The Economist - USA (2022-01-15)

4 SpecialreportBusinessandthestate TheEconomistJanuary15th 2022

lever,theAnglo­Dutchsoap­to­soupgroup,wantsto“save”it.

Yetseenfromonevantagepoint,capitalismseemshaleand

hearty.IncontrasttotheirMarx­curious20th­centuryforebears,

today’sgovernmentsmostlyeschewcommonownershipofthe

meansofproduction.From 1990 to 2016 statesaroundtheworld

soldassetsworthsome$3.6trn.A databasecompiledbyKatarzyna

Szarzec,AkosDombiandPiotrMatuszak,threeeconomists,lists

1,160privatisationsin 30 Europeancountriesbetween 2007 and

2016,andonly 61 nationalisations.Accordingtotheoecdclubof

mostlyrichcountries,thepublicsectorowned$11trn­worthof

sharesinlistedcompaniesattheendof2020,equivalentto10%of

totalmarketcapitalisation.Thatisdownfrom14%in2017.

Roughlytwo­fifthsofstateholdingsbyvaluerepresentminor­

itystakesinsome13,400businesses.In12,000ofthesethehold­

ingisbelow10%.The1,000orsomajority­ownedfirmsarebigger

onaveragebuttheyareoftenprofessionallyrunbyexperienced

managerstomaximisereturns,notbybureaucratseagertoboost

employmentornationalpride.Afifthofthepublicsector’slisted

assetsareheldbysovereignwealthfundsandanother13%bypen­

sionfunds.SaudiAramco,thekingdom’soilcolossus,isoneofthe

world’smostprofitablecompanies.Theworld’sfourbiggestbanks

byassetsarefullyorpart­ownedbythegovernmentinBeijing.

PlentyofotherChinesestate­runfirmsareatleastmodestlyprof­

itable—howelsewould 82 haveenteredtheFortuneGlobal 500 list

oftheworld’sbiggestcompaniesbetween 2000 and2019?

Notownership,butinfluence

On the surface, then, the state appears to be more hands­off. Yet

direct  ownership  is  not  the  only  way  to  influence  businesses.

Rather than own the means of production, governments increas­

ingly use other levers of control. This special report will explore

the four most important old tools that are being dusted off and re­

purposed for the 21st century.

First is a renewed enthusiasm for industrial policy, defined as

state  support  for  favoured  industries,  technologies  or  specific

firms,andguidedbya desiretopromote

jobsorsecureinputsneededfornational

security(computer chips)or theenergy

transition(batteries).Nextistheexpand­

ingambitionoftrustbustersthat,tenta­

tivelyinAmerica,slowlyinEuropeandal­

mostovernightinChina,aremovingfrom

a focusonpricestoa broaderassaulton

corporatepowertodefendanythingfrom

smallbusinessestogovernmentitself.

Thirdisthegrowthofregulation,par­

ticularly over the environment, labour

standards and corporate governance,

whichcutacrosssectorsandaffectalllarge

firms.Andfourthisaninflectionpointin

whathadseemedanirreversibletrendto

lowerbusinesstaxes,aspoliticianshave

followedvotersinseeingunlovedbigbusi­

nessasa convenientsourceofrevenue.

Thisreportconcludesbyarguingthat

greaterstateinvolvementinbusinessis

unlikelytoleadtobetteroutcomesthanin

theolddays,whensimilarlyintervention­

isttoolsweredeployed.Theymaywellbe

worse.Earlierepisodesofpost­warmed­

dlingwereatleasttemperedbya near­uni­

versalconsensusinfavouroffreertrade.

Thenewinterventionism,bycontrast,co­

incideswithbarrierstointernationaltrade

going  up  not  down  and  a  pervasive  sense

that globalisation and fragile supply chains must be reined in, for

both economic and national­security reasons.

A  strong  reminder  is  in  order  that  the  four  vintage  tools—in­

dustrial  policy,  trustbusting,  regulation  and  taxes—were  gather­

ing dust for a reason. And it is not just politicians and bureaucrats

who should pay attention.So, too, should business leaders licking

their fingers at the prospectof more state support—especially at

the carrot of subsidies.n

Proprietors’ profits

Sources:IMF;OECD;FactSet;ThomsonReuters;Bloomberg *2,largestfirmsbymarketcapitalisation †ExcludingChina and Japan

20

15

10

5

0

1816141210080604022000

Shareofstate-ownedenterpriseassetsamong

theworld’slargestnon-financialfirms*,%

Otheremergingmarkets

Advancedeconomies

China

Others

UnitedStates

Otheradvanced

economies

Europe

Asia†

Japan

China

100806040200

Public-sector holdings at market value

By investor type, end-22

Sovereignwealthfunds State-ownedenterprises

Governments Public pension funds

Market value of holdings, end-22

Public-sector stake Number of companies Investment, $trn

10-29%

30-49%

50% and over

Less than 10% 11,652

1,191

584

1,06

2.28

0.98

1.08

6.39

The new industrial policy

Return to picking winners

A

s national economiesand international trade were liberal­

ised  after  the  stagflation  of  the  late  1970s,  governments

increasingly decided to allow corporate behaviour to follow com­

mercial  logic.  Multinationals  set  up  shop  where  it  made  most

sense,  allocating  resources,  outsourcing  labour  and  automating

factories  to  minimise  costs  and  maximise  profits.  The  reforms

lifted hundreds of millions out of poverty even as they delivered

fat returns for shareholders.

But  the  less­state­is­better  consensus  is  fraying.  The  crash  of

2008, the loss of middle­class jobs to foreigners or robots and the

climate  crisis  have  led  many  to  believe  that  markets  cannot  be

trusted.  Economists  like  Mariana  Mazzucato,  of  University  Col­

lege London, believe that firms are losing the ability to innovate,

weighing  on  future  prosperity.  National­security  hawks  on  both

sides of the Sino­Western divide fret about reliance on adversaries

Apreviously discredited approach has found new believers