Reinventing State Capitalism: Leviathan in Business, Brazil and Beyond



Book review: Reinventing State Capitalism: Leviathan in Business, Brazil and Beyond. By Aldo Musacchio and Sergio G. Lazzarini. Harvard University Press, 2014. 368 pages. U$ 51.18 (

Published: "Aldo Musacchio and Sergio G. Lazzarini: Reinventing State Capitalism: Leviathan in Business, Brazil and Beyond." Journal of Economic Issues, 50(3), pp. 910–911

When discussing how the rise of large developing countries will affect the global economy, commentators often point to the BRICS' penchant for state capitalism, contrasting it with a supposed predilection for market capitalism in the West. However, the entire debate about market capitalism vs. state capitalism is usually simplistic and ideologized, and thus often unproductive.

In this context, Aldo Musacchio and Sergio Lazzarini have written a great and accessible book that takes a calm look at the history as well as the pros and cons of state capitalism, using Brazil as a case study. Describing the rise of new species of state capitalism in which governments interact with private investors either as majority or minority shareholders in publicly-traded corporations or as financial backers of purely private firms (the so-called "national champions"), they show that the role of the state is far more nuanced today than the political debates suggest.

Musacchio and Lazzarini go out of their way to assure a fair assessment of the different models (the state acting as a majority investor, allowing the state-owned enterprise financial and managerial autonomy, and the state as a minority investor through sovereign wealth funds and development banks).

There is no doubt that some badly run state-owned entreprises may be less worried about bankruptcy because managers know they'll be bailed out by governments. For instance, as a consequence of the oil shocks of the 1970s and the liquidity crunch of the early 1980s, SOEs from all around the world ran average losses equivalent to 2 percent of GDP, reaching 4 percent in developing countries. Their losses were then translated into national budget deficits. Musacchio and Lazzarini also demonstrate that under Brazil's PT government, the National Development Bank (BNDES) started lending money to already successful businesses that could have raised it from the markets—companies that, as The Economist points out, are also generous contributors to political campaigns.

And yet, many of the ills produced by state-owned enterprises -- no high-powered incentives for managers (agency view), contradictions between social objectives and profitability (social view) and risk of political interference (political view) have been recognized by governments, and performance of companies with state participation has not been systematically inferior to that of purely private actors. A generic attempt to answer whether state ownership is good or bad, the authors point out, "will necessarily miss the nuance and variation of organizational forms that emerged from the reinvention of state capitalism documented in this book."

As the authors write,

We propose a contingent view of state capitalism. Instead of trying to prove that state investments in terms are universally superior or inferior to purely private investment, we see things in a different way. For us, SOEs should have their place in the economy if certain key contingencies are present. In many countries, the models of Leviathan as an entrepreneur, Leviathan as a majority investor, Leviathan as a minority investor, and pure private ownership are likely to coexist. Therefore, the agenda should be to examine the conditions that will make each model more prevalent and more conducive to rm-level e ciency and country-level development (p.283).

Reinventing State Capitalism matters far beyond Brazil's boarders. As the authors point out, companies controlled by the government or in which the government has a significant stake dominate trading not only in Brazil, where they account for between 30 and 40 percent of market capitalization. In Russia the numbers are broadly similar. In China, companies in which the government is a controlling shareholder account for over 60 percent of stock market capitalization, and in Italy and Greece the figure is between 20 and 30 percent. The number of SOEs among the one hundred largest companies in the Fortune Global 500 list, which ranks companies by revenues, went from eleven in 2005 to twenty-five in 2010. Different forms of state capitalism around the world thus look like they are here to stay. This book is an excellent way to learn more about them.

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