Adrian Wooldridge highlights the rise of state capitalism as a dominant force in the global economy. This new era, marked by massive growth in state-owned enterprises and sovereign wealth funds, represents a shift where governments not only influence but control significant portions of global markets. Wooldridge suggests that this trend, characterized by increased government involvement in both resource acquisition and technological advancement, poses challenges such as market concentration and opacity. The piece argues for enhanced global oversight to manage and differentiate between effective and problematic state capitalism.
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By Adrian Wooldridge
We pundits continue to struggle to coin a suitable moniker for our current era. The “age of post-liberalism” risks defining something by its absence. The “age of big government” belies the fact that government has been getting bigger for decades. “Revolution” and “transformation” are so generic as to be meaningless. In a recent column I floated the idea of the “age of monopoly.” Having read a new book by two academics — The Spectre of State Capitalism by Ilias Alami and Adam Dixon — I am moved to suggest a new candidate: “The age of state capitalism.”
Alami, a development economist at Cambridge University, and Dixon, who holds the Adam Smith chair in sustainable capitalism at Edinburgh Business School (part of Heriot-Watt University), produce some astonishing figures to demonstrate how rapidly state capitalism has grown in the 21st century. Sovereign Wealth Funds (SWFs) controlled more than $11.8 trillion in 2023, beating hedge funds and private equity firms combined, up from $1 trillion in 2000. State-owned enterprises (SOEs) had assets worth $45 trillion in 2020, the equivalent of half of global gross domestic product, up from $13 trillion in 2000. The Organization for Economic Cooperation and Development calculates that half of the world’s 10 biggest companies and 132 of its 500 biggest are SOEs. The state is not only back. It has burrowed into the heart of the capitalist economy — running companies (often across borders) and shaping capital markets.
For the most part, these SOEs are different from the state-owned bureaucracies of old. The state acts as a passive shareholder (sometimes with a majority but often with a minority share) rather than as a hands-on owner. The chief executives tend to have MBAs from fashionable schools and, in many cases, experience in the private sector. And the companies participate fully in global markets rather than, like old fashioned state-owned companies, hiding behind national walls. But the sector is highly varied: It no doubt includes fronts for rent-seeking bureaucrats as well as sock-puppets for corrupt politicians, crony state capitalism as well as respectable state capitalism. By their nature, hybrids will vary in how much of one thing they have and how much of another.
Alami and Dixon also point out that nation-states are increasingly using state companies to control (or at least influence) global production networks. At its most basic, this means purchasing global resources. When the Chinese state-owned energy giant CNOOC purchased Canada’s Nexen back in 2013, for example, it gained access to oil from four continents, while at the same time expanding into oil sands and shale oil and gas. It can also mean putting your country at the frontier of technological innovation. A growing number of countries is trying to remain at the frontier of “technologies of the future”, such as artificial intelligence, green mobility and 5G, either by supporting national champions, such as Norway’s Equinor ASA or Italy’s Eni SpA, creating attractive “ecosystems,” such as London’s King’s Cross area, or attracting foreign companies with subsidies.
The authors also invent an interesting concept — the “state-capitalism spiral.” Just as the privatization wave of the 1990s proved self-reinforcing, so “state capitalism begets state capitalism.” This is partly a matter of tit-for-tat. Many European countries, particularly Germany, are talking about creating national champions in response to the Biden administration’s introduction of subsidies for electric batteries. It is partly a matter of fashion: Africa’s current appetite for sovereign wealth funds, with 22 in operation and seven in prospect, is driven by the success of such funds in East Asia and the Middle East.
Some of this fashion is hollow: 101 countries have adopted national development plans, but some of these are just formulaic phrases signifying little. Some things that might look like “state capitalism” are just temporary measures: The US government stepped in to rescue faltering companies during the financial crisis only to exit as quickly as possible.
But the most important “spiral-driver” is nevertheless having a real impact: the threat of military, or at least economic, conflict. The Biden administration has reinforced Donald Trump’s tariffs with a wholesale policy to counteract China’s rise by securing America’s own military supplies while starving China of some advanced technologies. Even more belatedly, the Europeans, both in the form of the European Union and various national governments, have become much more serious about screening Chinese state-driven investments for signs that they are trying to buy up strategic companies. The danger here is that rent-seeking companies and cynical governments will exploit real military threats to justify broader protectionist policies.
This brings us to a second reason, after the sheer scale of the development, for calling ours an “age of state capitalism”: State capitalism poses some of the most distinctive problems of the current era. There is the problem of concentration, which is even more pronounced in the state capitalist sector than it is in, say, the tech sector, with the added problem that SOEs are inevitably tied to governments. Big European SOEs have been buying up smaller private companies across Europe: France’s SNCF and Deutsche Bahn AG have purchased British railway companies, creating the oddity of foreign state companies running Britain’s privatized railways, while Spain’s Telefonica SA has expanded across Europe and the Americas. The Norwegian sovereign wealth fund is so big, controlling more than $1.7 trillion in assets, that it owns almost 1.5 per cent of the shares in all the world’s listed companies.
There is the problem of opacity: the Chinese State-Owned Assets Supervision and Administration Commission (SASAC) is arguably the most powerful organization in the world of which most people have never heard. SASAC is the sole shareholder in 96 holding companies that in turn own shares in downstream companies that are listed on the stock exchange in Shanghai and cross-listed in Hong Kong or even foreign stock exchanges. And there is the problem of the inevitable frailties of governments when they try to act as both gatekeepers and poachers. Governments are naturally tempted to interfere in markets in dangerous ways: Protecting “their” companies from competition, thereby increasing the chances of protectionist wars; using “their” sovereign wealth funds to sponsor growth, thereby endangering their citizen’s savings; or else engaging in subsidy wars, thereby forcing taxpayers to hand money to corporations.
Managing the emerging state-capitalist behemoth will require remarkable ingenuity. We need to start by ridding our minds of the idea that state-capitalism is either a leftover from a vanishing state-dominated past or else an epiphenomenon of Chinese power, both views that are widely held in the US. State capitalism is strengthening rather than weakening, and some of the most successful SOEs and SWFs are in the advanced world. And then we need to increase the power of global technocratic institutions such as the World Bank, the International Monetary Fund and the OECD to police the global system and draw a bright line between “good” state capitalism and “bad” state capitalism, no easy feat in a populist age that hates technocratic government.
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