One of the main arguments of this book is that there has been a significant transformation of the corporate governance of many SOEs since the 1970s. In order to understand the new varieties of state capitalism and their implications for economic efficiency, this chapter traces the rise and fall of state capitalism in the twentieth and early twenty-first centuries. The historical narrative of this chapter aims to show that the monitoring and management of SOEs changed as a process of trail and error. This process of learning went through different experiments and crises that led to the creation of large...

Until now, we have provided both a snapshot of state capitalism at the turn of the twenty-first century and a historical account of the evolution of state capitalism worldwide in the twentieth century. The story leaves a set of questions in relation to Leviathan’s actions in the market—questions we want to explore in the rest of the book, mostly using detailed evidence from Brazil. The questions that we want to examine, however, do not come out of thin air; there is a large body of literature that has studied both the origins of state capitalism and the implications of...

We now begin our study of state capitalism using the case of Brazil by studying the rise of Leviathan as an entrepreneur in this country and its transformation after 1990. This chapter first describes the concerted effort of the Brazilian government to coordinate resources to develop industries such as steel, telecommunications, and utilities. Then it shows how the SOEs in Brazil acted without autonomy, but not too much oversight, and expanded into multiple industries. This expansion eventually led to a major financial crisis when it became clear that SOEs were also part of the problem.

The chapter then narrates the...

Before continuing with our story of transformation of state capitalism in Brazil, in this chapter we turn our attention to the role of the chief executive officer of a state-owned enterprise. Governments, as controlling shareholders of SOEs, have few tools at their disposal to influence the performance of these firms in the short run.¹ Thus, governments commonly substitute CEOs either as an effort to turn around SOEs or as a scapegoat—that is, as a way to blame CEOs for the poor performance of these firms.² Yet replacing CEOs as a policy to affect the performance of SOEs assumes that...

During the early 1980s, most countries in the world experienced severe recessions, while in the late 1980s, a large group of countries democratized or abandoned economic systems based on central planning. During that decade, the differences in performance between SOEs and private companies widened noticeably. Since then, hundreds of papers have compared the performance of SOEs and private companies, almost invariably finding that the former underperform the latter, except under some circumstances such as when SOEs face competition (Bartel and Harrison 2005) or when SOEs have been able to act as private companies, with professional management and boards of directors...

As we saw in Chapters 2 and 4, after the initial wave of privatizations of the 1990s, many former SOEs were fully privatized or closed. But others—especially the largest firms in “strategic” sectors such as natural resources—underwent two transformations. First, there was the transition from Leviathan as an entrepreneur to Leviathan as a minority investor, a theme we explore in the last chapters of this book. Second, many SOEs were either corporatized or partly privatized and listed on a stock exchange. That is, we observed the transformation from Leviathan as an entrepreneur to Leviathan as a majority investor....

This chapter starts our analysis of the minority Leviathan model by studying the effects of government investments in minority equity positions in private firms. Although governments sometimes purchase such minority stakes as part of a bailout, as was the case when the United States government bought a minority position in General Motors in 2008, in many countries governments actively invest in equity using professional analysts and portfolio managers. Governments also become indirect minority shareholders by buying direct equity stakes in companies that own other companies. For example, the United States government became an indirect minority shareholder of PSA Peugeot when...

In the previous chapter, we argued that having Leviathan as a minority shareholder can alleviate some of the capital constraints firms face, while also apparently keeping the management of the beneficiary companies isolated from political pressures. In this chapter, we present a case in which we argue the temptation was too high for Leviathan to keep at bay. We present in detail one of the most controversial cases of state intervention in the management of a privatized company: Vale, the largest Brazilian mining company and one of the largest mining companies in the world.

We argue that Leviathan as a...

Having analyzed Leviathan as an owner and manager of corporations and as a minority investor, we will now outline the theory of the government’s role as a lender to corporations. We organize the tests of our hypotheses related to Leviathan as a lender into two chapters. In this chapter, we first outline a general theory of what development banks are supposed to do. We then describe the evolution BNDES’s business model and discuss the intentions of some of its programs and their outcomes. In particular, we focus on the bank’s revenue and funding models. In Chapter 11, we use systematic...

In this chapter we present empirical evidence on the role of development banks according to theindustrial policyandpoliticalviews. We use part of the database we used in Chapter 8, which tracks firm characteristics and performance for publicly traded corporations in Brazil, together with an original database that tracks BNDES loans to firms traded on the São Paulo Stock Exchange. Because BNDES does not disclose firm-level loan data for confidentiality reasons, we focus on publicly traded companies, which are required to provide detailed information on the origins of their debt.

As the reader may recall, the industrial policy...

In this book, we document the reinvention of state capitalism that occurred around the world at the end of the twentieth century. The model of state capitalism in which the government was an owner and manager (the model we callLeviathan as an entrepreneur) came of age in the 1970s but reached a major crisis in the 1980s, when the global liquidity crunch put it to its ultimate test. Governments realized that with little control over what SOE managers did, and given their own temptation to use SOEs for political or social goals during the crisis (for example, to employ...