Financialization of, not by the State. Exploring Changes in the Management of Public Debt and Assets across Europe

Abstract

This paper tackles one of the most recent issues in international and comparative political economy: the process of state financialization. Although research on global financial markets has revealed that states play a crucial role in private sector financialization, until recently, much less attention has been paid to state financialization itself. This includes both the measurement of cross-country variation and the question of why this process unfolds unevenly across political economies. We propose a perspective that focuses on two areas, the management of public debt and assets, and the various ways in which states are active in financial markets. Bridging material and cultural concepts in political economy, we differentiate between the reliance on financial markets as governance mechanism and the adoption of a sense-making framework grounded in financial economics and the shareholder-value model. We distill four indicators, trace cross-national and inter-temporal developments in 36 European countries since 1990, and explore how far this variation is associated with domestic and international political economic factors. The paper concludes that state and private sector financialization are mutually reinforcing processes. In addition, future research must pay strong attention to the tensions between finance and democracy as well as the distributive consequences of state financialization.

Keywords:

• Financialization
• state asset management
• public debt
• Europe
• governance
• financial markets

Correction Statement

This article has been republished with minor changes. These changes do not impact the academic content of the article.

Acknowledgements

We would like to thank the participants of the workshop ‘Rethinking the Governance of Financial Integration from the Bottom Up: Beyond the Debates on Financialisation and Post-Crisis Reform’ at the ECPR Joint Sessions 2019, UCL Mons and the workshop on ‘The changing ecology of the financial system I’ of the DFG Network ‘The Politics of Money’, held at the Max Planck Institute for the Study of Societies in May 2019 for their valuable comments and feedback. Furthermore, we are indebted to Waltraud Schelke and the anonymous reviewers of this journal for their detailed and helpful criticism. We thank Lukas Hoff, Michael Kemmerling and Tobias Roemer for their indispensable research assistance.

Disclosure statement

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

Notes

1 We would like to thank one of the reviewers for highlighting this point (for an overview, see: Hendrikse, 2015, pp. 6-36). Both perspectives criticize a purely neo-classical or positive political economic conception of financialization. From the material perspective, a shift in governance can, of course, result from and lead to changing power structures.

2 It is important to note that what we are examining is a very diverse set of cases. Bureaucratic states meant, of course, very different things in socialist, communist and Fordist states. However, our distinction of states vs. markets as a governance mechanism is intended as an ideal type to capture the fundamental changes in this dimension.

3 We are aware that most of the time, competing sense-making frameworks are in place, reflecting the conflicting views and goals of economic actors. Therefore, we do not argue that financial economics has completely replaced macroeconomics, but rather that financial economics has become the dominant framework. We would like to thank one of the reviewers for pointing this out.

4 Data on state-owned enterprises are extracted from Bureau van Dijk’s AMADEUS database (BvD, 2019). Our final sample covers 1,046 SOEs. These are companies in which the central government either has a commanding share of >50.01 percent, or which are wholly owned by the government/100% SOEs, including promotional banks. For both financial and shareholder data we used a conservative estimate i.e. we excluded NACE sectors O-U as they contain non-economic entities such as educational facilities, foster homes, and recreational parks. In terms of shareholdings, we end up with a total of 7,372 enterprises with states as minority or majority shareholders, either directly, or indirectly via other SOEs, development banks, or funds. All SOEs have at least 150 employees. For the financials data we also excluded finance and insurance companies.

5 Our shareholding sample includes 9,588 observations with a median of 101.5 shareholdings across all countries. For the unweighted index (CSHI) we calculated the percentages of indirect, international, and minority shareholdings for each country and divided their sum by three.

Additional information

Notes on contributors

Michael Schwan

Michael Schwan is postdoctoral researcher in political economy at the Cologne Center for Comparative Politics (CCCP), University of Cologne. He is interested in models of capitalism, financialization and corporate governance.

Christine Trampusch

Christine Trampusch is Professor of Comparative Political Economy at the Cologne Center for Comparative Politics (CCCP), University of Cologne. Her research includes models of capitalism, labor-business-government relationships and the change of institutions and policies. Her work has been published in Regulation & Governance, British Journal of Political Science, European Journal of Political Research, New Political Economy, West European Politics and others.

Florian Fastenrath

Florian Fastenrath is postdoctoral researcher at the Institute for Socio-Economics, University of Duisburg-Essen. His research focuses on the international and comparative political economy of public finance, financial markets and financialization. He has recently published contributions on these topics in KZfSS, New Political Economy, and Regulation & Governance.