Varieties of privatization: informal networks, trust and state control of the commanding heights

Abstract

Why did ordoliberal Germany unconditionally privatize its aerospace and defense industries in the 1980s, whereas the neoliberal government in the United Kingdom established significant state control? To shed light on this puzzle, this article builds on the Varieties of Capitalism (VoC) and theorizes how different production regimes – complemented by distinct legal traditions – shape governments’ decisions about how to privatize state-owned industries. I argue that Germany’s coordinated market economy included informal networks between state and business actors that were based on trust. These relationships enabled the government to transfer ownership of the defense industries to the private sector without retaining any formal control. The United Kingdom’s liberal market economy, by contrast, lacked such informal trust-based networks. That explains why the British government maintained formal control instruments and thus intervened more forcefully in its aerospace and defense sector. The comparative process-tracing analysis draws on original sources, such as formerly secret archival files and interviews with decision-makers. The article’s contribution lies not only in extending the firm-centered logic of VoC to coordination between corporate actors and the state, but also in institutionalist theory-building: Trust-based coordination within informal networks systematically reduces vulnerabilities and can thus substitute for the arguably constant need of formal control.

Keywords:

• indirect governance
• privatization
• informal networks
• trust
• aerospace and defense industries
• United Kingdom
• Germany

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1 This research enormously benefitted from comments by RIPE’s anonymous reviewers and Felix Biermann, Tim Heinkelmann-Wild, Vytautas Jankauskas, Zita Köhler-Bauman, Ulrich Krotz, Andreas Kruck, Robin Markwica, Berthold Rittberger, Frank Schimmelfennig, and Bernhard Zangl. I would also like to thank archivists and interview partners for their insights and support both of which did not only help to gather empirical evidence, but who made this a fun research project. Finally, I would like to acknowledge generous funding for this paper by the Deutsche Forschungsgemeinschaft (WE 3653/4-1) and the Robert Schuman Centre for Advanced Studies of the European University Institute.

2 Several scholars who have studied the political economy of the commanding heights have incorporated state institutions into their analyses (e.g. Albert, 1993; De Vore & Weiss, 2014). Unlike these exceptions, however, the original VoC has remained a firm-centered political economy ever since (Hall, P. A. & Soskice, D. 2001; Howell, 2003).

3 While some scholars have analyzed the role of trust in insightful ways (e.g. Coates, 2000; Cook, Hardin, & Levi, 2005; Farrell, 2009; Rathbun, 2012), trust has not been theorized as a causal mechanism that magnifies the effects of informal networks. This conceptualization seeks to contribute to institutionalist theories in political science, more broadly.

4 I conceive of trust as an active form of coordination (Farrell, 2009), rather than an abstract attitude towards a broad phenomenon such as democracy.

5 This paper has been part of a larger research project, for which I conducted dozens of interviews. In particular, three personal communications in 2016 and 2017 contributed to the findings of this paper: (i) with Edzard Reuter (then-CEO of Daimler-Benz AG); (ii) with Manfred Bischoff (then-CFO of DASA AG); and (iii) an exchange of emails with Hans-Jürgen Krupp (then-treasurer of Hamburg). They are marked as such in the article.

6 By contrast, Hardin and like-minded scholars have argued that the role of trust is one of ‘a complement to (not substitute for) organizational arrangements that make cooperation possible’ (Cook et al., 2005, p. 2). This paper, nevertheless, follows Farrell, who explicitly theorizes the link between (non-personal) institutions and trust.

Additional information

Funding

This work was supported by the Deutsche Forschungsgemeinschaft (WE 3653/4-1) and by a Jean Monnet Fellowship of the Robert Schuman Centre for Advanced Studies of the European University Institute, Florence.

Notes on contributors

Moritz Weiss

Moritz Weiss is senior lecturer in International Relations at the LMU University of Munich and a Jean Monnet Fellow at the European University Institute (Florence) in 2019/2020. His research focuses on institutional theorizing, the governance of technological innovation, and the political economy of defense. Among others, he has published in Governance, Journal of European Public Policy, Journal of Common Market Studies, European Journal of International Security, Journal of Global Security Studies, and Security Studies.