The Return of State-Owned Enterprises: Should We Be Afraid?

The global financial crisis of 2008-2009 has prompted many industrialized states worldwide to increase their stakes in private corporations. This wave of partial nationalizations has come amidst full-scale expropriations in developing countries such as Venezuela, Bolivia, and Ecuador. Does this signal a return of "state capitalism?" If so, what should we expect of the state-owned enterprises (SOEs) that spring back into economic life? Should we be afraid that this return to state capitalism will bring back the practices of the large, inefficient SOEs that countries privatized during the 1980s and 1990s? From a look at the popular press, one certainly gets the impression that there is a return of "state capitalism," as if state intervention in industrial activity actually went away for a significant period of time. Moreover, many observers of the recent wave of nationalizations and government-backed bank capitalizations are afraid that a return to the wasteful state-owned enterprises of the past is imminent. In this essay we propose two alternative views. First, we stress the resilience of state-owned enterprises, which have been around for more than one hundred years in the world's capitalist economies. In fact, state interventions similar to those of today were seen in the pre-World War I period, an era known by some economic historians as "the first big wave of globalization." Second, we argue that there is no reason to believe that the SOEs of the twenty-first century will be as inefficient as those of the 1970s and 1980s. The world has changed much since former British Prime Minister Margaret Thatcher first began implementing large-scale privatizations. In fact, we document some cases of present-day competitive SOEs and explain some of the conditions that made them efficient, even in comparison to their private counterparts. We do not argue that all SOEs are efficient or that it is optimal to have government ownership of banks and other companies. What we aim to show is that the return of state capitalism is likely to be different this time since, we believe, the environment is different and many SOEs have learned the lessons of the past.