Proposal preview

The State as Entrepreneur in Historical Perspective

The State is typically the largest actor in national economies. In addition to regulation, and investment in public goods, state-owned enterprises have predominated. We propose to re-orient our understanding of SOEs by studying their underlying purposes within the broader scope of national political economies as well as in correcting market failures; complementing private endeavors and providing goods and services to marginalized or emerging sectors of society. A wide geographic and chronological range of studies serves to highlight underlying commonalities of the logic and goals of SOEs, while emphasizing the diversity of their organizational forms, governance structures and outcomes

Organizer(s)

  • Gail Triner Rutgers University gtriner@gmail.com USA
  • Aurora Gómez-Galvarriato Freer El Colegio de México agalvarriato@colmex.mx Mexico

Session members

  • Aldo Mussachio, Brandeis University & NBER
  • Sérgio Lazzarini, INSPER
  • Gail Triner, Rutgers University
  • Stephanie Decker, Aston University
  • Marcelo Bucheli, University of Illinois, Urbana-Champaign
  • Andrés Regalsky, Universidad Torcuato di Tella
  • Daniel Díaz-Fuentes, Universidad de Cantabria
  • Judith Clifton, Universidad de Cantabria
  • Ana Lara Gómez, Universidad de Cantabria
  • Shakila Yacob, University of Malasya
  • Aurora Gómez-Galvarriato Freer, El Colegio de México

Discussant(s)

  • Rory Miller University of LIverpool rory@liverpool.ac.uk
  • Carlos Marichal El Colegio de México cmari@colmex.mx

Papers

Panel abstract

The State is typically the largest actor in national economies. In addition to regulation, and investment in public goods, state-owned enterprises have predominated. We propose to re-orient our understanding of SOEs by studying their underlying purposes within the broader scope of national political economies as well as in correcting market failures; complementing private endeavors and providing goods and services to marginalized or emerging sectors of society. The papers in this session explore the range of their goals in industrialization, capital accumulation, exploitation of natural resources, financing, as well as contributions to long-term growth and the cycles of state-led development strategies. A wide geographic and chronological range of studies serves to highlight underlying commonalities of the logic and goals of SOEs, while emphasizing the diversity of their organizational forms, governance structures and outcomes. This session promises an unusually rich comparative framework for exploring state entrepreneurialism.

1st half

Entrepreneurial State in the realm of finance: the Banco de la Nación Argentina as an instrument of public policies in an open economy in a context of crisis, 1912-1924

Andrés Regalsky (Universidad Nacional de Tres de Febrero)

The beginning of the First World World War in 1914 resulted in a strong economic and financial crisis in Argentina. However, its roots can be traced back to 1912, when a slowdown of foreign capital inflows began. Uncertainty and imbalances in international trade aggravated the situation in an open economy such as Argentina, which was so highly integrated to the world markets. In this context a great state owned bank, the Banco de la Nación Argentina (BNA), with a growing leadership in the market because of the huge resources under its control and its wide territorial deployment, was asked to play a new role. In the first place, it brought support to the other banking institutions, especially those of national private capital, with great cash shortages in the months after the declaration of war. In the second place, the BNA aided the rural agriculture and livestock producers and some regional...

The beginning of the First World World War in 1914 resulted in a strong economic and financial crisis in Argentina. However, its roots can be traced back to 1912, when a slowdown of foreign capital inflows began. Uncertainty and imbalances in international trade aggravated the situation in an open economy such as Argentina, which was so highly integrated to the world markets. In this context a great state owned bank, the Banco de la Nación Argentina (BNA), with a growing leadership in the market because of the huge resources under its control and its wide territorial deployment, was asked to play a new role. In the first place, it brought support to the other banking institutions, especially those of national private capital, with great cash shortages in the months after the declaration of war. In the second place, the BNA aided the rural agriculture and livestock producers and some regional economies, acting in this area as an instrument of new public policies, in order to mitigate the impact of international instability. And last, but not the least, it was asked to lend money on a large scale to the national government, whose budgetary accounts showed an enormous deficit due to the slowdown of its major source of revenues, those coming from Customs. Towards 1920, when a general improvement of the economy seemed to settle all these difficulties, a new international crisis forced the BNA to resume its role in the three areas to a greater extent during the following years. After 1929 the Great Depression would bring a new framework for this kind of intervention opening a new era. This experience enables us to reflect upon the dynamics of state intervention in an open economy under an international context of high volatility as was that of the interwar period. At the same time it sheds light about the limits of this intervention before 1930, implemented provisionally by means of a state owned bank, due to the continuing expectations of an imminent restoration of the prewar order.

State Ownership Evolution since the XIX Century: The Brazilian Case in International Perspective

Aldo Mussachio (Brandeis University and NBER), Sergio Lazzirini (INSPER, São Paulo)

In this paper we use Brazil as a case study to examine the functioning and performance implications of different forms of state capitalism. Brazil is a good laboratory to study SOEs for various reasons. The emergence of state capitalism in Brazil followed a similar path found in other countries, where governments created and managed myriad SOEs in the second half of the 20th century. Thus, after World War II, many governments in Continental Europe owned and ran water, oil, gas, electricity, telecommunications, shipping, and other companies (Millward, 2005). We label this model of state capitalism, with SOEs completely controlled and run by the state, as the Leviathan as an entrepreneur model (Musacchio & Lazzarini, 2014). In Brazil, state ownership of large scale enterprises began mostly after World War I when the government ended up bailing out a large portion of the railway companies of the country. Then, in the 1940s,...

In this paper we use Brazil as a case study to examine the functioning and performance implications of different forms of state capitalism. Brazil is a good laboratory to study SOEs for various reasons. The emergence of state capitalism in Brazil followed a similar path found in other countries, where governments created and managed myriad SOEs in the second half of the 20th century. Thus, after World War II, many governments in Continental Europe owned and ran water, oil, gas, electricity, telecommunications, shipping, and other companies (Millward, 2005). We label this model of state capitalism, with SOEs completely controlled and run by the state, as the Leviathan as an entrepreneur model (Musacchio & Lazzarini, 2014). In Brazil, state ownership of large scale enterprises began mostly after World War I when the government ended up bailing out a large portion of the railway companies of the country. Then, in the 1940s, President Getulio Vargas created many state-controlled SOEs in sectors that were considered fundamental for economic development, such as mining, steel, chemicals, and electricity. Yet, the heyday of state capitalism in Brazil took place in the early 1970s, during the military dictatorship (1964-1985). By 1976-1977, the public sector represented 43% of the total gross capital formation in the country, with around 25% of those investments coming from large SOEs (Trebat, 1983).

From Entrepreneurial State to Regulatory State: Brazilian Political Economy in the Wake of Privatization

Gail Triner (Rutgers University)

In the 1990s, fundamental policy shifts appeared to re-orient Brazilian political economy from one of the developing world’s most protectionist and closed economy to a poster-case of late twentieth-century neoliberal opening to global economic forces. One of the most visible transformations in this process was an ambitious program of “privatizing” a wide range of state-owned assets, with the goal of extracting the state directly controlling firms and commercial transactions. “Privatization” altered, but did not remove, the state from deep embedded-ness within productive firms. State capitalism was replace by regulatory governance and state participation in capital markets. This paper proposes to highlight the shift in the state’s economic governance that accompanied financialization. Targeting the state’s role in protecting investors and consumers, two distinct regulatory realms serve to categorize these changes: those of capital markets and of highly networked public utilities. The paper’s innovation is to look across sectors and types of...

In the 1990s, fundamental policy shifts appeared to re-orient Brazilian political economy from one of the developing world’s most protectionist and closed economy to a poster-case of late twentieth-century neoliberal opening to global economic forces. One of the most visible transformations in this process was an ambitious program of “privatizing” a wide range of state-owned assets, with the goal of extracting the state directly controlling firms and commercial transactions. “Privatization” altered, but did not remove, the state from deep embedded-ness within productive firms. State capitalism was replace by regulatory governance and state participation in capital markets. This paper proposes to highlight the shift in the state’s economic governance that accompanied financialization. Targeting the state’s role in protecting investors and consumers, two distinct regulatory realms serve to categorize these changes: those of capital markets and of highly networked public utilities. The paper’s innovation is to look across sectors and types of regulation to highlight the commonalities of regulatory structure that have shifted the terms of state economic intervention.

2nd half

Behind the Mexican Miracle: Industrial development and state-led industrial technology research

Aurora Gómez Galvarriato Freer (El Colegio de México)

After the 1980s economic debacle, the era of state-led development has been increasingly viewed by the literature as period in which import-substitution policies expressed as protectionism and industrial promotion policies, generated industrial growth based on outdated technologies and an inefficient allocation of resources.This paper shows that not everything that the sate did was wrong, such as the creation and development of the Instituto Mexicano de Investigaciones Tecnológicas (IMIT), an industrial research center sponsored by the central bank of Mexico, (the Banco de México). The paper shows that it was a key institution to channel government financial resources to industrial projects that would become a success, as well as to promote innovation towards them. Moreover, the IMIT carried out these services very efficiently, solving various externality and scale problems that hinder research and development in underdeveloped economies. This finding helps explains why during these years Mexico experienced a long and sustained...

After the 1980s economic debacle, the era of state-led development has been increasingly viewed by the literature as period in which import-substitution policies expressed as protectionism and industrial promotion policies, generated industrial growth based on outdated technologies and an inefficient allocation of resources.This paper shows that not everything that the sate did was wrong, such as the creation and development of the Instituto Mexicano de Investigaciones Tecnológicas (IMIT), an industrial research center sponsored by the central bank of Mexico, (the Banco de México). The paper shows that it was a key institution to channel government financial resources to industrial projects that would become a success, as well as to promote innovation towards them. Moreover, the IMIT carried out these services very efficiently, solving various externality and scale problems that hinder research and development in underdeveloped economies. This finding helps explains why during these years Mexico experienced a long and sustained period of rapid economic growth.

Political Alliances and the Expropriation of Foreign Property: Historical Evidence from Latin America and Sub-Saharan Africa

Marcelo Bucheli (University of Illinois, Urbana-Champaign), Stephanie Decker (Aston University)

Regional Development Banks as Entrepreneurial Banks in Europe and the Americas

Daniel Diaz Fuentes (Universidad de Cantabria), Judith Clifton (Universidad de Cantabria) & Ana Lara Gómez (Universidad de Cantabria)

Regional Investment Banks (RIBs) have traditionally been in the forefront in supporting economic integration and regional development but only recently, with the economic crisis, have become the focus of attention and their other potential roles (and goals) have started to be recognised. Do RIBs act as policy entrepreneurs? This paper assesses the entrepreneurial role of two RIBs: the European Investment Bank (EIB) and the Central American Bank for Economic Integration (CABEI). Both established to encourage the economic integration of their member countries, their role has gone beyond that. The EIB allowed the European project to succeed while it pushed State Owned Enterprises (SOEs) to become national champions, later on broadening its entrepreneurial role to the promotion of SMEs and renewable energy. Likewise, the CABEI encouraged Central America integration whilst fostering SMEs and, more recently, renewables. This paper argues that, since their creation, both institutions have taken an increasing and analogous...

Regional Investment Banks (RIBs) have traditionally been in the forefront in supporting economic integration and regional development but only recently, with the economic crisis, have become the focus of attention and their other potential roles (and goals) have started to be recognised. Do RIBs act as policy entrepreneurs? This paper assesses the entrepreneurial role of two RIBs: the European Investment Bank (EIB) and the Central American Bank for Economic Integration (CABEI). Both established to encourage the economic integration of their member countries, their role has gone beyond that. The EIB allowed the European project to succeed while it pushed State Owned Enterprises (SOEs) to become national champions, later on broadening its entrepreneurial role to the promotion of SMEs and renewable energy. Likewise, the CABEI encouraged Central America integration whilst fostering SMEs and, more recently, renewables. This paper argues that, since their creation, both institutions have taken an increasing and analogous role as policy entrepreneurs. First, we analyse their historical evolution since the late 50s-early 60s to the present. Despite the different context they face, we observe how both RIBs increasingly developed very similar competences in taking the entrepreneurial lead. We assess, then, in accordance with the type of investments funded, the strategy followed by each bank and whether such strategy encouraged or intersected with other national policy goals. We show that the entrepreneurial role acquired by RIBs contributed to the region’s overall economic goals by shaping and creating markets.

State Intervention and Palm Oil Welfare

Shakila Yacob (University of Malaysia)

In pursuing its goal of reducing poverty in the late 1950s, the Malaysian government focused on land reforms and land development. Consequently, a variety of institutions led by the Federal Land Development Authority (FELDA) and FELCRA were created. FELDA was charged with establishing new lands, rubber planting and later, oil palm as well as the resettling of rural landless dwellers. FELCRA, in contrast, assisted small plantation holders to improve their status by consolidating the holdings. The social engineering strategy applied by FELDA and FELCRA generated other agencies which focused on agricultural research, marketing, trade promotion, and downstream product development. These agencies worked closely with the private sector plantations thereby contributing to the overall development of the oil palm industry of the country. Malaysia avoided the socialized or collectivist ownership pattern that prevailed in socialist countries and as a result, emerged to become the world’s leading supplier of palm oil. This...

In pursuing its goal of reducing poverty in the late 1950s, the Malaysian government focused on land reforms and land development. Consequently, a variety of institutions led by the Federal Land Development Authority (FELDA) and FELCRA were created. FELDA was charged with establishing new lands, rubber planting and later, oil palm as well as the resettling of rural landless dwellers. FELCRA, in contrast, assisted small plantation holders to improve their status by consolidating the holdings. The social engineering strategy applied by FELDA and FELCRA generated other agencies which focused on agricultural research, marketing, trade promotion, and downstream product development. These agencies worked closely with the private sector plantations thereby contributing to the overall development of the oil palm industry of the country. Malaysia avoided the socialized or collectivist ownership pattern that prevailed in socialist countries and as a result, emerged to become the world’s leading supplier of palm oil. This paper evaluates the role played by the state in the development of the oil palm industry while pursuing the overarching goals of eradicating poverty and in promoting social development. This paper focuses on the role played by FELDA in particular. Issues connected to land ownership and the organization of small farmers are examined. The paper outlines the catalytic role played by the state in the development of the industry which were owned by private individuals (settlers) and corporations.