State behemoths are devouring the global economy

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 US$11.8 trillion in 2023, beating hedge funds and private equity firms combined, up from US$1 trillion in 2000. State-owned enterprises (SOEs) had assets worth US$45 trillion in 2020, the equivalent of half of global gross domestic product, up from US$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.

New vs old

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.