Carney: The Stabilizing State | State Capitalism as a Response to Financial Globalization


One of the most important developments in the modern global economy is financial globalization. This has raised threats to the stability of political regimes in two ways: (1) by enhancing the possibility of a financial crisis that could cause political turmoil; and (2) by easing access to foreign sources of financing for opposition political groups. I argue that state capitalism – defined as state-owned publicly listed corporations — has risen disproportionately among single party regimes as a way to address these dual threats. Single party regimes have both the motivation and a greater institutional capacity for addressing these threats in comparison to other regimes. Tests are conducted on 607 firms in 1996 and 856 firms in 2008 across seven East Asian economies, and are supplemented with case studies of Malaysia and South Korea. The evidence suggests that financial globalization is contributing to the rise of the state as a counter reaction.

Over the last two decades, the state is commonly perceived as retreating in response to liberalizing pressures while simultaneously bolstering compliance with international standards. But these two trends have also led emerging economies to face growing vulnerability to the global financial system as revealed by the financial crises of the 1990s and by the more recent 2008 crisis. Although states are engaging in liberalizing reforms and integrating with global financial markets, the state’s role in the national economy has grown in a way that has gone largely unnoticed – through its ownership of many of the largest corporations. This has gone unnoticed because it does not contravene liberalizing reforms (usually applicable to exchange rates, trade, and foreign direct investment) and the implementation of international standards. Neither denies state ownership of publicly listed corporations (state capitalism).


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