist Eastern Europe (Nölke & Vliegenthart, 2009; see Magnin & Nenovsky, 2020 for a discussion of this type), and the state-permeated market economies (SMEs) which we mostly see in large, emerging countries like Brazil and China (Nölke et al., 2015). The main benefit of the VOC approach is its emphasis on complementarities between institutions to explain stable growth patterns, rather than assigning success (or failure) to the presence (or absence) of a single institution. In contrast with earlier approaches that predicted long-term global convergence around a single capitalist model, VOC theorizes persistent and stable difference.

This special issue expands our understanding of state capitalism as a distinct variety in two ways. First, it places the recent and striking rise in state capitalist activity in ECE and Latin America in a long-term perspective. The VOC literature has been criticized for being too focused on the core capitalist countries of Western Europe and North America; this special issue shifts the focus to countries on the semi-periphery of the global economy. Moreover, it puts the most recent statist turn in the context of long-term interrelated trends in global capitalism, namely Polanyi’s “double movement” (Szanyi & Szabó, 2020), neoliberalization (Cavalcante, 2020), and financialization (Zadorian, 2021). Second, the special issue explores institutions and practices that were not identified as important in the early rounds of VOC theorization, because they do not play a significant role in the core capitalist countries. The institutions examined include monetary policy (Magnin & Nenovsky, 2020), SOEs (Zadorian, 2021), and development banks (Cavalcante, 2020).

One of the main points of discussion in our workshop, and in the literature more broadly, is the inevitability of economic convergence. Under what circumstances is “catching-up” possible? Will all economies eventually conform to a single (neoliberal) model? As noted above, the VoC literature maintains that different institutional arrangements can be stable over time and can result in stable economic growth over time. It is particularly important to bear this in mind when looking at ECE economies, which are relatively recent converts to capitalism. This could lead to the assumption that they are still in transition to one of the established – liberal or coordinated – varieties of capitalism. Under this assumption, state intervention in ECE economies could be argued away as a transitional deviation from the norm, rather than a stable feature of capitalist practice. However, the contribution by Szanyi & Szabó, 2020 reveals the enduring role the state plays in maintaining economic growth in ECEs over the long term. Statism helps these economies maintain their growth trajectory during global downturns – an important lesson for our current moment.

Meanwhile, in many ECE countries, the role of the state has receded continually since the transition to capitalism began in the late 1980s. DMEs like the Balkan countries, according to Magnin & Nenovsky, 2020 (this issue), are characterized by very low levels of state intervention and a near-total relinquishing of monetary policy instruments in order to benefit foreign investors/creditors. This represents convergence with some neoliberal elements of LMEs, like flexible labor markets and low-tax regimes. Moreover, even within the most interventionist of SMEs, we can see elements of neoliberal convergence in particular institutions. Specifically, the contribution by Zadorian, 2021 documents documents how national oil companies (NOCs) adopt market-based governance mechanisms even while strengthening their ties to the state. The Russian and Brazilian NOCs reformed their Health, Safety and Environment management to conform to the expectations of partner corporations and investors after listing on stock exchanges in LME countries. The listing of state-owned corporations from SMEs on LME stock exchanges is a strong driver of the diffusion of LME practices to other varieties of capitalism. Similarly, Cavalcante, 2020 (this issue) argues that a neoliberal narrative about the Brazilian development bank BNDES has become more influential in the past ten years, breaking with a long Brazilian tradition of state-led developmentalism. This runs counter to the idea that a monolithic state capitalism is on the rise, and rather points to a recalibration of statist and liberal elements in different economic institutions. The special issue thus points to global convergence around certain neoliberal institutions and practices across state and non-state capitalist regimes.

A second point of discussion is the political implications of the rise of state capitalism. More specifically, what is the relationship between state capitalism and authoritarianism? Ricz, 2021 (this issue) contends that state capitalism is the economic manifestation of illiberalism in the political realm. Following Kornai’s definition of autocracy as a stable hybrid political system located in the middle of a continuum between democracy and authoritarianism, she theorizes that state capitalism is a stable hybrid economic system between capitalism and socialism. By contrast, Cavalcante, 2020 (this issue) notes that more liberal economic policy narratives came to prevail in Brazil after the impeachment of President Dilma Rousseff, when the country has moved in a markedly illiberal direction politically. More liberal policy narratives about the Brazilian development bank, BNDES, led to a 2017 law reducing the interest rate subsidies BNDES offered and subsequently its role in Brazilian capital formation. Therefore, more illiberal politics in Brazil coincided with a move away from statist economic policy-making. This is a challenge to the assumption that political illiberalism and economic statism necessarily go hand in hand. The relationship between the two may in fact be limited to the ECE region, where (as Magnin & Nenovsky, 2020 note in this issue) the backlash against political and economic dependence on EU capital has made rising statism a popular policy.

Moreover, it might matter less how statist or liberal economic policy is, and more how stable that policy is over time, as Miklós Szanyi and Gyula Szabó note in the first article of this special issue (Szanyi & Szabó, 2020). They take up the core question of whether state intervention encourages or prevents the catching-up of semi-peripheral economies. Since there are so few real-world examples of developing economies reaching the GDP level of core economies, the authors explore “conditional convergence,” or the extent to which a country’s actual GDP growth meets its own unique hypothetical development path. The question is whether periods of low growth rates due to war or global economic crisis are made up with above-trend line growth in upswings. They calculate the long-term hypothetical development paths of six ECE countries and three comparators (Austria, Finland and Greece) from 1870–2016. The most important ingredient for conditional convergence seems to be political stability (characteristic of Finnish and Austrian experience), which allows for long-term developmental goal-setting. As to the question of whether statist or laissez-faire economic policy is more conducive to long-term growth, the findings are ambiguous. Liberal periods were marked by dynamic growth in the core, which peripheral regions like ECE were not able to take advantage of. However, statist intervention mitigated the impact of economic downturns on growth, so that peripheral countries were able to make up some of the distance during these periods.

Eric Magnin and Nikolay Nenovsky’s article (Magnin & Nenovsky, 2020) makes two contributions to the VOC literature: they expand its geographical scope to include the Balkan countries (both EU members and non-EU countries), and they expand its theoretical scope to include monetary regimes among the institutions that vary from one type of capitalism to another. The Balkan countries are DMEs, so their monetary policy is conducted in the interest of foreign investors who provide the capital and technology transfer to support export industries that employ the cheap and skilled labor found in postsocialist economies. Two extreme cases of monetary dependence are examined in more detail: the introduction of currency boards in Bulgaria and Bosnia and Herzegovina, and the unilateral adoption of the Euro in Kosovo and Montenegro. Currency boards give up most opportunity for an independent monetary policy, while adoption of a foreign currency is a total abrogation of monetary sovereignty. Though these are extreme cases, the authors argue that they are not exceptions; all Balkan countries experience some degree of de facto monetary dependence. Monetary policy is a crucial, heretofore overlooked, institution with the VOC framework. The authors further note that monetary dependence can lead to a statist backlash when dependence is rejected on nationalist grounds, as they hint has occurred in Poland and Hungary.

Luiz Ricardo Cavalcante’s article (Cavalcante, 2020) examines another important state capitalist institution: the development bank. It describes two competing policy narratives surrounding the Brazilian development bank BNDES: the first emphasizing the bank’s contributions to Brazil’s economic development, and the second emphasizing the costs and inefficiencies the bank imposes on Brazil’s economy. For decades the first narrative was dominant, because the BNDES served the interests of industrialists, politicians and scholars alike. More recently, however, support among these groups has weakened. At the same time, private banks have at last become interested in the long-term credit market in Brazil, which the BNDES has served with subsidized interest rates. In this context, the second narrative gained in importance and new legislation has reduced the BNDES’ role in Brazilian capital formation. In the sphere of development banking, at least, we see a retreat of statism in Brazil since the end of Worker’s Party rule in 2016.

Alongside development banks, perhaps the most notorious state capitalist institutions are state-owned national oil companies (NOCs). The recent rise in state capitalism accompanied the boom in commodity prices, especially oil prices, from 2004–2014. While most analysts focus on increasing state ownership and control of the natural resources themselves during this period, Amanda Zadorian’s article (Zadorian, 2021) analyzes the introduction of market-based practices to govern worker safety and environmental protection at NOCs in Brazil and Russia. If one accepts the idea that state capitalist regimes aim to increase their control over the economy in order to use it for “political” ends, it is puzzling that so many state capitalist regimes have introduced liberalizing reforms. The “Health, Safety and Environment” programs are especially surprising in this regard, as they were developed by multinational oil corporations to avoid being subject to more extensive state regulation in the various jurisdictions where they operate. These programs are an explicit effort to bypass state sovereignty in favor of private corporate control. The article argues that NOCs adopt them in order to represent themselves as global capitalist corporations, rather than arms of the state bureaucracy. Recognized as global capitalist corporations, NOCs can participate in circuits of capital they would otherwise be excluded from for “political” reasons. The analysis suggests we should reject the assumption that state intervention crowds out market actors and logics, and instead pay attention to how market-based governance supports state power – and vice versa.

Finally, Judit Ricz (Ricz, 2021) provides an explicit examination of the domestic politics of rising state capitalism. Ricz considers contemporary state capitalism as a stable hybrid economic system between capitalism and socialism. Her theorization differs from existing accounts in three ways. In contrast to the VOC literature, which relies on institutional complementarities to explain the appearance of different, stable varieties of capitalism, Ricz proposes to renew our focus on an agentive state driving developmental processes. However, she also argues that this is not a revival of East Asian developmental statism, but “a new statist concept.” Moreover, in contrast to previous approaches, her systems paradigm methodology focuses on the dynamics and direction of change rather than the identification of static types. The three defining tendencies of the state capitalist system include (1) its coincidence with political illiberalism; (2) private property remains dominant, though indirect channels of state influence are multiplying; (3) formal and informal state coordination mechanisms are dominant, which alongside corruption leads to significant market distortions. Her analysis also usefully emphasizes the hidden nature of much state capitalist intervention in the economy.

Taken together, the articles make clear that contemporary forms of state intervention do not conform neatly to previous patterns, and that their political implications are generally anti-democratic. But nobody in the workshop would have predicted how the relevance of the presentations would increase further in the following two years. Our discussions in 2019 revealed that most colleagues expected a steady return to the “normal” state of the world economy. It was expected that increased state intervention would be restricted to some of the bigger developing countries, like Russia and Brazil. The traditional trendsetters – the U.S., EU and Britain – would return to the neoclassical policy toolkit and overcome the slack period of economic development. New impetus for economic growth was expected to arrive in the accelerating technological development process that could gradually change business conditions. For better or worse, participants in the workshop anticipated a return to stabilized and accelerated world economic development along pre-crisis lines.

Yet, less than one year later, the global COVID-19 pandemic erupted. Governments in all countries had to take new emergency measures, and state activity intensified again. Sanitary and medical institutions had to be strengthened, new vaccines developed, and administrative measures taken to restrict people’s movement and contact with each other. Due to restrictions on the daily life of citizens, companies, schools and government offices, a massive drop in the economic output of every country was registered in 2020. And the same was expected to continue in 2021. The pandemic was, in many respects, an even more serious economic shock than the 2008 crisis. This shock was pervasive and not restricted to certain groups of countries. Moreover it has lasted 18 months by the writing of this introduction: the duration of a systemic, structural disturbance with long-term effects. Under these circumstances, the state must step in again.

Life will not return to the previous pattern; the return to the status quo ante articulated in the workshop will not unfold. Instead, many of the forms of increased state intervention will remain and intensify. Moreover, the pandemic mode of functioning in all areas of social life, including business, will stay with us. In many respects, the pandemic accelerated already existing changes. Working from home, for example, used to be standard mainly in internet-based businesses. Now it has infiltrated public administration, education and many areas of business. The lockdown caused retail, entertainment, restaurants and many other services to switch to home delivery as their mode of provision. These tendencies had already existed, but are now the norm rather than the exception. In this way, pandemic-related state intervention has changed the daily life routines of every citizen.

With the outbreak of the COVID-19 pandemic, the legitimacy of increased state intervention has been strengthened. Many governments have used this opportunity to strengthen statist intervention in areas directly linked to the pandemic, like demand stimulus and unemployment support. But there are also examples of the reintroduction of paternalistic practices, especially in many emerging market economies. Some governments use the special circumstances (for example, the extra powers granted to the executive branch of government by parliament) to reinforce political goals that are not clearly justified by the pandemic. The appropriate state response to the pandemic itself became a topic of political debate, as in the 2020 U.S. presidential elections.

In short, the rise in state capitalism that started in the early 2000s and was boosted by the 2008 financial crisis gained new momentum in the pandemic. The increased state intervention evolved differently in the various countries. In some of them, the old pattern of the developmental state can be observed. Elsewhere, state funds work in a more market-oriented manner. Nevertheless, in all versions, known forms of moral hazard and anti-democratic behavior can also be detected, along with increased environmental and social risks in many emerging market economies.

As we continually evaluate the trends of state intervention, the key issue to consider is the corrective role of the state in capitalism. Is the state serving as an agent of (foreign or domestic) corporations? Or is the state caring for society and the economy by intervening to bolster certain essential economic institutions in the face of market failure (Farazmand, 1989)? Few deny the value of the market system, but exaggerating its potential can be catastrophic to economies and societies; the state is needed to correct their failures and corrupting harm to societies. At the same time, the state should not be a baker, nor deliver bread to stores, as it has more important roles to play in enabling other institutions of the market and community. It is not yet clear how the ongoing need to control pandemic-related and other risks will affect economic growth trajectories or ongoing technological progress, but we can hope that the state’s role in these processes will support citizens to engage in self-governance and economic management.

Disclosure statement

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