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State capitalism is a term applied to national political economies in the postwar period that were characterized by a strongly interventionist state. France until the early 1980s was the ideal-typical model of state capitalism. The developmental state as found in Korea and Taiwan is another variant of state capitalism. Even Italy, in particular the “first Italy” of large firms and nationalized enterprises with highly unionized workforces, approximated the model, albeit the weakest case of state capitalism.

State Capitalism In The Postwar Period

In the postwar period, state capitalism, ostracism, was ordinarily contrasted with two other patter ns of economic management, liberalism and corporatism, or market capitalism and managed capitalism. Typically, in state capitalism, the interventionist state organizes cooperation among autonomous economic actors and directs their economic activities. In market capitalism, the liberal state allows economic actors to operate autonomously and to decide for themselves on the direction of their economic activity, whereas in managed capitalism, the enabling state encourages economic actors to operate cooperatively and to coordinate the direction of their activities with one another and the state.

Moreover, in state capitalism, the state tends to organize the business relationship. Interfirm relations are mediated by the state, as opposed to the distant, competitive interfirm relations of market capitalism or the close network-based interfirm relations of managed capitalism. Industry-finance relations are similarly state-mediated. Industry is more dependent for financing upon the state than the banks (as in managed capitalism) or the markets (in market capitalism). The state in state capitalism therefore takes a more medium-term view than long-term emphasis on firm value of managed capitalism or the short-term focus on profits per se of market capitalism. The state also tends to direct business investment, with the state influencing business development through planning, industrial policy, or state-owned enterprises. It often picks winners and losers rather than only arbitrating among economic actors or facilitating their activities. Government relations with labor also tend to be state-controlled. Wage bargaining is largely determined by the state, which seeks to impose its decisions on fragmented unions and business, while labor-management relations are mostly adversarial.

Among European countries, France, until the 1980s, was the ideal-typical state capitalist country, with the dirigiste, or directive, state predominating through its leadership of business activity and its control over labor. Italy, by comparison, fell far short of the ideal, as a kind of failed state capitalism in which the state could not control the unions or provide leadership to business. In both, however, the state, whether playing an enhancing role, as in France, or a hindering role, as in Italy, contrasted greatly with the role the state played in British market capitalism, with its liberal, hands-off approach to business, or in German managed capitalism, with its enabling, facilitating approach to business and labor coordination.

The Transformation Of State Capitalism

Since the early 1980s, however, under the pressures of globalization and regional integration, state capitalist countries have transformed their economic management systems. Whereas both market or managed capitalist countries could adapt their models to the new environment, state capitalist countries found their model particularly ill-adapted and in need of change. In an increasingly complex and competitive environment, the state could no longer ensure economic growth or fir m stability because it could no longer substitute for the market effectively, direct industry efficiently, or coordinate industrial relations successfully. In an increasingly tight budgetary context, moreover, the state could no longer afford to disregard firm profitability or underwrite industry investment as it had in the past.

As a result, the state in state capitalist countries engineered its own retreat, dismantling state power and control through the turn to monetarism in macroeconomic policy, the liberalization of the financial markets, the deregulation of business activity, and the privatization of nationalized firms. The state gave up its organizing role along with its financing of business, leaving firms to chart their own strategies and to arrange their own financing from the capital markets. And yet, the state continues to exercise leadership, albeit in a more indirect and often supply-side way. It may do this through the informal relationships among state-trained business elites; through state supply-side support of industry, through social policies; where the state has redirected its most interventionist efforts; and through labor market policies.

With regard to labor, the state has reformed either through decentralization or better coordination of the labor markets. Whereas the French state abandoned its control of wage bargaining, leaving labor relations almost as highly decentralized as in Britain today, the Italian state recentralized bargaining through a state-led kind of corporatism, as has Spain. The resulting industrial relations systems, however, are less fully market-reliant than in market capitalist countries and less stably coordinated than in managed capitalist countries. The state still plays a larger role in France, whether to liberalize or “moralize” the labor markets, while in Italy, politics gets in the way: Left-leaning governments negotiate social pacts that right-leaning ones can’t or won’t.

As a result of such transformations, there is now some question as to whether formerly state capitalist countries are a separate category of capitalism. Theorists who see convergence to a single neoliberal model as a result of globalization as well as those who posit continued divergence into two varieties of capitalism, liberal market economies and coordinated market economies, deny poststate capitalist countries any distinctive categorization. But the countries that the latter theorists leave out of their binary division of capitalism, which represent a nonvariety of capitalism they call mixed-market economies, are for the most part formerly state capitalist or developmental states. And these countries remain distinctive not only for the greater role left to the state but also for their logic of adjustment. In this third variety of state-influenced market economies, the state continues to intervene more, and differently, for better or worse, than in liberal or coordinated market economies. Although adjustment is firm-led in those domains where business now exercises autonomy—in business strategy, investment, production, and wage-bargaining—it is state-driven in those domains where neither business nor labor can exercise leadership—in labor rules, pension systems, and the like—or where the state sees a need to reshape the general economic environment to promote competitiveness. A number of scholars also have identified this greater state role as at the core of a third variety of capitalism or a distinguishing factor in one of an even greater number of varieties of capitalism.

The Future Of State Capitalism

But what can we say about the 2008 responses to the financial crisis, when states across advanced industrialized countries intervening massively, even to the point of nationalizing financial institutions? The new interventionism of states everywhere raises a question about whether all countries are state capitalist now, as well as about whether the differences among varieties of capitalism are still relevant, because all states intervened in similarly aggressive ways to stabilize the financial markets.

A closer look at the kinds of actions taken, together with the accompanying ideas and legitimating discourse, makes it clear that differentiation remains not only among countries that fit different varieties of capitalism but even among countries within the same variety. The starkest contrast is between the liberal market economies of the United Kingdom and the United States. The latter hesitated to take action, allowed a major investment bank to fail before intervening, experienced a political revolt against “financial socialism,” and backed into taking equity stakes only once the United Kingdom had shown the way. The United Kingdom was better able to take the initiative than the United States not only because of political ideologies related to the party in power (Britain’s New Labour versus the Bush White House) but also because of deeper historical differences in attitudes toward the state (with much greater legitimacy in the United Kingdom for a strong state in a limited domain). The French state-influenced market economy went further than either the United States or the United Kingdom, leading on eurozone coordination, proposing multilateral global intervention, and engaging in much greater internal intervention (reined in by the EU Commission). In the case of the German coordinated market economy, it is interesting to note that although the state also intervened, it was slower and more cautious initially than other major European memberstates, a result not only of its kind of capitalism but also of collective memories about the inflationary dangers of deficit spending.

Countries that were formerly state capitalist, in short, were often faster in intervening. But the reasons may not only be related to historical patterns and memories but also to institutional arrangements and state capacity. Federal states, in which reaching agreement to intervene is often more complicated, were slower to respond to the crisis—the cases of the United States and Germany—than unitary states, whether in Britain, France, the Netherlands, or Sweden. State capacity to intervene, however, is another factor, which may help explain why formerly state capitalist Italy did not respond much, despite its own great economic difficulties.

Finally, it is important to note that whatever the intervention, this was far from the state capitalism of the past. All states resisted nationalization where possible, moved to nationalization only as a last resort, and committed themselves to reprivatizing as quickly as possible. The same could be said for state aid, which was seen as a short-term measure, to be paid back as quickly as possible—in the European Union under the watchful eye of the Competition Directorate-General. State capitalism, in short, has no future. But the state will continue to play an important role in capitalism, and some states more than others, in particular if they were historically state capitalist.

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