The return of State planning

brasilia-2448030_1280Conventional economics is notorious for having created a highly persuasive analytical toolbox. The challenge of this stream of the profession until the 1960s was to prove the logical possibility that the market could not only coordinate the entire economy, but also keep it stable at that single point of optimum equilibrium. In order to boast the wonders of decentralized market exchange, the theory paradoxically invoked the metaphor of a “benevolent social planner”.

A growing list of circumstances in which markets fail to generate the optimal societal outcome (externalities, coordination failures, and so on) raised the academic premium for sound justifications for avoiding State interventions in the economy. Government failures – it was, and still is, claimed – could be even worse than those of the market.

The theoretical vilification of the State’s performance matched the emerging political philosophy in the early 1980s. Despite the enormous State apparatus created after the Second World War, from 1980s onwards, government functions were gradually reduced to the subordinate role of supporting the private sector. To paraphrase Keynes: neoliberalism won over the West as the Holy Inquisition conquered Spain. Western society surrendered to market dominance, shrinking State capacity despite the achievements of the three decades of postwar Keynesian policies, which generated the highest world growth rates in modern history. 

One of the blindsides of the drastic downsizing of the State observed after 1980s is severely limiting its capacity to respond whenever needed. The COVID-19 epidemic made this very clear. Countries that fell for the neoliberal spell faced a flagrant difficulty in organizing an efficient response to a looming healthcare crisis, thus rekindling a debate about the way in which the State operates in society. Read More »

BNDES’ multidimensional retreat from the Brazilian economy


Brazil is in a crisis again. The COVID-19 pandemic has spread across the country and political incompetence has led to a massive health crisis. Investment outflows have been rapid and the Brazilian real has depreciated dramatically. The Brazilian economy is set to contract again after three years of weak positive growth.

Brazil’s development bank Banco Nacional de Desenvolvimento Econômico e Social (BNDES) has announced some measures to deal with the financial instability caused by the COVID-19 pandemic. However, these measures are being criticised for being insufficient. Rather than being a temporary policy mistake that can be corrected easily, BNDES’ passive response is linked to the bank’s structural retreat from the economy over the past five years.

During the 2000s, BNDES was acclaimed as a catalyst of the country’s economic growth. Globally, developing countries such as Indonesia saw the rise of BNDES as something favourable and sought to mobilise their own national development banks.

By acting as a lender and a minority shareholder of major domestic companies, BNDES played a key role in Brazil’s state-activist growth model of which the observers have labelled liberal neo-developmentalism,’developmental neoliberalism,’ or ‘democratic state capitalism.’ Furthermore, BNDES actively supported national champions’ internationalisation strategy by financing export and investment activities. During and after the global financial crisis, BNDES’ role extended and was used by the government to carry out counter-cyclical operations. Read More »

RMB internationalisation as an extension of Chinese state capitalism


Why has the RMB gone global?

More than a decade has passed since the launch of what is now widely known as ‘RMB internationalisation’, or the strategic attempt by the Communist Party of China (CPC) to expand the global reach and usage of the Chinese currency, the renminbi (RMB). Such is the scale and ambition of this strategy, some policymakers and scholars have proclaimed RMB internationalisation as a form of reserve currency succession – as a challenge to the US dollar as the world’s preferred currency for market exchange. This development is especially intriguing given how the financial system within China remains relatively insulated in spite of market oriented reforms since 1978. Could RMB internationalisation truly be about global currency supremacy when financial flows in and through China continue to be highly scrutinised?Read More »

When does state-permeated capitalism work?


In recent years, state capitalism has become an important buzzword in the development economics discussion (again). In view of the very different ways in which this term is used, Ilias Alami and Adam Dixon recently highlighted the dangers of using the term too loosely in an article in Competition and Change. In view of its recent popularity, state capitalism could suffer a similar fate to the terms “neoliberalism” or “financialisation” by becoming a very loose rallying cry without any significant analytical value. To overcome this problematic situation, Alami and Dixon propose that future research should (1) develop a theory of the capitalist state, (2) circumscribe the time horizons of state capitalism, and (3) locate state capitalism more precisely in territorial and geographical terms.

Although I am not sure whether the genius can be put back into the bottle by developing a unified theory of the state (too many different theoretical traditions are involved by now), I am very sympathetic to the latter two demands. Our recently published book “State-permeated Capitalism in Large Emerging Economies” (Routledge) is a modest contribution to the latter goals. It deals with the economic development of Brazil, India, China and South Africa between 2000 and 2015. Departing from a comparative capitalism perspective, we have developed an ideal type of state-permeated capitalism as opposed to liberal, coordinated and dependent capitalism – and examined to what extent large emerging markets are approaching this ideal type. Read More »

The Promise – and Pitfalls – of State-led Development in Resource-rich Countries: Resource Nationalism in Latin America and Beyond

miningThe eclipse of neoliberalism in 2000s coincided with the so-called commodity ‘super cycle’ that lasted between 2002 and 2012. In search of a new model, resource-rich states began to articulate resource nationalism as a development strategy. While ownership and control of minerals and hydrocarbons are intricately tied to claims of state sovereignty and exercise of political authority in development policy, resource nationalism can also be understood in terms of a power struggle between host states and global hegemons in their quest to secure resources for their own industrial needs. Hence, contemporary natural resource governance is reflective of the wider ideological return of the state despite two decades of reforms promoting market liberalization and privatization. Resource nationalism is a vital expression of the renewal of state agency amidst high external constraints imposed upon resource-rich countries.

Resource Nationalism as a State-led Development Strategy

It is not a coincidence that resource nationalism returned in mainstream political debates at the same time as emerging powers designed new industrial policies aimed at recalibrating state-market relations in favour of the former. With extraordinary high prices and rising demands for natural resources from China, domestic political configurations in resource economies appear to move towards reforms aimed at (1) capturing and maximising windfall profits amidst a boom, (2) extending the role of state in commodity production through a renewed role for state-owned enterprises, and (3) renegotiating the terms of contracts with multinational mining capital.

These policies are emblematic of a wider trend: the growing importance of state stewardship for industrial transformation in an era of cross-border production networks governed by global lead firms. Despite the rhetoric on economic globalization, the role of the state remains prevalent as observed in the number of state-owned enterprises, the significant expenditure on industrial policy, and the array of government-business partnerships in East Asia and beyond. State interventions are reconfigured not simply to reinforce the residual statist tendencies, but to actively construct new comparative advantages and build strong ties with economic elites who can compete in a globalized international economy. Perhaps, more importantly, political elites are forging new social contracts with ordinary citizens to enhance the legitimacy of the state, whether in terms of actively supporting social welfare programmes (as in the case of many conditional cash transfers in Latin America), or by creating new avenues to engage with marginalised groups (for example, through participatory institutions and FPIC process).

Amidst the resource bonanza, development plans were set in motion centred around the exploitation of natural resources. For example, Brazil launched a programme focussed on heavy investments in the capital goods sector, notably in oil, gas and ship-building industries.

Several Latin American countries also introduced new royalty fees and export taxes aimed at capitalising on high prices. Table 1 details the increasing role of natural resource rents in state revenues over the past twenty years.

Table 1: Public Revenues from non-renewable natural resources in percentages of GDP

Screenshot 2020-03-24 at 09.33.07

Alongside attempts at adding value in mining and hydrocarbons, Latin American governments faced redistributive pressures from their political base. ‘Compensatory states’ justified their resource extraction strategy as a necessary step for further income distribution and revitalization of manufacturing. While political citizenship in post-neoliberal Latin America is increasingly defined by redistributive politics, it also emphasised recognition and identity politics as a central feature of a contentious state-society relationship.

The Limits of the Resource Bonanza

It is now a widely held view that the Left-of-Centre governments successfully reduced poverty and extreme poverty (see Table 2), and although slow, inequality has begun to taper off (Figure 1). However, the data also confirm the fragility of the social achievements of Latin American governments – as the bonanza ended, so did the gains from poverty reduction. This points to several important shortcomings of resource-based strategies.

Figure 1 Gini Inequality Index in Latin America, 2002-2018

Screenshot 2020-03-24 at 09.29.28Source: CEPAL 2019

Most conspicuously, poverty gains may have created a trade off in making vital investments in the productive economy. Finite domestic revenues have been subject to immense political competition for rent-seeking, and without a coherent industrial strategy, an export-led growth model based on commodities are likely to be fragile and is vulnerable from price swings.

This, then, leads to a gloomy conclusion. Resource-rich states, without the institutional capacity to design a productivist strategy to diversify their export base and to set out an ambitious multi-year development plan to upgrade their industrial sectors, are likely to suffer from the vicissitudes of international commodity markets. At worst, those without political consensus over governance – Venezuela under Maduro being the emblematic case – are likely to waste the opportunities for development through their strategic mining sectors. The broader lesson, I suspect, is that institutional preconditions and pro-industrial policy coalitions are central to the success of developing countries advancing new strategies in an increasingly globalized international economy. Crucially, whenever crisis and uncertainty appear, the state as a stabilizing force becomes more prescient than ever.

Table 2: Poverty and Extreme Poverty in 18 Latin American Countries, 2002-2019 (in percentages)

Screenshot 2020-03-24 at 09.34.27

Jewellord (Jojo) Nem Singh is an Assistant Professor at the Institute of Political Science, Leiden University working on the political economy of development and democracy in Latin America and East Asia. He tweets at @jnemsingh.

Assessing the ‘Return’ of the State: Bringing Class Back In


There are decades where nothing happens; and there are weeks where decades happen’, words famously attributed to Lenin. In the last few weeks the Covid-19 pandemic has led to an extraordinary series of events throughout the world. Our everyday lives, the way our economies are organised, and the ways that we exercise our basic rights and freedoms are being transformed. These changes were unimaginable only a few weeks ago.

A significant aspect of these ‘extraordinary times’ is governments’ extraordinary responses to the economic meltdown triggered by the coronavirus crisis. Within the space of just a few weeks, one taboo after another in Western capitalism has been broken, as The Economist puts it. As monetary policy measures (i.e. unlimited QE, record low interest rates) proved to be insufficient, unprecedented fiscal stimulus packages including wage and income guarantees came to the fore. In the EU, the so-called ordoliberal principles of competition, free market and a commitment to a balanced budget (that were harshly imposed upon Greek and other peripheral European economies during the Eurozone crisis) appear to have been all but forgotten by the core capitalist countries. ‘We will protect our strategic companies from foreign takeovers’ declared the president of the European Comission. The infamousschwarze Null’ budget policy of Germany, for example, was abandoned as the German government foresees an extra 156 billion in new government debt this year, and an extra €600 billion to bail out big companies if necessary. In the UK, the traditionally austerity-loving Conservative Party’s Chancellor of the Exchequer announced an enormous coronavirus package of £350 billion. The Trump administration has signed the largest ever US financial stimulus package, amounting to $2 trillion, which includes ‘helicopter money’ for the citizens. Whatever it takes’ became the motto of G20 leaders and finance ministers. All of a sudden, austerity ended as the reproduction of the capitalist system became impossible without the protective measures that were introduced. This reflects the fact that austerity was a political choice all along; despite being framed as ‘TINA’ for years. Read More »

‘Climate Emergency’, COVID-19 and the Australian capitalist state

covid-19-4926456_1920Now is the hour of our collective discontent. In order to pursue the agenda set out for this blog post series, namely: ‘to precisely identify the strategic, structural/epochal, or more contingent factors involved in the emergence of particular state–capital hybrids, as well as the specific institutional, organizational, and legal forms that facilitate such emergence’ (Alami & Dixon, 2019) my contribution examines the Australian state over the summer of 2019-20, into the COVID-19 pandemic. I argue that the COVID-19 pandemic highlights the instability and amenability to capital of our present conjuncture in ways that the bushfire crisis did not. Further, the pandemic renders our present conjuncture potentially far less stable and amenable to capital than declaration of a national ‘climate emergency’ could have, and therefore the left should consider how to force deep reorientations of state-led action (and therefore form and function) while it can.

The need for an adequate state theory

Existing scholarship on neo-Marxian theories of the state are the foundations of an appropriate diagnosis of this moment, though in the heart of an historic conjuncture is not the time to attempt a full synthesis or unified theory. Instead we should begin by using our compounding crises to work through our existing analyses and critiques. In keeping with this research agenda, I will begin with a Poulantzean reading of the state – not the blunt Althusserian structuralism of his earlier work, but his later and more nuanced work on the state theorised as an ever-contingent social relation. The state is thus conceived of as a material condensate of the balance of class struggle, meaning it is possible to isolate points of rupture and work upon and through them to alter the balance of power.

Without a reconfiguration of political and economic power, the crises we face will not resolve, but escalate by orders of magnitude. A neo-Marxian theorisation of the state reframes this political moment with a materialist analysis of the issues confronting our societies. The points of possible rupture have now become more apparent and should guide leftist strategy into and through the COVID-19 pandemic.

From ‘climate emergency’ to global pandemic (from theory to praxis)

Over the 2019-20 summer, Australia burned. Vast swathes of the country were covered in marauding fires; communities were evacuated; homes were destroyed; irreplaceable heritage landscapes were lost forever and millions of animals perished. Those physically distant from the fires were nonetheless impacted by the resulting cloaks of particulate matter draped across the country at levels ‘unmatched in terms of severity, duration and extent’ in Australia’s recent memory.

Much of the resulting political jousting focused on whether or not funding had been cut for core services that would have ameliorated the situation. Over the course of the summer, communities mobilised to meet the relentless blazes, with numerous online fundraising campaigns set up to try and resource volunteer fire services. Rolling demonstrations and protests were held across the country, demanding action from state and federal governments.

Read More »

The Specter of State Capitalism

17848 DOH Testing Lab

By Adam Dixon and Ilias Alami

Oh, how the righteous have fallen! As the global economy succumbs to COVID-19, we are haunted by the specter of state capitalism. Last week chief economic advisor to the White House, Larry Kudlow, suggested that the US government could take equity stakes in corporations in return for aid. Housing evictions are being postponed. Payroll for employees in some parts of the private sector are to be covered. And the list continues. In the UK, plans are afoot, dare one say, to renationalize the struggling airline sector and other companies.

At the moment, critics of such statist measures are too worried about their own personal health to make a fuss. But as we flatten the curve of the infected and the wheels of the market start turning again, the righteous apostles of the free market will return with a vengeance, and the state capitalists will tumble from their temporary thrones.

As with the last crisis just a decade ago, the state capitalists provided much needed support and took a humble bow (at a profit) when their services were no longer needed. Bailing out General Motors was a good deal for the US taxpayer, as was TARP. Certainly, the same will happen this time around. Or will it?

Since the election of Donald Trump in the US and the Brexit vote in the UK, the prophets of the free market have been decisively pushed out of the halls of power or forced to accept a different religion (typically that of an authoritarian and nationalist form of neoliberalism). National capital comes first!

Without a doubt, Trump and the Brexiteers did not foresee needing state ownership of industry and explicit state direction to achieve their goals. There are plenty of ways the state fosters, guides, and shapes private capital. Capitalism is never without the state, except in some libertarian utopia. State ownership just makes this relationship more explicit.

The embrace of Singapore as a post-Brexit economic model for the UK is telling in that respect. The government of Singapore continues to be a major shareholder of Singaporean industry and commerce, with no plans to change. Why should it? It owns successful and competitive companies. Indeed, state-owned enterprises the world over are demonstrating their competitive prowess. They aren’t the bureaucratic corporate sloths that we are told necessarily come with state ownership. Capital centralized in the hands of the state is resilient and growing for a reason. State-owned enterprises and state-controlled investment vehicles, such as sovereign wealth funds, are multiplying and growing the world over.

For the British elite, Brexit reflected an underlying lament of the sale of British industry (and finance) to foreign owners, even though many became rich that way. They know that restoring such past glory requires explicit action of the state, likely through more centralization of (national) capital. This is a reason behind the refusal to agree to level playing-field provisions with the EU in the future relationship negotiations. But there is more to this than returning to some past glory. Global capital accumulation is driven increasingly by capital centralized in the hands of the state.

The Trump administration’s battle with China (supported implicitly by other Western powers) is not driven by some desire to protect liberal rules-based international order. Rather, it is a battle of national capital. Afterall, China is capitalist.

China’s shift from assembling goods to also designing them, and doing so competitively, has unsettled the hierarchies of the world economy. But China is unwilling to relinquish its development model and its ownership of large swaths of Chinese industry. That is not in the DNA of the Chinese elite. Large state ownership is both necessary to secure the political dominance of the party state at home, and to expand and consolidate the integration of Chinese firms into global supply chains under favorable terms.

This is met in the US (and to a lesser extent other Western economies) by an increasingly aggressive form of techno-nationalism — a form of economic nationalism in the realms of trade, industrial, and investment policy, that aim at securing exclusive control of key scientific-technological innovations. National elites in the West more generally are realizing that they need state power to compete in the global economy. In reality, they always have. But the cloak of free-market neoliberalism energized their buccaneering self-confidence that they were above it all. That fiction is over.

The extension of state prerogatives by non-Western powers used to fuel all sorts of anxieties among state actors and observers in the West. Now, these very same modalities of state intervention are being called for, if not praised, by commentators across the political spectrum. Some even look with envy at the agility with which non-Western state capitalists are currently managing the crisis. The pace at which this ‘new normal’ is emerging is remarkable. We are all state capitalists now (or we all want to be).

COVID-19 and the generalized economic crisis it has catalyzed may hasten changes toward explicit forms of state capitalism in the West. Yet, a decloaked state at the helm does not necessarily mean a more progressive and just economic system (just like it does not mean a move toward state socialism). Who will bear the brunt of the costs of the current transformations, and who will benefit from the consolidation of the ‘new’ state capitalism, will be the outcome of a tense political process. This much we know.

Adam Dixon is Associate Professor of Globalization and Development at Maastricht University. Ilias Alami is a postdoctoral researcher at Maastricht University.

Photo by Governor Tom Wolf. Pennsylvania Commonwealth microbiologist Kerry Pollard performs a manual extraction of the coronavirus inside the extraction lab at the Pennsylvania Department of Health Bureau of Laboratories on Friday, March 6, 2020.