Reinventing State Capitalism: Leviathan in Business, Brazil and Beyond
Part of the fear and misunderstanding of state capitalism in the post-Berlin Wall era stems from the fact that most observers see state-owned enterprises (SOEs) as inefficient soviet companies. In Reinventing State Capitalism: Leviathan in Business, Brazil and Beyond (Harvard University Press, 2014) we present systematic, cross-country evidence showing that the form of state capitalism prevailing in the twenty-first century is different from the form we observed in the second half of the twentieth century. Then, governments owned and managed a large number of enterprises and directly controlled the allocation of strategic resources. More recently—perhaps paradoxically—the privatization and liberalization wave of the 1980s and 1990s helped create two new forms of hybrid capitalism in which the government influences private companies’ investment decisions through majority ownership in publicly traded corporations and through either minority equity investments or loans from government banks. We study the implications of these new varieties of state capitalism using detailed data from Brazil between 1976 and 2009.
We argue that in the Leviathan as a majority investor mode governments have corporatized SOEs or listed them in stock exchanges. Such firms commonly have relative financial autonomy, professional management, and a board of directors with some independent members and relatively short tenures. Financials are audited by professional accounting firms. The transformation from owner and manager to majority shareholder has reduced many agency problems commonly faced by SOEs, but—as we explain—has not reduced the temptation governments face to intervene in the operation of large strategic enterprises.
In the Leviathan as a minority shareholder mode, governments have small equity ownership in corporations and in general do not intervene in management. We find evidence that such equity investments allow firms to alleviate capital constraints and increase capital expenditures. Yet we also find instances in which governments use their minority positions to intervene in the management of firms, especially in natural resource industries.
Keywords: State capitalism;