State Business Relations Research Articles

China in Malaysia: State-Business Relations and the New Order of Investment Flows (Book review)

China in Malaysia: State-Business Relations and the New Order of Investment Flows (Book review)

Going Out or Opting Out? Capital, Political Vulnerability, and the State in China's Outward Investment

How do state-business relations interact with outward investment in authoritarian regimes? This article focuses on the importance of domestic political status and specifically business' vulnerability to the state in explaining the dynamics of China's outward investments. I present three types of domestic capital whose economic and political logics differ as they go abroad: tactical capital pursues political power and prestige, competitive capital pursues commercial goals, and crony capital seeks refuge from the state and asset expatriation. The Chinese regime's approach to outward investment, which I characterize as mobilization campaigns adjusted over time and combined with targeted domestic regulation, endeavors to treat these different kinds of capital differently, deploying and disciplining tactical capital, enabling competitive capital, and constraining crony capital.

The nexus between business–investment climate and firm performance in the Middle East and North Africa (MENA) region

PurposeEffective business and investment climate can lead to a higher rate of investment, profits and improved productivity, through the creation of an institutional environment, where the state provides high-quality public goods. This study aims to explore the impact of the business–investment climate on firm performance in a sample of six countries in the Middle East and North Africa (MENA) region and Turkey. Furthermore, we extend our analysis to explore the impact of business–investment climate on the resource misallocation in Egypt and Turkey.Design/methodology/approachThe study used fixed effects models to investigate the relationship between the business and investment climate, expressed by the obstacles in state–business relations- and the firm performance, which is measured by the firm's value-added, the labour productivity and the total factor productivity To reduce the endogeneity coming from possible reverse causality and the perceptions about the business climate, an instrumental variables (IV) approach applying the two-stage least squares (2SLS) method was followed. The empirical analysis relies on data derived from the World Bank Enterprise Surveys.FindingsBased on estimates, the obstacles in business climate may reduce the firm performance measures by 15–40%. These findings indicate the importance of quality in the business climate and how the improvement in its efficiency can have a very considerable positive impact on firms' performance and thus on the overall economic growth of a country.Originality/valueThis is the first study exploring the impact of business–investment climate on various measures of the firm performance and the resource misallocation in a large sample of countries in the MENA region.

Productivity and Resource Misallocation: Empirical Findings from Firms in the Middle East and North Africa (MENA) Region and Turkey

State-Business relations (SBRs) are reflected in business and investment climate indicators and may take the form of formal, regular, and informal interactions. The creation of an institutional environment in which the state provides high-quality public goods, such as infrastructure, political stability, elimination of corruption, and effective public administration, is important because it can improve productivity and lead to higher rates of growth. Resource reallocation from low to high productivity firms can generate large aggregate productivity gains with further potential benefits to economic growth. This study examines the relationship between productivity and resource misallocation in a sample of countries in the Middle East and North Africa (MENA) region, and Turkey. The analysis relies on data from the World Bank Enterprise Surveys over 2008-2016 of firms in Egypt, Turkey, and Yemen. In the analysis, we control various firm characteristics. Furthermore, we explore major state-business relations (SBRs) and their association to resource misallocation. The results are mixed, wherein in Egypt and Turkey, female ownership and international quality certification are positively associated with productivity and allocation efficiency. Moreover, obstacles in SBRs present a negative and significant correlation with the firms’ performance and productivity, increasing dispersions in the resource allocation, output, and capital. We find that corruption, political instability, electricity supply, and high tax rates are the most critical obstacles in SBRs. 

State-Business Relations and Access to External Financing

State-Business Relations and Access to External Financing

Liberal Economic Reforms and the Rise of Crony Capitalism in the MENA Region

This article examines how the economic liberalisation in the Middle East and North Africa (MENA) region created a ripe climate for crony capitalism. The incomplete character of the neoliberal program that was encouraged by Western governments and international financial institutions in the 1990s resulted in selective liberalisation and allowed for the tightening of state-business relations. The implementation of the liberal economic agenda facilitated the takeover of state resources and privileged access to the domestic market by dominant political-economic coalitions and produced a novel regime whereby hopes of a plural political system and a de-regulated free market were replaced with a version of Arab ‘crony capitalism’. The evolvement of this phenomenon is analysed and explained by appealing to the example of economic reforms that took place in Egypt and Tunisia, two countries which, between the 1990s and 2010s, were hailed as success stories of the neoliberal reforms in the Arab World. Although the façade of the countries' respective economies became apparent as de-regulated, new reforms became a powerful instrument for the foundation of a novel network of preferential beneficiaries leading to the reshuffling of alliances among the country's major players. The overarching argument of this paper is that liberalisation efforts in Egypt in Tunisia, rather than eradicating distributional coalitions, have merely rearranged them by reshuffling the existing alliance among the countries' major players.

Disempowerment without expropriation: Egypt’s old oligarchy under Sisi

ABSTRACT What happens to oligarchs when they get politically disempowered? This article looks into changing private property relations in economies dominated by oligarchs in the global south during unstable times of popular unrest and frequent regime change. It considers the case of Egypt after the 2011 revolution. Paradoxically, the old oligarchs retained their assets despite losing political influence. I argue whether oligarchs survive regime change without being expropriated depends on the perceived importance of their assets by the new rulers for the regime’s political, financial and security stabilization. In turn, this depends on how well-established are the oligarchs in critical areas like foreign currency-earning and high-technology sectors. Moreover, the older, more concentrated and transnationalisssed the old oligarchs’ assets are, the higher the perceived cost of expropriation becomes for the new regime. In Egypt, the military-backed regime that seized power in mid-2013, had to count on the oligarch-dominated private sector for economic recovery as it did not enjoy alternative stable revenue sources of its own. The final outcome of such institutionally-bounded rationality by the regime was the old oligarchs’ disempowerment but not their expropriation, pushing for a differentiated oligarchy. This contributes to the literature on state-business relations in the global South.

The German construction industry and industrial self-responsibility in occupied Europe, 1939–45

ABSTRACT This article enquires into the role of private German businesses in the administration of Nazi-occupied Western and Northern Europe during the Second World War. It is argued that the National Socialists were able to rule over occupied Europe with a remarkably low number of administrative personnel because they trusted private industry with central administrative responsibilities and tasks. The focus will be on the German construction industry working under the paramilitary construction unit Organisation Todt, as no other sector relocated its activities to such a degree to the occupied territories. Under the slogan of ‘industrial self-responsibility’, German construction firms played a crucial role as bridgeheads and mediators, especially in the early phase of the occupation, helped to draft procurement contracts for construction projects, to control prices and entrepreneurial profits, to supervise local sub-contractors, and finally, to recruit and supervise forced labour. By investigating these aspects, the article adds not only to our understanding of the German administration of occupied Europe, but also of the functioning of the Nazi state in general. Moreover, the article highlights the consequences of industrial self-responsibility for state-business relations in the Third Reich.

After authoritarian technocracy: the space for industrial policy-making in democratic developing countries

Many developing countries have, in recent years, adopted structural transformation strategies and strengthened state economic activism. While prima facie reminiscent of the post-war era’s developmentalist strategies, contemporary industrial policies have resurfaced in a different environment: they are often designed and implemented in (newly) democratic, rather than authoritarian, political regimes. This paper argues that when democratic developing countries seek to (re)deploy industrial policies, governments must navigate the specific demands arising in an institutional setting in which political power is constrained and contestable. Therefore, the focus of the classical industrial policy literature on instrumental-rational, top-down, technocratic ­policy-making, with centralised state–business relations, needs to adapt to this environment. This paper discusses how challenges to secure fiscal space, reach parliamentary consensus, and address diverse societal demands in a formal democratic institutional setting influence industrial policies in developing countries. We exemplify this using Indonesia as a case study.

Analysing Indonesia’s infrastructure deficits from a developmentalist perspective

This paper analyses the performance and appropriateness of the Indonesian government’s ‘good governance’ institutional reform aimed at stimulating infrastructure construction. During the 15 years after the 1997 Asian financial crisis, the government attempted to strengthen formal institutions with the goal of improving public investment efficiency and attracting private investors. By analysing policies in the construction industry in terms of company registration, procurement and state enterprises, the paper finds that the outcome was far from what was expected by technocratic-bureaucratic reform promoters as interest groups frequently succeeded in capturing the new institutional system. This paper then challenges the dominant narrative that overwhelmingly blames incomplete institutional reform for Indonesia’s slow infrastructure construction. Given the inherent market failure and political challenges in institutional reform, the paper argues that passive developmentalist policies, which resulted in conflictual state–business relations and insufficient public investment, were a prime cause that then set the stage for the emergence of state-led infrastructure development strategy from the mid-2010s.

Business elites and populism: understanding business responses

ABSTRACT This article analyses the challenges to business associated with the rise of right-wing populism. It discusses how the populist turn has weakened key underpinnings of business power in the neoliberal era, notably the prevalence of quiet politics and network governance. This article analyses the complex strategic dilemmas these challenges create for business. Extending Hirschman’s classic model of exit, voice and loyalty, it develops a novel typology of five business responses to the rise of populism: exit, soft voice, loud voice, explicit loyalty and implicit loyalty. The extended typology highlights two key dilemmas related to the appropriate degree of engagement with politics which business faces in the populist era and which are reflected in the contrast between two types of voice and loyalty. The article analyses the factors shaping which strategy businesses are likely to choose and reflects on the broader implications of this analysis for state-business relations and business power.

Music streaming platforms and self-releasing musicians: the case of China

ABSTRACT A major development in the music industries in recent years has been the rise of ‘unsigned’ or ‘self-releasing’ musicians (sometimes problematically called ‘DIY musicians’ or ‘independent musicians’) who upload music directly to music streaming platforms (MSPs). This article examines the distinctive way in which Chinese MSPs have sought to incorporate such self-releasing musicians into their platform eco-systems and what it tells us about the ways in which digital platforms commodify cultural expression. We show that a remarkable new system has developed in China, based on evolving dynamics of platform power and state-business relations, and very high levels of concentration and integration. Yet the work of independent, self-releasing musicians is playing a much bigger part in the Chinese system than in other parts of the world, allowing them to reach audiences in ways that were not previously possible. Drawing on critical studies of digital platforms and of the historical development of the music industries, we show that this apparent democratisation also represents an incorporation and commodification of activity that would often previously have taken place beyond the music industries, in ways that place constraints on the cultural autonomy of self-releasing musicians.

Philippine private sector response, strategies, and state-business relations toward economic recovery and growth post-COVID-19

AbstractThe Philippines was among the fastest-growing economies averaging within the 6.5 percent GDP growth in the past five years. However, the COVID-19 crisis brought major disruptions to the Philippine economy as growth, employment, and overall productivity fell into recession levels along with the declaration of a nationwide lockdown. As the pandemic resulted in a series of business closures, supply chain breakdowns, and massive job cuts, the private sector was forced to confront the challenges brought by the pandemic including its threat to business continuity and survival. This article presents the private sector's assessment of the pandemic's impact on the Philippine economy along with their views on the national pandemic response and the extent of public-private collaborations in countering the effects of COVID-19. Following the insights and experiences shared by industry leaders and other corporate executives, this article also discusses pivots in corporate strategy along with a significant shift in corporate mindset toward new ways of doing business and fulfilling their responsibilities in society.

State–Business Relations in Flux: Capturing the Structural Power of Business in South Korea’s Green Industrial Policy

ABSTRACT Getting state–business relations “right” is considered to have been at the heart of the East Asian developmental states and their industrial success in the twentieth century. Given that the “right” state–business relations are an historically contingent outcome that emerges under a particular political and economic order, this article asks what is the emerging nature of their state–business relations in the twenty-first century? And, how is this relationship shaping their industrial competitiveness? These questions are explored by reconceptualising both the state and business to interrogate the nexus between the “competition state” and the “structural power” of business. Through a fine-grained investigation of green industrial policy-making in South Korea, it is shown how a state that is evolving into a competition state is made vulnerable to the structural power of business, challenging the widely held view that the right state–business relations are being maintained. The contribution made lies in identifying and tracing structural power, which remains under-examined in the state–business relations scholarship due to the difficulties associated with capturing quiet politics at work. This contribution invites further discussion on how state–business relations can be recalibrated to advance industrialisation in East Asia and beyond.

Regime Changes, State-Business Ties and Remaining in the Middle-Income Trap: The Case of Malaysia

ABSTRACT While Malaysia’s economy is widely acknowledged as having the capacity to escape the middle-income trap and achieve highly-industrialised status, this potential has not been realised. One theoretical proposition why an economy remains mired in the middle-income trap is that the introduction of mechanisms to overcome this problem is hampered by political, not economic, matters. Malaysia serves as an interesting case to test this proposition because, after the 14th General Election (GE14) in 2018, it had a new government – the first time such a change had occurred in its history – that had pledged to institute the requisite economic restructurings and reform state–business relations in a highly mixed economy. This article traces the sources of Malaysia’s middle-income trap leading up to GE14, reviews the reform debates that occurred following this election, and assesses why the promised reforms were not considered before this new government unexpectedly fell in 2020.

Innovation versus technology imitation development strategy: what influences government decision?

ABSTRACT This paper investigates the effect of state-business relations (SBR) and institutional settings on government decisions to foster innovation in developing countries. It differentiates between informal SBR-based cronyism and formal SBR-based lobbying and how they could influence a government’s decision to implement policies fostering innovation. After a theoretical discussion on the available literature, a theoretical model building on and complementing the Aghion and Howitt (2009) growth model with institutions is introduced. The model provides predictions on which institutional settings induce the government to support innovation, rather than technology imitation/transfer strategies. Using the random-effects regression model, the empirical results support some of the model’s predictions. This includes the negative effect of cronyism and the positive effect of public frustration from cronyism on choosing the innovation strategy. A positive effect also results from a situation where natural resources-caused economic growth is matched by institutional reform that curbs cronyism and mitigates the resource curse. A short discussion on some case studies follows before the paper ends with a conclusion.

The Emergence of Mafia-like Business Systems in China

AbstractA large body of literature on state–business relations in China has examined the political role of capitalists and collusion between the state and the private sector. This paper contributes to that literature and understanding of the internal differentiation among China's business elites by documenting the emergence of a particular kind of large, non-state business group that we argue is more akin to a mafia system than any standard definition of a firm. Drawing on large-N descriptive data as well as deep ethnographic and documentary research, we argue that mafia-like business systems share organizational principles (plunder and obfuscation) and means of growth and survival (relations of mutual endangerment and manipulation of the financial system). Understanding the particular moral economy that underlies mafia-like business systems and their interactions with the state challenges methodological foundations of research on China's political economy and helps to explain recent conflict between high-profile business people and the state.

State-Business Relations from the Perspective of the Companies' Preparedness for the Changes Related to the Implementation of the Industry 4.0 Elements: A Case of the Czech Republic

The purpose of this study is to investigate the expectations of the management of different industries in the Czech Republic related to governmental support for their implementation of Industry 4.0 and their preparedness for the challenges associated with these technological changes. Mixed research, specifically exploratory sequential design, was used. The findings of qualitative data analyses from in-depth semi-structured interviews (n=41) with representatives of different industry sectors formed subsequent quantitative data collection (N=146, the board of management members representing various industries) through survey items corresponding with formalized research questions. The findings revealed a strong group of companies already implementing Industry 4.0 elements (85% of respondents) driven by companies with 250+ employees. As perceived by the management, the critical threat related to the workforce is a lack of skilled labour. Managers tend to prefer a transparent business environment without state interventions or interventions targeted to strategic state industries, preferably to the spheres of education, research & development, energy sector, sustainable agriculture, and healthcare. The results indicate that the easier administration and education reform are among the companies' boldest expectations from the government, among general conditions for current business.Implications for the Central European audience: Central European companies face challenges related to implementing the Industry 4.0 elements. Therefore, the findings that aim to contribute to the debate addressing administration simplification, business environment transparency, and reform of the education system are considered relevant for the CE audience.

Evolving State–Business Relations in an Age of Globalisation: An Introduction

ABSTRACT This article introduces the feature section “Evolving State–Business Relations in an Age of Globalisation” in this issue of the journal. That feature section examines state–business relations across the Asian region, from South Korea to Turkey. It focuses on networked forms of co-ordination between state and non-state (or private) actors who collectively shape how an economy evolves. This article and those of the feature section deal with three inter-related questions. First, what is the contemporary nature of state–business relations, taking stock of historical and political contexts? Second, when there is regime change, how have these state–business relations evolved? Third, how, and to what extent, do the ties linking state and business actors generate opportunities and constraints for these economies? Four case studies are presented to illuminate shifting state–business relations in key Asian economies – Thailand, Turkey, South Korea and Malaysia. These studies reveal diverse modes of state–business relations, as well as why and how they have emerged, shaping in the process political and economic norms, while leading to industrialisation.

Emergent Political Norms in Local State–Private Enterprise Relations during China’s Big Push for Poverty Reduction

In 2014, the Chinese government adopted a version of the controversial Big Push approach to poverty reduction, and augmented this once-discredited developmental narrative by enlisting very large private enterprises to operate in the poorest regions. Not without controversies, this approach and the resources associated with it has created new state-large business relations in China. This article studies four large enterprises and examines why they participated in poverty reduction, the resulting state–business relations and the outcomes of poverty reduction. The field research was conducted in 2018 through in depth interviews with company management and site visits. The findings show that the local state became collaborators of big businesses that were endorsed by the central government. Whether these relationships become formalised will depend on the future direction of poverty reduction. This research contributes to the literature on how state–business relations may initiate economic growth.