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White Knights from the Gulf: Sovereign Wealth Fund Investment and the Evolution of German Industrial Finance
Abstract
The period leading up to and following the global financial crisis has been characterized by rising global financial diversity and multipolarity, a process underscored by the growth of so-called sovereign wealth funds (SWFs). To date there has not been any systematic examination of the interactions between this rising global financial diversity and national economic institutional diversity. Here I apply an institutional “comparative capitalisms” perspective to the analysis of Gulf Cooperation Council (GCC) SWF investment in German industry since the onset of the global financial crisis. The evidence demonstrates that a growing number of German industrial firms—particularly the major automotive firms at the heart of German industry—have recruited long-term GCC SWF investment as an adaptive response to the stresses of financial restructuring, most importantly the appearance of hostile takeovers as a feature of the German corporate governance landscape. These patterns lend partial support to “varieties of capitalism” (VOC) arguments that institutional complementarity and comparative institutional advantage are likely to produce path dependent trajectories of national institutional evolution. They also lend partial support to critiques of VOC, emphasizing, on the one hand, the importance of the Polanyian “double movement” of market expansion and containment and, on the other, the transnational foundations of national institutional diversity. I conclude that to fully explain these patterns, both VOC theories of institutional complementarity and comparative advantage, and Polanyian theories of the double movement, must be grounded in a “generalized Darwinian” analysis of population-level selection dynamics.
... 3 From this patient-capital angle, globalization and financial liberalization, which were initially perceived as a potential threat to the stability of "insider" corporate governance systems of CMEs and MMEs (Culpepper, 2005), would be embraced in many cases by industrial and policy-making coalitions interested in preserving patient capital-dependent growth models (Thatcher and Vlandas, 2016). After the 2008 global financial crisis (GFC), some state-owned vehicles such as sovereign wealth funds (SWFs) were on the way to become the saviors of global finance, injecting desperately needed capital in Western banks (Helleiner and Lundblad, 2008), and even protecting German industrial capital from foreign takeovers (Haberly, 2014). ...
... Even formerly "patient capital" focused economies like Germany or France have become increasingly more hostile toward some state investors, instituting corresponding protectionist measures (Stompfe, 2020). Concomitantly, some forms of state investment, such as longestablished ties of Gulf States sovereign wealth funds in the German car industry, are still a welcome source of funding (Haberly, 2014). In fact, the Covid-19 crisis even expanded the diversification and asset acquisition attempts from some state-owned actors, yet without stirring up major controversies. ...
... This increases their immunity to short-to medium-term volatility and their investment commitment over the long run. Authors like Kaplan (2016), , Haberly (2014), Thatcher and Vlandas (2016), or Haberly and Wójcik (2017) have reiterated this argument in different versions. ...
Existing studies have scrutinized the rise of states as global owners and investors, yet we still lack a good understanding of what state investment does in a globalized economy, especially in host states. Comparative capitalisms research has analyzed foreign state investment as a potential source of patient capital for coordinated and mixed-market economies. However, this patient capital framework cannot explain the recent surge of protectionist sentiments, even among the “good hosts” of state-led investment. Therefore, we go beyond the patient capital argument and develop a novel framework centered on the globalized nature of foreign state investment. We create and empirically illustrate a novel typology based on different modes of cross-border state investment—from financial to strategic—and different categories of host states. Our results provide a new pathway to study the rise and effects of cross-border state investment in the 21st century.
... One theme is the study of how SWFs select location choices for their investments and the role that political relations play in this choice (Johan, Knill, & Mauck, 2013;Knill, Lee, & Mauck, 2012;Makhoul, Musacchio, & Lazzarini, 2019). Another theme is the analysis of how SWFs are used by governments to facilitate development (Haberly, 2014;Kamiński, 2017;Lai, O'Hara, & Wysoczanska, 2015;Sun, Li, Wang, & Clark, 2014). Studies published in management journals use signaling theory, transaction cost economics, and institutional theory to explain their behavior (Aguilera, Bermejo, Capapé, & Cuñat, 2019;Aguilera et al., 2016;Goergen et al., 2018;Haberly, 2011;Vasudeva et al., 2018). ...
... Home country governments induce SWFs to invest abroad in strategic sectors to promote national development (Haberly, 2011;Kamiński, 2017;Lai et al., 2015;Sun et al., 2014) and influence host countries through lobbying and board representation (Calluzzo, Dong, & Godsell, 2017, Kamiński, 2017. Host country governments seem to favor investments by SWFs and local companies and establish connections with their home country owners (Haberly, 2011;Haberly, 2014;Lavelle, 2017;Thatcher & Vlandas, 2016). Summaries of SWF behavior, usually on their domestic investments, appear in Megginson and Fotak (2015), Fotak, Gao, and Megginson (2017), Megginson and Gao (2019), and Bahoo, Alon, and Paltrinieri (2020). ...
Abstract: We explore what drives variations in sovereign wealth funds’ transparency across countries. Sovereign wealth funds (SWFs) have emerged as an important instrument for governments to invest and manage excess funds. However, despite serving similar needs, there is much diversity in how they are governed from country to country. We integrate agency theory with the varieties of capitalism framework to propose that the country’s governance characteristics determine the extent of SWFs’ multi-level agency problem, that is, a conflict arising from politicians acting as intermediaries between the citizens who are the nominal owners and the funds’ managers. We find that the home country’s type and quality of government and the origin of the wealth drive cross-country variations in the transparency of the SWFs. These ideas are useful for government officials and practitioners involved in policy advisory or dealing with SWFs. We highlight and explain how SWFs differ significantly across countries and thus caution against the one-size-fits-all approach to providing suggestions for government officials to improve the workings of their SWFs. We suggest that government officials consider how the characteristics of the political system of the country of origin drive much of the strategic behavior of SWFs, particularly their transparency. Thus, a comprehensive upgrading of governance in the SWFs may be contingent on enhanced country-level governance.
Keywords: sovereign wealth funds, government, political system, transparency, agency theory, varieties of capitalism
... Explanations are mainly based on principles of optimal portfolio allocation, attempting to identify whether sovereign wealth funds show biases in their investment decisions because they are state owned. One set of studies investigates how governments use foreign investments by sovereign wealth funds to promote national development (Haberly, 2014;Kamiń ski, 2017;Sun, Li, Wang, & Clark, 2014). Another set with links to political economy focuses on the location choice of sovereign wealth funds' foreign investments, and how political relationships with host countries influence the location and amounts invested (Johan, Knill, & Mauck, 2013;Knill et al., 2012;Makhoul, Musacchio, & Lazzarini, 2020). ...
... This influence can be achieved by providing money to campaign finance firms, where allowed, especially in industries with more restrictions on foreign investments (Calluzzo, Dong, & Godsell, 2017), or by having representatives on the board in energy firms (Kamiń ski, 2017). Policy makers in host countries can also actively court sovereign wealth fund investments in local firms as long-term patient capital or to expand overseas market opportunities for these firms, and to politically reach out to sovereign wealth fundowning governments to advance their interests (Haberly, 2011(Haberly, , 2014Lavelle, 2017;Thatcher & Vlandas, 2016). Bortolotti et al. (2015) and Bahoo, Alon, and Paltrinieri (2020) summarize research on the target selection and decision-making processes of sovereign wealth funds. ...
We review and bridge the literature on the internationalization of state-owned firms and sovereign wealth funds to provide a novel understanding of how government ownership affects foreign investments in three ways. First, we explain how state-owned firms and funds behave differently from private ones because they need to balance governments' nonbusiness objectives and firms' business goals. This results in competing predictions on whether government ownership helps or hinders internationalization due to particular nonbusiness objectives. Second, building on the review, we provide suggestions on how to extend research topics and theories of the firm by incorporating these nonbusiness objectives in the internationalization decisions in four areas: home government's endowments, characteristics, and attitudes; host-country expansion's support, influence, and impact; home- and host-country relationship conflicts, mediation, and disguising; and management's orientation, opacity, and arbitrage. Third, we capture how governments may use state-owned multinationals and sovereign wealth funds to nudge host-country governments by introducing the concept of discreet power and the use of four strategies (recognition, values, development, and supremacy) to achieve it. This helps to outline the beginning of a unified approach to how governments use their foreign investments to achieve nonbusiness goals.
Supplementary information:
The online version contains supplementary material available at 10.1057/s41267-022-00522-w.
... Indeed, Gulf financing did not just flow to sports teams in distress, but across the world and especially to major European and North American companies. Daniel Haberly (2014) shows how Gulf SWFs played a pivotal role in rescuing a number of major German corporations after the 2008 financial crisis, but strategically positioned themselves as 'white knights to distressed firms.' For a number of football clubs, Gulf investment through sponsorship deals, as well as acquisitions, were precisely what they needed to survive at this critical juncture. ...
... All sources, the latter included, are ultimately derived from the monarchies' control of resource extraction revenues in three of the most hydrocarbonrich countries in the world. This money gets channeled to different actors through various means, but much of the revenue from resource rents that does not directly fund the government goes into SWFs (see Haberly 2014;Hanieh 2018;Hatton and Pistor 2011;Seznec 2012;Ulrichsen 2016). Over the past 20 years, the coffers of Gulf SWFs have swelled. ...
The names of two major Gulf airlines, Qatar Airways and Emirates, have saturated the European football scene for many years, sponsoring some of the most prominent European teams and FIFA itself. These state-backed airlines are also active in motorsports, rugby, cycling, tennis, golf, cricket, and equestrian sport, while several prominent Gulf elites and royal family members have recently taken over major sports franchises in Europe and elsewhere. How should we understand these far-reaching sponsorship agendas in the Gulf? What can they tell us about the politics and ethics of international sport on the Arabian Peninsula? Moving beyond the general readings of Gulf sport sponsorship as an exercise in ‘soft power,’ this article shows how these deals are strategic nodes for diverse actors in the Gulf and in the international sporting community to advance various interests: personal, political, financial, and otherwise. Informed by a critical geopolitics lens that questions the coherence of the ‘state’ as an actor, I ask what it means to say that ‘the Gulf’ sponsors sport, and more specifically investigate the relevant actors behind these sponsorship deals. To do so, this article examines regional and global political economy through a focus on three Gulf airline sponsors, Emirates, Etihad, and Qatar Airways, and three elite sports sponsors—the UAE’s Sheik Mansour, Qatar’s Nasser bin Ghanim Al-Khelaïfi, and Sheikh Nasser of Bahrain. By decentering ‘soft power’ approaches to sport that unduly emphasize the ‘state’ as an actor, this article suggests a more grounded approach to the geopolitics of sport in the Arabian Peninsula, which simultaneously acknowledges the complicity of Western actors and institutions in the rise of Gulf sports sponsorship deals in the past decade.
... With the exception of Norway's Government Pension Fund Global, they are based in emerging market economies. They also differ in terms of their maturity, with Kuwait Investment Authority being the oldest one while Russian SWFs have been created more recently; it could be argued that longer standing SWFs are more likely to be relatively patient, and seek to reap the benefits of proven organizational strategies and associated models of people management (Haberly, 2013). Table 1 also shows that, as a rule, SWFs have relatively low levels of transparency. ...
... Although Abu Dhabi Investment Authority may be currently passive in terms of engaging with portfolio companies, the mounting pressures to focus on the short-term financial performance may move this SWF towards the CIC's end of spectrum in the future. More broadly speaking, there is evidence that Gulf SWFs have been willing to supply patient capital to incrementally innovative manufacturing firms (Haberly, 2013), shoring up the behavioral and capabilities dimensions of strategic agility. Our case analysis and Table 2 indicate that researchers need to develop a more holistic, dynamic perspective on the specific SWFs and their economic impact. ...
This article reviews the existing literature on SWFs and the firm, focusing particular attention on the implications of the rise of SWFs strategic agility and HRM. This paper outlines three main channels through which sovereign wealth fund (SWF) investment has implications for employees. First, SWFs influence macroeconomic environments, and hence affect labor conditions. Second, institutional conditions in different countries shape the behavior of SWFs around the world, which in turn has implications for HR strategy and practice. Third, SWFs can have a direct effect on the corporate governance and hence HR strategies and employees of organizations in which they invest. We review and discuss these three channels and outline avenues for future research.
... Institutional investors, in particular, have attracted strategy scholars' attention because of their professionalism (e.g., governance, certification) and strategic resources (e.g., networks, and knowledge) (e.g., Ferreira & Matos, 2008;Haberly, 2014;Jaaskelainen & Maula, 2014;Sethuram et al., 2021;Shi et al., 2020;Tihanyi et al., 2003). Among institutional investors, Venture capitalists (VCs) take the most active role in portfolio companies (i.e., owners as strategists) (Alvarez-Garrido, 2022). ...
Research Summary
Theories and empirical evidence on the competitive motives for VC internationalization are unclear and contradictory. In our study, we adopt a performance feedback perspective to explain VC firms' motives to venture abroad. We leverage unique peer‐performance data on 295 VC funds and 2954 VC investments and find support for our hypotheses that performance below (a) peer, (b) historical, or (c) market aspiration levels drives VCs exodus to (a) foreign and (b) more distant markets. Our study complements theories on internationalization with an organization ecology perspective that acknowledges internationalization as an attempt at adaptation triggered by poor performance.
Managerial Summary
Venture capitalists (VC) are not just owners, but take an active role in shaping their portfolio companies' strategies. This causes them to favor investments in their geographic and psychic proximity to allow hands‐on business development. Nevertheless, the share of cross‐border investments by VCs has risen steadily in past years. Our research shows that this internationalization is not solely driven by pioneering and successful VCs but oftentimes by VCs struggling to achieve performance levels. This notion of internationalization by the weakest has important firm‐level consequences.
... Most often, these funds are used to pool money from natural resource sales, with the idea of investing for the benefit of future generations, promoting the government's developmental objectives, and/or serving as an economic stabilization device [93]. In large part because they are not subject to the same transparency regulations of other global financial investment vehicles, their size and scope has exploded internationally in the past two decadesand especially in the Arabian Peninsula [94][95][96]. Most Gulf countries have a single primary fund, such as the Qatar Investment Authority, the Kuwait Investment Authority, or Saudi Arabia's Public Investment Fund. ...
This article examines the role of “oil money” in promoting the energy transition, tracing activities across the oil industry and countries heavily dependent on oil revenues to bolster their green credentials. Through a case study of the United Arab Emirates (UAE), I argue that financial sustainability is paramount in places and institutions that feel threatened by fossil fuels divestment efforts and other threats to the oil business and the governmental and financial systems that have been built on and through hydrocarbons. Drawing on research in the UAE from 2014 to 2022, the article illustrates how corporate and government leaders profiting from hydrocarbon sales are searching for diversification opportunities to prolong the benefits of the oil money they control. But given the moral taint of oil money today, these actors are especially interested in the symbolic capital derived from “greening” this oil money by investing in sustainability and energy transition activities – which in turn might even allow them to retain control of global energy systems that they have dominated for so long.
... Large institutional investors pool the money of savers and investors and make investment choices on their behalf, while alternative investors represent an increasingly important sub-category of investors, encompassing private equity, hedge funds, venture capital, sovereign wealth funds, foundations, impact investors, and crowdfunding (Budhwar et al., 2021). Insights on such investors and their international investments can be found among others in various areas of economics (Jara-Bertin et al., 2012;Widmer, 2011), economic geography (Haberly, 2014), finance (Aggarwal et al., 2011;Dyck et al., 2019), and Human Resource Management/ Industrial Relations (Guery et al., 2017). Nonetheless, this topic has received rather less attention in strategy and general management journals (with notable exceptions such as Tihanyi et al., 2003). ...
Call for Papers for a Special Issue in Global Strategy Journal
Ownership and Global Strategy
Submission deadline: June 15, 2022
Guest Editors:
Geoffrey T. Wood, Western University, Canada
Anna Grosman, Loughborough University London, UK
Michael J. Mol, Copenhagen Business School, Denmark & University of Birmingham, UK
Supervising Editor:
Alvaro Cuervo-Cazurra, Northeastern University, USA
Who owns the firm (local or foreign shareholders, governments or private investors, concentrated or diffused shareholders, traditional or alternative investors) has long been an essential topic for research on organizations. At the same time, our conceptualization of ownership has widened over time to incorporate owners as strategists (most prominently in the case of entrepreneurial financiers), sources of capital (as in the case of large joint-stock companies), and mechanisms of control (direct or via institutional intermediaries). The linkages and tensions amongst these conceptual foundations (for instance, the tension between ownership, ownership structures, and control) have been the focus of a large literature in global strategy (Cuervo-Cazurra et al., 2019; Ferreira & Matos, 2008; Mudambi & Navarra, 2004; Shi et al., 2021). At the same time, this diversity in conceptual foundations provides numerous opportunities for advancing our understanding of the role of ownership in global strategy. This is the objective of this special issue: analyzing how ownership affects global strategy and, by extension, how strategies are employed to accommodate owners.
... In Germany, where a growing incidence of hedge fund activism can also be observed, Haberly notes the replacement of traditional patient capital from financial institutions with inflows from sovereign wealth funds at several major German companies after the global financial crisis. In his view, the essential identity of the German model as a CME-type economy has been retained, and has in some ways even been underpinned by this new form of support (Haberly, 2014). Fitchner (2015), similarly, points to the complexity of hedge fund interventions in Germany. ...
Hedge fund activism has been identified in the USA as a driver of enduring corporate governance change and market perception. We investigate this claim in an empirical study to see whether activism produced similar results in Japan in four representative areas: management effectiveness, managerial decisions, labour management and market perception. Experience from the USA would predict positive changes at Japanese target companies in these four areas. However, analysis of financial data shows that no enduring changes were apparent in the first three areas, and that market perception was consistently unfavourable. Our findings demonstrate that the same pressures need not produce the same results in different markets. Moreover, while the effects of the global financial crisis should not be ignored, we conclude that the country-level differences in corporate governance identified in the varieties of capitalism literature are robust, at least in the short term.
... Gulf states today are incubating new rent-generating industries, developing sophisticated financial sectors to attract foreign capital and invest local assets 42 ; expanding property markets to create new engines of capital accumulation 43 ; and deploying assets internationally through sovereign wealth funds. 44 Another way that Gulf rentier economies are generating new forms of income is through placing greater financial burden on foreign residents and companies. 45 Thus, in the near half-century since the initial elaboration of the rentier state framework, the prototypical rentier economies of the Gulf have shown a largely unexpected resilience in the face of economic globalization, social and technological change, and shifting political currents. ...
Middle East oil producers are today pursuing profound transformations of their rentier economies, including through new taxes and reductions in state spending and welfare subsidies that have supported citizens for generations. Reforms aimed at deficit reduction are expected to pose serious challenges for authoritarian states whose citizens are accustomed to generous financial patronage in return for political allegiance. However, the dominant rentier state theory does not offer clear expectations about citizen preferences or priorities surrounding welfare retrenchment, beyond the basic assumption that citizens should oppose reductions in state largesse. This paper proposes a general framework for understanding how citizens relate to welfare benefits in the rentier state, and then tests some observable implications using original survey data from the quintessential rentier state of Qatar. We distinguish between nonexcludable benefits that are available to all rentier citizens and personalistic benefits that disproportionately flow to elite citizens and the ruling class, the latter giving rise to inherent inequality. Using two novel choice experiments, we ask Qataris to choose between competing forms of economic subsidies and state spending, producing a clear and reliable ordering of welfare priorities. Finally, expectations derived from the experiments about the individual-level determinants of rentier reform preferences are tested using data from a follow-up survey. Findings demonstrate the importance of nonexcludable public goods, rather than private patronage, for upholding the rentier bargain. Our study has important implications for understanding how citizen preferences may serve to constrain the domestic and foreign policy options available to rentier governments as they seek to reshape their societies away from reliance upon oil. It also invites a larger conceptual reorientation of key aspects of the prevailing rentier state paradigm.
... By focusing on Germany, such HI work may, inadvertently, have over-estimated market liberalism's robustness and under-estimated the relative durability of the German model's core features. For instance, recent work has highlighted how large German industrial foundations and families that own firms have closed ranks to ward off relatively short-termist UK and US institutional investors, even as other interests have continued to push for liberalization (Haberly, 2014). ...
Various strands of the comparative capitalisms (CC) literature agree that the advanced economies have liberalized in recent years, bringing with it rising income and wealth inequality and job insecurity; although these perspectives differ in important ways, there is much common ground between them to explain this heightened level of inequality and insecurity. Through reviewing contributions to three key CC perspectives since 2007/2008, we argue that they have tended to focus on developments in co-ordinated market economies, leading to a neglect of growing structural crises in liberal market economies, which have contributed to the UK and the USA entering uncharted socio-political waters. We extend recent work that emphasizes how variation between countries in labour-market institutions, different corporate forms and states’ fiscal policies help to explain income and wealth inequality to highlight future research agendas that seek to combine more systematically these institutional areas to explain social inequalities, workers’ experiences and socio-political crises within capitalist systems.
... Thatcher and Vlandas (2016) show how both state and private actors in Germany and France have actively sought to attract investment from SWFs. Indeed, Asian and Middle Eastern SWFs helped recapitalize distressed banks and automotive firms in the West in the post-2008 crisis environment (Haberly, 2011(Haberly, , 2014. This also increased the participation of state-controlled capital in the global network of corporate ownership and control (Haberly and W ojcik, 2017). ...
This article interrogates the notion of state capitalism, exploring the contributions and limits of the concept as a means of theorizing the more visible role of the state across the world capitalist economy. We critically synthesize the key arguments, outlining commonly cited properties and practices of state capitalism, in three bodies of literature: strategic management, comparative capitalism and global political economy. We find that the term not only lacks a unified definition, but actually refers to an extremely wide array of policy instruments, strategic objectives, institutional forms and networks, that involve the state to different degrees. For this proliferation of competing usages to be productive and not lead to analytical impasses, we argue that there is a need for a heightened level of reflexive scrutiny of state capitalism as a category of analysis. In that spirit, we identify three issues that the literature must further grapple with for the term to be analytically meaningful, that is, capable of rendering (state)capitalist diversity amenable to analysis and critique: (1) the ‘missing link’ of a theory of the capitalist state, (2) the time horizons of state capitalism, or the question of ‘periodization’, (3) territorial considerations or the question of ‘locating’ state capitalism.
... Recent research on the Norwegian Sovereign Wealth Fund (the Government Pension Fund-Global)an investor with an explicitly ethical briefindicates positive outcomes for jobs (Goergen, O'Sullivan, Wood, & Baric, 2016). Looking at Gulf SWF investments in Germany, Haberly (2014) found that they appear to have contributed to shoring up the traditional German model of corporate control and associated firm level practices. However, a study by Gospel and Pendleton, looking at Gulf SWF investments in the UK, found more limited effects, and, in at least one instance, adverse consequences for pensions (Gospel & Pendleton, 2014a, 2014b. ...
This article reviews the present state of research on multinational corporations (MNCs) in the international human resource management (IHRM) literature. Drawing on 342 articles from 39 English journals in the business and management field published over the period of 2000–2014, we identify three key strands within this section of the IHRM scholarly field (MNC country of origin/domicile effects; expatriate management; and, intra-organizational knowledge and strategy flows). Building up on our detailed assessment of trends in the literature based on a systematic review, we propose areas where the field could be developed and extended through drawing on insights from, and building synthesis with, cognate fields. We conclude that major developments on the ground – the increasing numbers of unskilled expatriate workers, the rise of MNCs from emerging markets, and the growth of transnational alternative investors – have the potential to transform the field of enquiry, yet are only starting to appear in the IHRM literature. In developing new major areas of enquiry – and in extending existing ones – insights may be drawn from the literature on comparative institutional analysis to take fuller account of trans-national actors.
... This caution reflects an ongoing debate in the social sciences and geography on the role of finance in economic growth and development. The origins of this debate are not new (Levine, 1997;Patrick, 1966 (Dixon, 2014 (Dixon and Monk, 2014a;Haberly, 2011Haberly, , 2014Santiso, 2009). ...
While estimates vary, there are at least 60 sovereign wealth funds (SWFs) in existence around the world with more than US$5 trillion in assets under management. These numbers include SWFs from countries of different sovereign form, from social democratic Norway and its Government Pension Fund Global, to quasi-democratic city-state Singapore and its funds Temasek and GIC, and absolute monarchies like Qatar and its Qatar Investment Authority. While many SWFs are funded with the revenues from commodity production, mainly oil and gas, some SWFs, such as the China Investment Corporation are financed by balance of payments surpluses. Others are financed by the proceeds of state asset privatizations or fiscal surpluses. In this chapter we consider the rise of SWFs and their place in the global political economy and their role in national and regional economic development, unpacking their different forms and functions as institutional investors and as policy tools. We also consider the growth of SWFs as a power resource for some states to engage the global financial economy, while providing a source of resistance against the predations of the market and global economic and social change.
... No potential conflict of interest was reported by the author. Notes 1. SWFs also played a prominent role in saving Western banks, such as Citigroup and UBS (Haberly 2014). 2. Although this connection has been well established in the broader academic discourse, it still needs to be verified with regard to the use of SWFs, which are formal independent organisations. ...
This article examines bailout policies in non-Western states through selected case studies of financial bailouts in Hong Kong and Singapore between the 1960s and 1990s. Given their structural similarities and extreme openness, standard explanations would expect to find similar policy responses over this period. However, between the 1960s and 1990s, bailout policies differed greatly between the two countries, particularly with respect to the use of their sovereign wealth funds (SWFs). This article also shows that the differing uses of SWFs reflected the respective regulatory environments. In line with an emerging stream of studies in comparative politics, the present article finds that these differences take root in the institutional settings of the respective countries and vary across state-business relations.
... In so doing, it contributes to a growing understanding of non-financial institution sources of patient capital (e.g. Haberly, 2014). ...
Patient capital is vital to start-up companies which often struggle to access traditional finance. This article conceptualises the conditions in which venture capital (VC) demonstrates patience in an effort to better understand the sources of patient capital available for start-up companies. VC investment stage is identified as a key determinant of VC patience. VC ‘seed stage’ investing demonstrates patience through its long intended investment horizon, engagement focused on long-term value and loyalty in the face of poor short-term performance. Companies receiving seed funding, then ‘follow-on’ funding, receive the most patient form of venture capital. An empirical analysis reveals that VC seed activity has proliferated across the United States, United Kingdom, Germany and Japan since the run-up to the Global Financial Crisis. The article concludes that venture capital is a growing source of patient capital for start-up companies, though several factors confound its intertemporal and intra-portfolio patience.
... Places far removed from the Gulf development context, such as Astana, Kazakhstan, have attempted to emulate the early successes of these strategies (Koch, 2013). Through their sovereign wealth funds, the Gulf States have financed massive urban development projects in global cities around the world (Haberly, 2014). Yet, despite these tremendous successes in urban and economic development, local skill gaps remain. ...
This paper examines the processes through which the United Arab Emirates’ (UAE) cities of Abu Dhabi and Dubai attract and integrate knowledge workers into their labor markets. It focuses on how the UAE has acquired the human capital to create post-oil economies, deploying its oil windfalls into massive urban development strategies in order to create global hubs for talent. More significantly, it analyzes how the UAE’s strategies and frameworks for attracting global knowledge flows ultimately determine the degree to which expatriate knowledge embeds locally. Presentation of results from a large-scale human capital survey of firms in Dubai and Abu Dhabi, as well as key-informant interviews with senior human resource administrators at these firms, demonstrate these processes.
... Today, fiduciary capitalism has made inroads worldwide, in view of the fact that over 50% of the shares of the largest 1000 companies is in the hands of large fiduciary institutions such as pension funds and mutual funds (Hawley and Williams, 2005) as well as sovereign wealth funds, 1 which own the shares in the interest of other beneficiaries. Fiduciary capitalism can catalyze the integration of traditional corporate governance issues with other stakeholders' concerns such as patience (Haberly, 2014) and sustainability because pension funds have the long-term interests of their members at heart (Amalric, 2006). In addition, more mainstream institutional investors are being encouraged to adopt the ESG (environmental, social and governance) approach towards investment decisions, which would be aligned with the UN Principles of Responsible Investment (Ho, 2010). ...
Corporations and the nation‐state are often analyzed in separate subfields of human geography: economic and political geography. This entry traces the historical evolution of geographical analyses of corporations from the geography of enterprise approach to contemporary geographical political economy. It then examines the different roles of the nation‐state in relation to regulating and promoting corporations in contrasting varieties of capitalism. Finally, it explores how bargaining firm–state relations evolve into a form of territorial embeddedness and, more recently, how nation‐states are assuming the corporate role as global investors, through sovereign wealth funds. Some implications and challenges for future economic‐geographical research are provided.
State enterprises, sovereign funds, and other state–capital hybrids have become major engines of global capitalism. How can we explain their global rise and organizational transformation into increasingly sophisticated and globally competitive forms? Why do they increasingly emulate the practices and organizational goals of comparable private-sector entities, adopt the techniques of modern finance, resort to mixed ownership, and extend their operations across geographic space? After critically engaging with arguments that emphasize the role of firm strategies, developmentalist logics, financialized norms, and Polanyian double movements, we develop an explanatory model of organizational change grounded in historic–geographic materialism and economic geographies of the firm. We locate the expansion of state ownership (the role of states as owners) in the historic development and geographic remaking of global capitalism and, in particular, the emergence of a new constellation of international divisions of labor. This created the conditions for a massive round of centralization of capital as state property (the mass of capital controlled by states) since the early 2000s. The modern, marketized, globally spread state–capital hybrid emerged as an organizational fix to mediate the geographic contradictions and imperatives associated with this process. Purposive organizational adaption consisted in developing new skills, operational capabilities, and mixed-ownership structures in order to leverage the financial system, allow for the development of liquid forms of state property, and facilitate the expansion of the latter into global circuits of capital. As such, the article contributes to debates on the role of the state in global value chains, the firm-state nexus, and state capitalism. © 2022 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group, on behalf of Clark University.
Money and finance are often thought of as forming a uniform, frictionless global space. While events in the last decades have certainly showed how monetary and financial practices and events have consequences that span largely across the globe, such global reach of money and finance is far from evenly distributed. Rather, money flows and lumps unevenly across space, with the financial system connecting some places better than others, producing effects that are geoeconomic, sociocultural and material in nature. One productive way of opening the black-box of ‘global finance’ is by exploring money’s manifold entailments with space and borders. Borders is here meant writ large. It means of course the geopolitical borders of the sovereign state and jurisdictional territory, showing how global finance is rooted in the contemporary architecture of states and international relations. But it means also attending to how lines in this cartographical space of geopolitical borders are rearranged, stretched, inflected through cross-border networks of actors, notably financial institutions, concentrated in key places of international finance. In this chapter, we bring to broader academic debate on money and borders a reading where the ‘plumbing and wiring’ of international finance is seen as entailed with practices of ‘b/ordering’ that ‘dissolve’ borderlands and connect space as much as they produce margins, edges and fringes. Thinking money and finance in terms of borders and frontiers help us understanding how money and financial markets (notably, credit-debt relations) materialize differently on both sides of financial inclusion and exclusion lines, with implications for the bodies that inhabit them.
In recent years, alternative investors—private equity, hedge funds, crowdfunding, and sovereign wealth funds (SWFs)—have assumed an increasingly high profile worldwide. What sets such investors apart are their distinct agendas, their lack of commitment to specific industries or locales, and their focus on securing maximum returns and/or the furthering of a clear and distinct agenda. With this prominence has come a host of ethical and social responsibilities: these range from the responsibility to balance between the interests of different stakeholders which might be sometimes conflicting to intergenerational competition for resources. Many resource-rich states—including those in the Gulf—have their own SWFs. This chapter provides an introduction to the SWF ecosystem and highlights the range of ethical and corporate social responsibility (CSR) debates that emerge, both for Middle Eastern SWFs and those from further afield, identifying best practices and potential ways forward.
Over the past twenty years, a widening gulf has appeared between the increasingly internationalized financing arrangements of the world’s leading corporations and the persistence of nationally compartmentalized approaches to the study of corporate control. In lieu of direct empirical evidence on corporate control at the global level, the most widespread assumption is that the globalization of ownership has taken the form of an expansion of arm’s-length, market-based arrangements traditionally prevailing in the Anglo-American economies. Here, however, we challenge this assumption, both empirically and conceptually. Empirically, we show that three-quarters of the world’s 205 largest firms by sales are linked to a single global company network of concentrated (5 percent) ownership ties. This network has a hierarchically centralized organization, with a dominant global network core of US fund managers ringed by a more geographically diverse state capitalist periphery. Conceptually, we argue that the this architecture can be broadly explained through a Polanyian variegated capitalist model of contradictory market institutionalization, with the formation of the global company network actually a counterintuitive product of global financial marketization. In order to understand this process of network formation, however, it is necessary to extend Polanyi’s model of a double movement, mediated through political interventions in the market, to incorporate Veblenian processes of evolutionary institutional change, mediated through the market.
While foreign direct investment (FDI) is generally assumed to represent long-term investments within the real economy, approximately 30–50 percent of global FDI is accounted for by networks of offshore shell companies created by corporations and individuals for tax and other purposes. To date, there has been limited systematic research on the global structure of these networks. Here we address this gap by employing principal component analysis to decompose the global bilateral FDI anomaly matrix into its primary constituent subnetworks. We find that the global offshore FDI network is highly globalized, with a centralized core of jurisdictions in Northwest Europe and the Caribbean exercising a largely homogenous worldwide influence. To the extent that the network is internally differentiated, this appears to primarily reflect a historic layering of social and political relationships. We identify four primary offshore FDI subnetworks, bearing the imprint of four key processes and events: European, particularly UK colonialism, the post–WWII hegemonic alliance between the United States and Western Europe, the fall of Soviet communism, and the rise of Chinese capitalism. We also find evidence of qualitative, but not quantitative, variation in offshore FDI based on national rule of law and communist history.
The article critically engages with the `varieties of capitalism' school, which since its origins in the early 1990s has been consolidated into one of the most influential strands in comparative and heterodox political economy. While the `varieties' approach can be credited with the development of several of the most evocative stylized facts in heterodox political economy, having served as a potent foil against the orthodox globalization thesis, its alternative vision of a bipolar global economy comprising two competing capitalisms is found to be wanting. The approach is limited by its methodological nationalism, a tendency towards static analysis and latent institutional functionalism, and by an inability to adequately balance national specificity and path-dependency on the one hand with common underlying tendencies in capitalist restructuring on the other. Nevertheless, the varieties approach has spawned an influential account of the spatiality of advanced capitalism from which economic geography can certainly learn, and to which it has much to contribute.
In the debate on globalisation of the financial markets and its effect on corporate governance it is often claimed that the pressure for higher rates of return exerted by institutional investors in the name of shareholder value, has led to a fundamental change of company policy among listed companies. Due to short-term profit orientation and increased dividend pay-outs to investors, the critiques argue, long-term development of the innovation potential of these companies will suffer, and this ultimately will have negative consequences on employment and growth. Since in the 1990s almost all major German companies listed on the stock exchange have declared their commitment to the principles of shareholder value. Hitherto there is little empirical evidence of the consequences of such an orientation on company-internal structures and processes. The present case study on the Volkswagen AG helps to close this gap. Central questions in this study are the following: To what extent have the distinct characteristics of Volkswagen’s corporate governance systems changes in response to shareholder value demands? What is the role of the stock market for the company? Have the incentive systems and the systems of target setting and controlling changed to better correspond with shareholder expectations, and what are the effects on investment/disinvestments decisions and thus on the long-term innovation potential of the firm? And finally, what are the effects on the economic and the financial performance of the company? Zusammenfassung
This article examines the rise of foreign ownership in France and Germany. I argue that the firm-level institutional arrangements of workplace organization constitute the most significant variable to account for the greater attractiveness of French firms over their German counterparts to short-term, impatient capital— namely, hedge and mutual funds. I demonstrate how key notions of the Varieties of Capitalism perspective—institutional interaction, institutional latency, and the distinction between institutional framework and the mode of coordination that follows from these institutions—provide important theoretical insights to account for the different structures of foreign ownership in France and Germany.
We model and experimentally examine the board structure-performance relationship. We examine single-tiered boards, two-tiered boards, insider-controlled boards, and outsider-controlled boards. We find that even insider-controlled boards frequently adopt institutionally preferred rather than self-interested policies. Two-tiered boards adopt institutionally preferred policies more frequently but tend to destroy value by being too conservative, frequently rejecting good projects. Outsider-controlled single-tiered boards, both when they have multiple insiders and only a single insider, adopt institutionally preferred policies most frequently. In those board designs where the efficient Nash equilibrium produces strictly higher payoffs to all agents than the coalition-proof equilibria, agents tend to select the efficient Nash equilibria. Copyright 2008, Oxford University Press.
This paper suggests a two-dimensional concept of nonliberal capitalism: coordinated capitalism (as described in the varieties of capitalism framework) and organized capitalism. While the coordination function of institutions canalizes individual maximization strategies of firms in order to adjust for collective action problems, the organization function transcends maximization strategies and adjusts them to collective interests beyond maximization. Political economies are highly organized when firms are not only the private business of owners and insiders but, in addition, quasi-public infrastructures and, therefore, highly constrained in their economic decisions by institutionally sanctioned collective interests (such as sectoral interests, class interests, or political interests). I construct an index on organized capitalism by combining data on ownership structures, board level codetermination, the density of employers' associations and trade union density in order to allow for comparison between varying extents of coordination and organization in 20 OECD countries. The German example is used to demonstrate the analytical usefulness of the coordinationorganization distinction in qualitative terms. The distinction allows for differentiation between two forms of liberalization: declining coordination and disorganization.
This essay reviews the development of approaches within the comparative capitalisms(CC) literature and points to three theoretical innovations which, taken together, define and distinguish these approaches as a group. First, national economies are characterized by distinct institutional configurations that generate a particular systemic "logic" of economic action. Second, the CC literature suggests a theory of comparative institutional advantage in which different institutional arrangements have distinct strengths and weaknesses for different kinds of economic activity. Third, the literature has been interpreted to imply a theory of institutional path dependence. Behind these unifying characteristics of the literature, however, lie a variety of analytical frameworks and typologies of capitalism. This paper reviews and compares these different frameworks by highlighting the fundamental distinctions among them and drawing out their respective contributions and limitations in explaining economic performance and institutional dynamics. The paper concludes that the way forward for this literature lies in developing a more dynamic view of individual institutions, the linkages between domains, and the role of politics and power.
Contemporary approaches to varieties to capitalism are often criticized for neglecting issues of institutional change. This
paper develops an approach to institutional change more extended than the one provided in Hall and Soskice (in Varieties of Capitalism: The Institutional Foundations of Comparative Advantage, Oxford, Oxford University Press, 2001) but congruent with its varieties-of-capitalism perspective. It begins by outlining
an approach to institutional stability, which suggests that the persistence of institutions depends not only on their aggregate
welfare effects but also on the distributive benefits that they provide to the underlying social or political coalitions;
and not only on the Pareto-optimal quality of such equilibria but also on continuous processes of mobilization through which
the actors test the limits of the existing institutions. It then develops an analysis of institutional change that emphasizes
the ways in which defection, reinterpretation and reform emerge out of such contestation and assesses the accuracy of this
account against recent developments in the political economies of Europe. The paper concludes by outlining the implications
of this perspective for contemporary analyses of liberalization in the political economy.
We present data on ownership structures of large corporations in 27 wealthy economies, making an effort to identify ultimate controlling shareholders of these firms. We find that, except in economies with very good shareholder protection, relatively few of these firms are widely-held, in contrast to the Berle and Means image of ownership of the modern corporation. Rather, these firms are typically controlled by families or the State. Equity control by financial institutions or other widely-held corporations is less common.
Evolutionary approaches in economics have gathered increasing support over the last 25 years. Despite an impressive body of
literature, economists are still far from formulating a coherent research paradigm. The multitude of approaches in evolutionary
economics poses problems for the development of an evolutionary economic geography. For the most part, evolutionary economic
geography imports selective concepts from evolutionary biology and economics and applies those concepts to specific problems
within economic geography. We discuss a number of problems with this approach and suggest that a more powerful and appealing
alternative requires the development of theoretically consistent models of evolutionary processes. This article outlines the
contours of an evolutionary model of economic dynamics where economic agents are located in different geographical spaces.
We seek to show how competition between those agents, based on the core evolutionary principles of variety, selection and
retention, may produce distinct economic regions sharing properties that differentiate them from competitors elsewhere. These
arguments are extended to illustrate how the emergent properties of economic agents and places co-evolve and lead to different
trajectories of economic development over space.
Germany and Japan are often seen deviating from an economic model of shareholder control and thereby as being similar by virtue of their mutual contrast with the US. Given the common challenges for bank-based and stakeholder-oriented models of corporate governance, Germany-Japan comparison seems particularly timely. This article provides an introductory overview and analysis for the Special Issue by comparing recent developments in corporate law reform, banking and finance, and employment in Germany and Japan. While rejecting arguments for international convergence, we discuss this evidence of simultaneous continuity and change in corporate governance as a potential form of hybridisation of national models or renegotiation of stakeholder coalitions in German and Japanese firms. One consequence is the growing diversity of firm-level corporate governance practices within national systems. Copyright Blackwell Publishing Ltd 2005.
Applying the new economics of organization and relational theories of the firm to the problem of understanding cross‐national variation in the political economy, this volume elaborates a new understanding of the institutional differences that characterize the ‘varieties of capitalism’ found among the developed economies. Building on a distinction between ‘liberal market economies’ and ‘coordinated market economies’, it explores the impact of these variations on economic performance and many spheres of policy‐making, including macroeconomic policy, social policy, vocational training, legal decision‐making, and international economic negotiations. The volume examines the institutional complementarities across spheres of the political economy, including labour markets, markets for corporate finance, the system of skill formation, and inter‐firm collaboration on research and development that reinforce national equilibria and give rise to comparative institutional advantages, notably in the sphere of innovation where LMEs are better placed to sponsor radical innovation and CMEs to sponsor incremental innovation. By linking managerial strategy to national institutions, the volume builds a firm‐centred comparative political economy that can be used to assess the response of firms and governments to the pressures associated with globalization. Its new perspectives on the welfare state emphasize the role of business interests and of economic systems built on general or specific skills in the development of social policy. It explores the relationship between national legal systems, as well as systems of standards setting, and the political economy. The analysis has many implications for economic policy‐making, at national and international levels, in the global age.
The article examines internal diversity within national models of capitalism in Europe, with a particular concern with firm financing and corporate governance patterns. It is suggested that a relatively small number of firms have shifted to a new institutional context consisting of common international institutions and practices, while the large majority of firms continue to operate in a more slowly evolving set of domestic institutions or rules. Examining changes since the early 1990s in firm financing and corporate governance, the article finds preliminary evidence to support the thesis of increasing diversity, but also that national patterns of firm finance are still distinct. Rising diversity challenges the long-term viability of coordinated market economies in Europe.
Boundaries between major actors in the international system are less like lines in the sand than like frontiers encompassing broad areas of geographic and metaphoric overlap. Boundary locations are relative, variable and often contested, reflecting the contingency of claims by representatives of states and other corporate entities, in this case multinational firms, regarding the appropriate reach of each body's interests and the legal and practical limits to each one's authority. These propositions are tested by examining the Kuwait Petroleum Corporation, a multinational firm composed of multiple domestic and foreign affiliates, during the period of the Iraqi occupation of Kuwait. Joint interests attenuated formal boundaries separating Kuwait from countries hosting its direct foreign investments, and served as primary motivations for external intervention. Boundary transgressions are effected by persons with multiple identities and roles who occupy positions of authority, not only in that these persons command strategic and economic resources, but also insofar as they are skilled manipulators of symbolic tokens of identity and expertise.
In comparative political economy it has become commonplace to distinguish between two types of corporate governance systems. In shareholder systems, influence over company management is concentrated with institutional investors holding small percentages of companies' shares. In stakeholder systems, influence is shared between large shareholders, employees, the community and suppliers and customers. This paper contributes to the literature addressing recent changes in the German variant of the stake- holder system by proposing a few new concepts. On the level of institutions, it is argued that the stakeholder system is not being replaced by a shareholder system in Germany. Rather, an augmented stakeholder system is emerging through the inclusion of insti- tutional investors in the old stakeholder coalition of interests. On the level of practice, it is argued that negotiated shareholder value is being adopted in Germany. This German variant of shareholder value is distinct from Anglo-American practice because major changes implementing shareholder value must be negotiated within the augmented stake- holder coalition. As a result, performance incentives for employees tend to be less strong than is the case in the USA and UK.
Jensen's "Eclipse of the public corporation" (1989) predicts that LBO transactions solve the agency problems of publicly listed companies with high levels of undistributed free cash flows (FCFs) and low growth opportunities. So far, empirical evidence in this context is mixed. This study is the first that provides evidence on the application of Jensen's FCF hypothesis (1986) to Leveraged Buyouts (LBOs) in the European market. My univariate and multivariate findings indicate that Continental European companies with high Cash Flows before distribution and few investment opportunities whose P/E ratio is significantly lower than that of their industry peer group are more likely to be an LBO target. I do not find any evidence that European LBO targets suffer from agency problems prior to the transaction.
What happens when the unstoppable force of liberalization collides with the immovable object of national financial institutions in the advanced industrial democracies? To answer this question and evaluate alternative mechanisms to explain institutional change, this article examines the cases of the three large European economies with concentrated share ownership—France, Germany, and Italy. In the formal legal mechanism, interest coalitions adopt new laws, leading actors to deviate from formerly stable patterns of behavior in shareholding. In the joint belief shift mechanism, collective actors use a triggering event to jointly reevaluate their views of how the world works and thus how their interests can best be pursued. Using the metric of patient capital, this article shows that institutional change took place in France but not in Germany or Italy, despite the fact that Germany and Italy experienced significant regulatory change in the area of corporate governance while France did not. This evidence fits joint belief shift and is inconsistent with the formal legal mechanism. It is likely that the importance of the two mechanisms of institutional change depends on the degree of strategic interdependence among institutional actors: where it is high, the joint belief shift mechanism is likely to precipitate change; and where it is low, the formal legal mechanism is likely to precipitate change.
Whereas debate about sovereign wealth funds (SWFs) often focuses upon the global significance of their investment strategies, these institutions are also emblematic of the new global order of financial capitalism. SWFs are a mechanism for states to advance their interests through global financial markets and are a switch point for the translation of resource assets into financial assets in global markets. Yet, realising the promise of SWFs is not easy. The form and functions of these institutions are typically conceived in Western terms, so the necessary infrastructure for their effective performance may not exist in non-Western jurisdictions. Nonetheless, these funds have grown increasingly popular throughout the world. As such, this paper examines the process of SWF adoption in non-Western jurisdictions, and, in particular, SWFs’ recent rise in popularity amongst the Gulf States. These countries are particularly interesting as they face a variety of challenges due to institutional contradictions between the norms of Western finance and the inherited traditions of the Gulf. While Gulf SWFs may be limited in their effectiveness, these funds still serve as an important symbol for the region, representing a formal gesture towards ‘modernity’ in the context of nation-states’ inherited traditions.
In this article I review Jaime Peck and Nik Theodore’s call to engage with the ‘Varieties of Capitalism’ approach to heterodox political economy through a ‘Variegated Capitalism’ approach, rooted in economic geography. I argue in favor of this strategy, but argue specifically that this approach may be most effectively implemented through the study of financial geographies of the firm, as a primary component of a multi-pronged effort. The goal of this article is to spur debate to develop a variegated-capitalism approach and to focus the attention of economic geography to better contribute to broader macro-institutional debates in heterodox political economy.
Nation states are increasingly sharing sovereignty, both with other states and with supranational and non-governmental institutions. In large part, this is the result of a long period of economic and financial globalization, which has undercut territorial notions of sovereignty and varieties of capitalism. In trying to understand this phenomenon, we are drawn to sovereign wealth funds (SWF), as they offer a unique and powerful lens into the changing dynamics of contemporary capitalism, global economic integration and state sovereignty. Indeed, the SWF provides governments a tool for both engaging with new spatial forms as well as resisting them. While politicians may conceptualize the objective of such funds in the most practical terms, they serve an under-appreciated role in maintaining state sovereignty in a globalized (i.e. deterritorializing) world. In this paper, we build on emerging interdisciplinary scholarship concerning the rise of SWFs by broadening the interpretation of the utility of SWFs for the sponsoring government in relation to the practice and constitution of sovereignty. To this end, we offer an innovative, stylized typology of SWFs in relation to the state and its sovereignty. The objective is to better understand the potential long-term significance of SWFs and the factors that might underpin further development of new SWFs in different countries in the future. Moreover, we believe SWFs can be differentiated according to the role they play in sovereignty and what underlies their claims to legitimacy within their respective nation state. As such, by understanding the rise and purpose of SWFs, we hope to better understand the sovereign in SWFs.
Sovereign wealth funds (SWFs) have grown rapidly in recent years both in value and in number. Despite a great deal of popular debate, very little scholarly attention has centered on the ‘strategic use’ of SWFs by states, that is, as tools to promote national development. Using a ‘network mapping’ approach, I investigate two case studies involving extensive strategic SWF investment: Qatar, Abu Dhabi, and Dubai’s use of SWFs to promote the development of their aerospace sectors; and the deployment of the China Investment Corporation as an instrument of Chinese raw materials and energy policy. Strategically oriented SWF investment can be seen as a state-adaptive strategy under contemporary conditions of globalization and financialization. The viability of such a strategy, however, hinges on the manner in which it feeds into the strategies of firms and states at the receiving end of investment.
Over the past few decades, the institutional logics of the capitalist market and the bureaucratic state have been pushed into association at an increasing rate through processes we have come to know as ‘globalization’ and ‘financialization’. The power of financial markets threatens governments around the world, from the communist to the most conservative. In response, governments have sought ways of realizing their interests in a rapidly changing economic environment. Nothing illustrates this phenomenon more than the rise of sovereign wealth funds (SWFs); governments have been using these special-purpose vehicles to invest assets in private financial markets at an increasing rate, independent of their variety of capitalism. While SWFs are an implicit acceptance by the state of the power of finance, they are, however, also an attempt by the state to leverage finance and filter the transformative forces of global capitalism. Drawing on institutional theory and economic geography, I conceptualize the impetus behind the existence of SWFs, and conclude that SWFs exist to preserve local autonomy and state sovereignty by harnessing the power of finance.
Wolfgang Streeck is a leading figure in comparative political economy and institutional theory. In this book he addresses some of the key issues in this field: the role of history in institutional analysis, the dynamics of slow institutional change, the limitations of rational design and economic-functionalist explanations of institutional stability, and the recurrent difficulties of restraining the effects of capitalism on social order. In the classification of the 'Varieties of Capitalism' school, Germany has always been taken as the chief exemplar of a 'European', coordinated market economy. Streeck explores to what extent Germany actually conforms to this description. His argument is supported by original empirical research on wage-setting and wage structure, the organization of business and labor in business associations and trade unions, social policy, public finance, and corporate governance. From this evidence, Re-Forming Capitalism traces the current liberalization of the postwar economy of democratic capitalism by means of an historically-grounded approach to institutional change. This is an important book from a leading thinker and researcher in comparative political economy and key reading across the social sciences for academics, researchers, and advanced students of Political Economy, Sociology, comparative business systems.
The Geography of Finance tackles crucial issues regarding the emerging global market for corporate governance. The authors describe and explain the transformation of European corporate governance in the light of the imperatives driving global financial markets, using an innovative analytical framework. The authors chart the response of corporate managers to the interest of global portfolio managers in transparent and accountable modes of corporate governance. In doing so, the authors provide an innovative perspective on a rapidly changing environment; and a challenge to those who ignore the gathering momentum of global financial markets. Available in OSO: http://www.oxfordscholarship.com/oso/public/content/management/9780199213368/toc.html
China’s growing geo-economic clout globally has attracted significant research attention over the past few years. Rather than strictly adopt a national-specific and path-dependent perspective, this paper offers a nuanced perspective on the rationale of Chinese economic expansions overseas. I propose we view China’s growing geo-economic influence as a relational development, inextricably connected to broader changes in global capitalism, especially the failure of the US government to maintain confidence in the dollar. The paper probes critically the underlying logics of two recent developments: (1) the role of the China Investment Corporation (a new sovereign wealth fund) and state-owned enterprises (SOEs) in accessing new markets worldwide; and (2) the policies to extend the global reach of the Chinese yuan. I argue that these phenomena are concatenated to China’s broader aim to secure domestic economic security, given its vast holdings of dollar reserves and its macroeconomic constraints through the maintenance of a fixed foreign exchange regime. These developments in turn contour and sustain the evolution of the variegated global system of capitalism.
Sovereign wealth funds ("SWFs") have received a great deal of attention since they appeared as critical investors during the global financial crisis. Reactions have ranged from fears of state intervention and mercantilism to hopes that SWFs will emerge as model long-term investors that will take on risky investments in green technology and infrastructure that few private investors are willing to touch. In this paper we argue that both of these reactions overlook the fact that SWFs are deeply embedded in the political economy of their respective sovereign sponsors. This paper focuses on four political entities that sponsor some of the largest SWFs worldwide: Kuwait, Abu Dhabi, Singapore and China. Each of them has been governed for decades by elites whose grip on power has been tied to the economic fortune of their respective economies and their ability to pacify, or at least balance against, foreign powers. We argue that for these four political entities, both the motives for establishing SWFs and the strategies they employ can best be explained by an "autonomy-maximization " theory.
For over 100 years, the company network was a major feature of organized corporate governance in Germany. This paper uses network visualization techniques and qualitative-historical analysis to discuss the structure, origins and development of this network and to analyse the reasons for its recent erosion. Network visualization makes it possible to identify crucial entanglement patterns that can be traced back historically. In three phases of network formation- the 1880s, 1920s and the 1950s- capital entanglement resulted from the interaction of company behaviour and government policy. In its heyday, the company network was de facto encompassing and provided its core participants, especially the banks, with a national, macroeconomic perspective. In the 1970s, increased competition among financial companies set in. In the 1980s and 1990s, declining returns from blockholding and increased opportunity costs made network dissolution a thinkable option for companies. Because of the strategic reorientation of the largest banks toward investment banking, ties between banks and industry underwent functional changes. Since the year 2000, the German government's tax policy has sped up network erosion. Vanishing capital ties imply a declining degree of strategic co-ordination among large German companies.
"Empirically the chapters of this book deal with current changes in selected political-economic institutions of rich, mostly Western democracies. To us the most prominent theoretical frameworks employed in the analysis of the welfare state and of contemporary political economy generally seem singularly ill-equipped to capture significant developments underway in many if not all of them. While we join with a large literature that rejects the notion that previously diverse political economies are all covering on a single model of capitalism, we notice that many arguments in support of the idea of distinctive and stable national models lack the analytic tools necessary to capture the changes that are indisputably going on in these countries. One consequence is a tendency in the literature to understate the extent of change, or alternatively to code all observed changes as minor adaptive adjustments to altered circumstances in the service of continuous reproduction of existing systems." (excerpt)
The German and Japanese economies are more socially and politically regulated, and in this sense less liberal, than their Anglo-American counterparts. In The Origins of Nonliberal Capitalism, an international and interdisciplinary group of scholars explains why and how Germany and Japan developed nonliberal types of capitalism, looking at the institutional histories of the welfare state, the financial system, corporate governance and skill formation. Similarities and differences are traced in relation to attempts at conservative social reform during late 19th century industrialization and subsequent political pathways to democratization. The book's analysis of the historical dynamics of institutional change, particularly the political and organizational challenges of adapting and integrating new institutional repertoires, suggests new insights on how nationally distinct forms of capitalism will respond to current and future challenges of internationalization. Preface Introduction: Explorations into the Origins of Nonliberal Capitalism in Germany and Japan Wolfgang Streeck The Institutional Embedding of Market Economies: The German "Model" and Its Impact on Japan Gerhard Lehmbruch Welfare State Building and Coordinated Capitalism in Japan and Germany Philip Manow The Origins of Nonliberal Corporate Governance in Germany and Japan Gregory Jackson The Origins of Bank-Based and Market-Based Financial Systems: Germany, Japan, and the United States Sigurt Vitols The Rise of Nonliberal Training Regimes: Germany and Japan Compared Kathleen Thelen and Ikuo Kume
This paper presents statistical analysis supporting stylized facts about sovereign wealth funds (SWFs). It discusses the forces leading to the growth of SWFs, including the role of fuel exports and ongoing current account surpluses, and large hoarding of international reserves. It analyzes the degree to which measures of SWF governance and transparency compare with national norms of behavior. We provide evidence that many countries with SWFs are characterized by good governance, but weak democratic institutions, as compared to other nonindustrial countries. We also present a model with which we compare the optimal degree of diversification abroad by a central bank versus that of a sovereign wealth fund. We show that if the central bank manages its foreign assets with the objective of reducing the probability of sudden stops, it will place a high weight on the downside risk of holding risky assets abroad and will tend to hold primarily safe foreign assets. In contrast, if the sovereign wealth fund, acting on behalf of the Treasury, maximizes the expected utility of a representative domestic agent, it will opt for relatively greater holding of more risky foreign assets. We discuss how the degree of a country’s transparency may affect the size of the foreign asset base entrusted to a wealth fund’s management, and show that, for relatively low levels of public foreign assets, assigning portfolio management independence to the central bank may be desirable. However, for a large enough foreign asset base, the opportunity cost associated with the limited portfolio diversification of the central bank induces authorities to establish a wealth fund in pursuit of higher returns.
Debates surrounding institutional change have become increasingly central to Political Science, Management Studies, and Sociology, opposing the role of globalization in bringing about a convergence of national economies and institutions on one model to theories about ‘Varieties of Capitalism’. This book brings together a distinguished set of contributors from a variety to examine current theories of institutional change. The chapters highlight the limitations of these theories, finding them lacking in the analytic tools necessary to identify the changes occurring at a national level, and therefore tend to explain many changes and innovations as simply another version of previous situations. Instead a model emerges of contemporary political economies developing in incremental but cumulatively transformative processes. The contributors shoe that a wide, but not infinite, variety of models of institutional change exist which can meaningfully distinguished and analytically compared. They offer an empirically grounded typology of modes of institutional change that offer important insights on mechanisms of social and political stability, and evolution generally. Beyond Continuity provides a more complex and fundamental understanding of institutional change, and will be important reading for academics, researchers, and advanced students of Political Science, Management Studies, Sociology and Economics.
Degrees of shareholder orientation among companies differ across countries as well as over time. Markets for corporate control are important elements of corporate governance regimes that affect such orientations. German corporate governance has often been described as a bank-oriented, blockholder, or stakeholder model where markets for corporate control play no significant role. This case study of the hostile takeover of Mannesmann AG by Vodafone in 2000 demonstrates how systemic changes during the 1990s have eroded past institutional barriers to takeovers. The emergence of a market for corporate control cannot be understood by looking at takeover regulation in isolation. Rather, takeover markets rely on a whole set of complementary institutions, social practices, and predominant interpretations, such as banking strategies, codetermination practices, company regulation, and business ideologies. A limited, but significant segment of German corporations are now subjected to a market for corporate control.
This paper develops a rent-protection theory of corporate ownership structure - and in particular, of the choice between concentrated and dispersed ownership of corporate shares and votes. The paper analyzes the decision of a company's initial owner whether to maintain a lock on control when the company goes public. This decision is shown to be very much influenced by the size that private benefits of control are expected to have. Most importantly, when private benefits of control are large - and when control is thus valuable enough - leaving control up for grabs would attract attempts by rivals to grab control and thereby capture these private benefits; in such circumstances, to preclude a control grab, the initial owner might elect to maintain a lock on control. Furthermore, when private benefits of control are large, maintaining a lock on control would enable the company's initial shareholders to capture a larger fraction of the surplus from value-producing transfers of control. Both results suggest that, in countries in which private benefits of control are large, publicly traded companies will tend to have a controlling shareholder. It is also shown that separation of cash flow rights and voting rights will tend to be used in conjunction with a controlling shareholder structure but not with a dispersed ownership structure. Finally, the paper analyzes why companies might make control partially contestable, as many US companies currently do by adopting antitakeover arrangements. The results of the paper are consistent with the available evidence, can explain the observed patterns of corporate ownership, and yield testable predictions for future empirical work. The analysis also has policy implications and, in particular, identifies an important benefit that arises from having a corporate law system that effectively limits private benefits of control.
This paper examines the many changes which have transformed the German system of corporate governance during the last seven odd years. It concludes that it is in the process of converging towards the Anglo-American system and that this has fundamentally affected the way strategic decisions are made in firms. Large, internationally oriented companies are particularly affected. But the notion of shareholder value and its many behavioural effects are gradually spreading also to other parts of the economy. Consequently, the distinctive logic, which had underpinned the German variety of capitalism during most of the post-war period, is eroding. This transformation is affecting also labour and industrial relations in negative ways. The argument is empirically substantiated with data about recent trends in capital markets, banks and firms. The paper theoretically examines institutional change, focussing on the notions of system logic and institutional complementarity. It examines both external sources of change and internal powerful actors who promote the process of transformation. The notion of hybridisation of the German business system is examined but is rejected in favour of a trend towards convergence. Convergence is not seen as a functional necessity, nor is it viewed as inevitable.
content&view=article&id=369%3Aaabar-releases-financial-statements-for-2009&catid=2%3Alatest-news&Itemid=8&lang=ar Aizenman, Sovereign wealth funds: Stylized facts about their determinants and governance
- J Glick
content&view=article&id=369%3Aaabar-releases-financial-statements-for-2009&catid=2%3Alatest-news&Itemid=8&lang=ar Aizenman, J., and Glick, R. 2009. Sovereign wealth funds: Stylized facts about their determinants and governance. International Finance 12:351–86.
Capitalism versus capitalism: How America's obsession with individual achievement and short-term profit has led it to the brink of collapse Der luxus-shopper des scheichs [The luxury-shopper of the sheikh
- M Albert
- M Backfisch
- M Buchenau
Albert, M. 1993. Capitalism versus capitalism: How America's obsession with individual achievement and short-term profit has led it to the brink of collapse. London: Whurr Publishers. Backfisch, M., and Buchenau, M. 2009. Der luxus-shopper des scheichs [The luxury-shopper of the sheikh]. Handelsblatt, March 24. Available online: http://www.handelsblatt.com/unternehmen/management/koepfe/daimler-der-luxus-shopper-des-scheichs/3141454.html Barbary, V., and Bertolotti, B. 2011. Braving the new world: Sovereign wealth fund investment in the uncertain times of 2010. Cambridge: Monitor Group.
A rent-protection theory of corporate ownership and control. Working paper 7203 Does Jensen's free cash flow hypothesis explain European LBOs today? Working paper Porsche aids VW merger by selling stake to Qatar
- L A Bebchuk
- A Betzer
Bebchuk, L. A. 1999. A rent-protection theory of corporate ownership and control. Working paper 7203. Cambridge, MA: National Bureau of Economic Research. Betzer, A. 2006. Does Jensen's free cash flow hypothesis explain European LBOs today? Working paper. Bonn, Germany: University of Bonn. Available online http:// papers.ssrn.com/sol3/papers.cfm?abstract_id=875363 Bloomberg News. 2009. Porsche aids VW merger by selling stake to Qatar. New York Times, August 14.
The geography of finance: Corporate governance in the global marketplace Wer Gehört zu Wem [Who belongs to whom]? (no longer available online)
- G L Clark
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Clark, G. L., and Wójcik, D. 2007. The geography of finance: Corporate governance in the global marketplace. Oxford: Oxford University Press. Commerzbank. 2010. Wer Gehört zu Wem [Who belongs to whom]? (no longer available online): https://www.commerzbank.de/de/hauptnavigation/konzern/ publikationen/publikation_wer_geh_rt_zu_wem/wgzw.html.
Available online The rise of internal capitalist diversity? Changing patterns of finance and corporate governance in Europe
- Daimler
Daimler. 2009a. Annual report 2008, February 24. Available online: http:// www.daimler.com/Projects/c2c/channel/documents/1677323_DAI_2008_Annual_ Report.pdf ——. 2009b. Daimler sustainability newsletter, April. Downloaded May 9, 2010 (no longer available): http://www.daimler.com/sustainability/archive. ——. 2010. Annual financial statements 2009, March 1. Available online: http:// www.daimler.com/Projects/c2c/channel/documents/1812642_DAI_2009_Annual _Financial_Statements_Daimler_AG__Einzelabschluss_.pdf Deeg, R. 2009. The rise of internal capitalist diversity? Changing patterns of finance and corporate governance in Europe. Economy and Society 38:552–79.
Judgment of the Court of Justice in case C-112/05: Commission v. Germany
- European Court
- Justice
European Court of Justice. 2007. Judgment of the Court of Justice in case C-112/05: Commission v. Germany. Available online: http://curia.europa.eu/juris/showPdf.jsf;jsessionid= 9ea7d0f130d5b3904da309ff48d4b60bed4c29066c46.e34KaxiLc3eQc40LaxqMbN4Oa3yKe0? text=&docid=70710&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid= 610100
Back on course: Sovereign wealth fund activity 2009. Cam-bridge: FEEM-Monitor Group
- W Miracky
- B Bertolotti
Miracky, W., and Bertolotti, B. 2010. Back on course: Sovereign wealth fund activity 2009. Cam-bridge: FEEM-Monitor Group.
SWF Institute. 2011. Fund rankings Available online: http://www.swfinstitute Out-of-body experiences: Migrating firms and altered states
- Ithaca
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Ithaca, NY: Cornell University Press. SWF Institute. 2011. Fund rankings. Available online: http://www.swfinstitute.org/ Tetreault, M. A. 1999. Out-of-body experiences: Migrating firms and altered states. Review of International Political Economy 6:55–78.
World development indicators Available online: http://data.worldbank.org/data-catalog/world-development-indicators Zysman, J. 1983. Governments, markets and growth: Financial systems and the politics of industrial change
- World Bank
World Bank. 2011. World development indicators. Available online: http://data.worldbank.org/data-catalog/world-development-indicators Zysman, J. 1983. Governments, markets and growth: Financial systems and the politics of industrial change. Ithaca, NY: Cornell University Press. Vol. 90 No. 3 2014
After the split: Is Daimler vulnerable to a hostile takeover?Der Spiegel
- D Hawranek