State Business Relations Research Articles

‘Reform dissonance’ in the modern rentier state: how are divergent economic agendas affecting state-business relations in Saudi Arabia?

ABSTRACTLarge fiscal deficits brought about by the decline in oil prices in late 2014 and long-standing challenges with youth unemployment have been two of the dominant underlying pressures driving economic policy in Saudi Arabia in recent years. In decades past, issues of unemployment were addressed through public sector hiring, but with increasingly limited resources, these old mechanisms are becoming less viable, giving way to a post-distributive policy environment. By exploring the dual pressures being exerted on the state by high levels of unemployment on the one hand and large fiscal deficits on the other, the resulting, seemingly contradictory policy outcomes are identified, examined, and contextualized in this paper. ‘Reform dissonance’ is the term used to describe the complex picture that emerges, where the private sector is confronted with a confusing policy landscape resulting from liberal and statist economic agendas being pursued simultaneously and in the absence of significant coordination. In particular, this chapter argues that this phenomenon of ‘reform dissonance’—contradictory policy outcomes resulting from the lack of coordination between different reform initiatives—is manifested in persisting public sector entitlements, the crowding-out effect by SOEs, and the persisting mismatch between the pace of human capital development and labour nationalization quotas.

Fidesz, the state-subsumption of domestic business and the emergence of prebendalism: capitalist development in an ‘illiberal’ setting

ABSTRACT The Hungarian coalition government (Fidesz-KDNP), dwarfed by the much larger Fidesz party, has not only dominated the domestic political landscape since 2010 but also embarked on a widespread organised project of corrupt practice for the purposes of self-reproduction. These factors combine to make Hungary a highly unique politico-economic case amongst its post-socialist European peers. This article investigates a critical aspect of this phenomenon, namely, how far Fidesz has subsumed domestic business through an enlarging state–business relationship, described here by the Weberian term ‘prebendalism’. Using insights from data captured from elite interviews conducted in Budapest in 2017, this research discusses the origins of Fidesz longevity and the successes of the prebendal network in determining current and potential paths of capitalist development. Subsequently, it is argued that institutionalist approaches to capitalist development can maintain efficacy but must acknowledge the critical importance of political agency in determining such outcomes. Consequently, scope is provided for future research to investigate continued corrupt practice, prospects for changes to the external dimensions of the national political economy and regime strategies in Hungary and cognate ‘illiberal’ regimes, advancing nascent studies of comparative capitalism that have moved beyond focus on Eurozone and/or so-called advanced economies, to encompass developing markets.

Private sector development and the persistence of fragility in Sierra Leone

AbstractRhetoric from both domestic and international policy actors equated foreign direct investment and robust business growth in Sierra Leone with an exit from fragility. To the contrary, the trajectory of private sector development experienced from 2002 to 2014 contributed to Sierra Leone's socio-political challenges, replicating in the contemporary period dynamics of grievance and exclusion that were root causes of the country's endemic instability and then civil war. This study challenges the practices and refines the ideas underlying the prevailing vision for business-led development in Sierra Leone and other fragile states. It links extensive documentation of the role of business in Sierra Leone with peacebuilding and statebuilding frameworks to present a novel perspective on the mechanisms of action of private sector development in contexts of persistent fragility. In doing so, it provides a foundation on which further theoretical propositions for the ordering of business-state relations in support of transitions from fragility to peaceful development can be developed and tested.

Sustaining Business-State Symbiosis in Times of Political Turmoil: the Case of Ukraine 2007-2018

Abstract How was the business-state symbiosis in Ukraine sustained throughout the political turbulences of the Orange Revolution and the Revolution of Dignity? Using the method of social network analysis (SNA), we demonstrate how the political – formal and informal – ties of Ukrainian big business to the different branches of state power evolved and what models of state-business relations developed during each presidency. The analysis covers the period of 2007-2018 and focuses on the comparison of the relational structures between political and business elites in Ukraine over a decade. We trace the visibility of various business cliques within political institutions during the last 10 years, and track changes in business-state relations through influential persons, positions, groups and network structures.

Shifts in government business relations: Assessing change using the restrictive business registers in the OECD, 1945-1995

The varieties of capitalism framework highlights the governance of firms’ competitive behaviour as a key aspect of state-business relations. This article examines changes in the scope, intensity and transparency of cartel registers in 13 OECD countries in the half century following World War II. Quantifying these policy aspects over five decades using the OECD’s 2013 New Indicators of Competition Law and Policy reveals changes in government-business relations over time, with different approaches evident in each country. The results reveal complex interactions effect policy in each country and challenge a simple ‘Americanisation’ explanation for changes in cartel policy and the static typology of the VoC literature.

State intervention in East Asia’s varieties of capitalism: A case study of the electric power industry in China and Japan, 1882–1951

This article studies the history of state intervention in East Asia’s varieties of capitalism through a case study of the electric power industry. The reasons for state intervention in China and Japan, their similarities and differences, and their relative importance are described and analysed. The origin and evolution of the different national models of state–business relations in the two countries are influenced by domestic factors such as national defence and internal unification, as well as external circumstances such as colonialism, occupation, and war.

Innovation Versus Technology Imitation Development Strategy: What Influences Government Decision?

This paper is trying to investigate the effect of state-business relations (SBR) and institutional settings on government decision to foster innovation in developing countries. It differentiates between informal SBR-based cronyism and formal SBR-based lobbying and how they could influence government decision to innovate. 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 being introduced. The new model investigates how different forms of SBR affect government decision to adopt either a strategy fostering technology imitation/transfer or one fostering innovation. The model suggests that adopting the innovation strategy is more likely to be chosen at the presence of: higher probability of lobbying; higher public frustration from cronyism; lower initial levels of cronyism under the imitation strategy; ability to curb cronyism below levels tolerated by the public; higher economic growth caused by institutional (governance) improvement; and higher economic growth caused by additional resources but only when this is matched by institutional improvement that manages to curb cronyism. The suggestions of the model are then being investigated empirically with the help of a fixed effects regression model. The empirical study focuses on developing countries placed in the Global Competitiveness Indicators’ (GCI) category of “efficiency-driven” countries and those in transition between this category and the higher “innovation-driven” category. These are the countries in which government decision to adopt either highlighted strategy is of much relevance. The empirical results support some of the theoretical model suggestions, especially the negative effect of cronyism on choosing the innovation strategy and the positive effect of public frustration, change in cronyism attributed to institutional reform, economic growth attributed to change in natural resources when coexisting with diminishing cronyism attributed to institutional reform.

Black economic empowerment policy and state–business relations in South Africa: the case of mining

ABSTRACTThe article analyses contestation of black economic empowerment ownership transfer policies in South Africa’s mining industry. Using case study material from platinum, the article examines the transition between the first Mining Charter of 2004 and the third Mining Charter of 2018. It argues that the inherent fragilities of this financialised redistribution mechanism have generated poor redistributive outcomes and achieved limited progress in the formation of a black capitalist class aligning political and economic power. This has contributed to increased factional and ideological contestation over the pace and method of economic transformation, and a deterioration in relations between the state and big business in mining.

State Business Relations and Economic Growth Prospects in Post-Arab Spring MENA

Almost a decade after the outbreak of the Arab Spring (AS), this paper is trying to investigate two main questions. The first is whether there are major changes in State-Business Relations (SBR) in the Middle East and North Africa (MENA) region in the post-Arab Spring (post-AS) in comparison to the pre-Arab Spring (pre-AS) period? The second is whether these changes have a significant impact on the economic growth prospects of the MENA countries? To properly address these research questions, the region is divided into four categories according to their post-AS SBR developments. These are: Gulf; liberalizing; militarizing; and civil war states. The research questions are investigated first by an analytical discussion aided by the available literature and statistical data. Then further investigation is done by regression analysis using a fixed-effects panel model. Both the statistical and regression analysis uses the Global Competitiveness Indicators’ (GCI) “favoritism in government decisions” as an indicator for cronyism, while the Worldwide Governance Indicators’ “voice and accountability” (V&A) is used as a proxy for collaborative governance. Short-run growth prospects are indicated by investment and private investment shares of GDP and long-run growth prospects by innovation and technological readiness. The used analytical tools suggest that post-AS SBR typology has differed from its pre-AS counterpart and that this had likely its effect on the economic growth prospects of the MENA. All over the region, cronyism stayed the major SBR mode. For collaborative governance, an increase in V&A is witnessed in liberalizing countries and some improvement in most of the militarizing countries but a deterioration in the Gulf category. A growing economic role of the military establishment is witnessed in the militarizing category. Although cronyism can encourage private investment, its impact on short-run growth tends to be negative because of its unfavorable effect on overall investment share. It also tends to harm long-run growth by harming innovation, except when it is the only resort in countries where the military is expanding its economic role and V&A levels are low. The growing economic role of the military is suggested by the literature and statistical analysis to harm private investment share, but no supportive empirical evidence is provided by the conducted regressions due to the inexistence of a proper proxy. Despite some unsupportive empirical evidence, collaborative governance is suggested to be the best SBR mode for the region. Empirical evidence shows that V&A fosters short-run growth prospects in liberalizing countries. In militarizing countries, it fosters long-run economic growth more than cronyism, but it could also be, arguably, the best way to phase out military-economic involvement. In civil war countries, collaborative governance is arguably what is exactly needed for the reconstruction of these countries’ economies, whether through building trust or fostering policy discussions that would reintegrate different groups to and encourage their investment in the national economy. This paper is a novel trial in the field. Works on post-AS SBR developments and their effect on economic outcomes in the MENA region are very limited. Moreover, empirical works on SBR in the MENA region, whether pre- or post-AS, are generally inadequate.

Do deep pockets have more political influence?\u2014the size of private enterprises and their strategy selection in resolving administrative disputes

Fitting multivariate models to the China Private Enterprises Survey (2006) data, this article reveals the differentiation of state-business relationship as a function of a private enterprise’s economic capital, thereby to a certain extend challenges the dominant paradigm of clientelism. When resolving disputes with the government, private enterprises with more economic capital are more likely to directly contact the government agency, displaying greater political privilege. On the other hand, private enterprises with middle-range economic capital show higher preference to take advantage of business associations or particularistic relationships. However, instead of economic capital, it is the Communist Party membership of private entrepreneurs that influences their contentious strategies. There is also regional variation in the selection of strategies. This article casts doubt on the existence of a “capitalist class” in China. Under the specific context of the Chinese society, characteristics of the private economy influence the path by which economic power transforms to political power.

The Unbreakable Link of Syrian State-Business Relationships: Its Impact on Turkey-based Expatriate Syrian Businesspeople

State-business relationships in pre-2011 Syria were strongly dominated by the Assad regime. Due to the conflict, millions of Syrians, including thousands of businesspeople, were forced to leave Syria. Home countries have been argued to play a crucial role in a diaspora’s development. Even though many Syrian businesspeople have emigrated to Turkey, long-term strict state-business relationships continue to affect the interactions of the Syrian businesspeople in Turkey. This paper examines how Syrian state-business ties shape the behaviors of the Turkey-based Syrian businesspeople. The paper argues that, although the activities of the business diaspora might need to be conducted cautiously due to their ties with the home government, and in order to improve economic activity in the host country, the businesspeople have developed specific ways to balance the impact of their home government.

Institutions, State-Business Relations and Innovation in Developing Countries: The Case of Tunisia and Morocco

This paper is trying to investigate the effect of State Business Relations (SBR) and institutional settings on the development of innovational capacities in developing countries. It differentiates between informal SBR-based cronyism and formal SBR-based lobbying and how they could influence innovation. The paper starts with a theoretical discussion on the available literature including a theoretical model introduced in Sabry (2019a) which is building on and complementing the Aghion and Howitt (2009) growth model with institutions. The theoretical discussion focused on how different forms of SBR affect government decision to adopt either a strategy fostering technology imitation/transfer or one fostering innovation. The suggestions of the theoretical discussion are then applied on Morocco and Tunisia, two countries with regional leading performance in technological capabilities and innovation, yet still lagging behind internationally, with much room for improvement. Using these suggestions, the paper tries to explain the factors affecting their current performance in innovation and prospects for convergence with or diverging from the international technological frontier. This is done using statistical data obtained from various international reports and datasets, including the Global Competitiveness Indicators (GCI) and the World Bank Worldwide Governance Indicators (WGI) and World Development Indicators (WDI), as well as the literature on the subject. This analysis suggests that both countries pursue more of technology imitation/transfer rather than innovation strategy. High levels of cronyism suggest that it is likely behind the persistence of imitation strategy even when productivity gains are not high or even deteriorating, as in the case of Tunisia. Economic growth in both countries is more likely to have been caused by natural resources at a time when institutional reform didn’t sufficiently curb cronyism. This opens prospects for the flow of more crony privileges, making it possibly a further factor reducing the possibility of adopting an innovation strategy.

African Development and the Marginalisation of Domestic Capitalists

The revival of industrial policy discussions has operated in parallel to reports of increasing domestic wealth accumulation across the African continent. Regional and continent-wide industrialisation has begun to be rhetorically linked to discussions of regional common markets and through the African Continental Free Trade Area. Yet, there is barely any mention of integrating African capital into the African industrial policy agenda. Where such discussions have appeared, they have emerged through the ‘Africapitalism’ narrative, which ignores the role of the state and politics in supporting and sustaining domestic business groups. Instead, the re-imagination of industrial policy on the continent relies on foreign investors, particularly the relocation of Chinese industry to various parts of the continent. This paper has two core objectives. The first is to explain why the study of African capitalists – popular in the 1980s and 1990s – has remained relatively dormant since then. Dominant narratives – through neopatrimonalism and dependency-inspired arguments – have been pessimistic about the potential of African capitalists to deliver structural transformation. Gradually, these narratives, alongside intellectual trends within mainstream social science and African studies, have discouraged the study of politics of state–business relations in Africa. Yet African capitalists have become increasingly prominent in popular culture. Many of the wealthiest and most prominent capitalists have emerged through owning diversified business groups across the continent. This paper argues that more attention should be dedicated to the study of the politics of the emergence and sustenance of African diversified business groups (DBGs). To achieve this goal, a fluid categorisation of DBGs is introduced, building on Ben Ross Schneider’s previous work. By examining three country case studies – Rwanda, Kenya and Tanzania – this paper highlights how a range of DBGs are emerging across three very different political contexts.

Informality trap: a foundation of Russia’s statist-patrimonial capitalism

ABSTRACTThe paper analyses the origins of Russia's statist-patrimonial political economy, marked by insecure property rights and particularistic state-business relations. Based on in-depth interviews, the paper argues that statist-patrimonial capitalism is not only a result of top-down activity of the state sovereign and its corrupt agents but is also a system that rests on the bottom-up contribution of the bulk of economic actors - small and medium-sized firms. This contribution happened - often inadvertently - through informal practices that locked small firms in the ‘informality trap' and undermined the security of property. Back in the 1990s some of those informal practices were taken up by companies out of expediency. In the 2000s informality backfired as the state exploited it to violate property rights of virtually any business actor. Thus the advent of statist-patrimonial capitalism was facilitated, among other factors, by the informal choices and practices of business actors in the previous decade.

Fostering innovation under institutional deficiencies: formal state–business consultation or cronyism?

This paper is trying to investigate whether formal state–business consultations (or simply public private dialogues—PPD) and/or cronyism could counteract low institutional capacities and provide the needed mechanisms for fostering innovation. It is doing this with the help of a theoretical discussion highlighting the links between National Innovation System, state business relations (SBR) and good governance institutions. This is then followed by an empirical study based on this discussion and using various OLS multivariate panel regressions. Evidence is found that the presence of business associations that are widely participated help in promoting innovation. They do this also in countries suffering from low institutional settings, and correct for the shortcomings caused by low regulatory quality. PPD play also an important role in counteracting institutional deficiencies that could otherwise harm innovation; and this is specifically the case for low government effectiveness. High official representation in PPD is a key for such needed outcome. PPD, however, need an open climate where the government is accountable to various societal groups and where different interest groups are free to aggregate their power. On the other hand, favoritism in allocation of resources and Cronyism might counteract institutional deficiencies, especially with regard to low government effectiveness and low regulatory quality. Yet, the overall effect of cronyism on innovation is still negative. Tackling the reduction of cronyism as an objective presents PPD as an alternative that could counteract low government effectiveness and high participation in business associations as another alternative which manages to counteract low regulatory quality, provided that cronyism is minimized in both cases. The novelty of this study rests on the contribution it aims at providing in an area where research is insufficient. There is lack of research on how innovation is affected generally by SBR, and more specifically by either formal or informal forms of SBR and cronyism. Empirical studies are even scarcer in this regard.

Could formalized State Business Relations lead to economic growth? Business participation, government representation and institutions

PurposeThe purpose of this paper is to investigate whether formal State Business Relations (F-SBR) lead to economic growth and which institutional variables are responsible for their success in achieving this.Design/methodology/approachFollowing a theoretical analysis, several hypotheses are presented, and a number of different regression models are being used to test the hypotheses.FindingsThe paper finds that F-SBR with high government representation and business participation are likely to increase investment flows as well as help overcome some burdensome institutional settings. This could be done thanks to building trust, enhancing information exchange and better policy formulation. Despite of its suggested trust-building capacity, F-SBR seem to fail to function in cultures where trust in governments is low, since trust is a key issue for cooperation as that expected in F-SBR. On the other hand, collective but also non-hierarchical cultures that foster cooperation seem to help in the success of F-SBR. Accountability to the public and openness to various societal groups as well as good regulatory quality would help F-SBR in leading to better economic outcomes.Practical implicationsThis paper, thus, suggests supporting the establishment of F-SBR with high official representation and business participation because of their positive economic value. It also suggests that voice and accountability and regulatory quality are important institutions for the realization of better economic outcomes from F-SBR.Originality/valueThe theoretical and empirical approaches used in this paper are what make it a novel endeavor in this field. Much of the suggested hypotheses were hardly discussed thoroughly elsewhere in the literature on F-SBR. Moreover, the proxy used for F-SBR, constructed by the interaction term of government official representation and the level of business representation, made it possible to conduct empirical testing on a global level, something barely done in works on F-SBR experiences worldwide. The obtained results supported some of the arguments uttered in the literature while raising questions on others, opening the field for future research on the matter.

State business relations and innovation in the MENA region

ABSTRACTUnderstanding that Innovation is a major determinant of economic growth, this paper is investigating how to foster Innovation in the Middle East and North Africa (MENA) region given the institutional deficiencies suffered in many of its countries. More specifically, this paper is trying to find out how State-Business Relations (SBR) have contributed to Innovation capacities of the MENA. It also investigates whether SBR have counteracted some of the region's institutional deficiencies which hinder Innovation. While doing this, this paper differentiates between formal SBR (e.g. public private dialogues) and informal SBR (relations based on family, ethnic or political connections), and puts more theoretical emphasis on the National Innovation System (NIS) approach for fostering innovation. It uses regression analysis and provides three relatively (Innovation-wise) advanced non-Gulf MENA countries as examples for the sake of enriching the discussion through a comparative analysis; these are: Egypt, Tunisia and Morocco. Using various multivariate panel OLS regressions, various important findings are obtained. The results suggest that stronger Business Associations, formal SBR and comprehensive institutional reform are needed for fostering Innovation in the MENA region. Even if Cronyism and crony-based informal SBR seem to provide a functional allocative mechanism counteracting some institutional deficiencies, yet, Cronyism do more harm than good to Innovation. Hence, institutional reform in the MENA region should also place more emphasis on eradicating Cronyism.

Capitalist maturity and South Korea's post‐development conundrum

AbstractSouth Korea's post World War II economic development trajectory is well known. From an impoverished warn‐torn nation, the country has progressed on all fronts. However, the objective is to focus on the “post‐development” question, namely, what does a country do after it becomes prosperous. To put it another way, what are some of the emergent challenges that successful development poses for Korea, and how might it tackle them. I use the concept of capitalist maturity to denote Korea's current state of prosperity and examine some of the economic, social, and political consequences. Some of these post‐development conundrums I argue have resulted from the transformation of Korea's state–business development partnership to a business–state political partnership in the context of a democratizing Korea. This paper examines the challenges and some of the policy options to address them, including the rebalancing of the state–business relationship.

Emerging state–business contention in China: Collective action of a business association and China’s fragmented governance structure

Based on an in-depth case study of a business association, this article explores how private entrepreneurs are organizing for their rights and highlights contentious facets of the state–business relationship in China. In contrast to depictions common in the literature, this business association actively asserts and seeks to maintain its autonomy vis-a-vis the state and uses innovative strategies to strengthen its own organizational cohesion. It organizes collective actions to defend members’ interests and to enhance the transparency and accountability of the local government. It even advances universal values, such as equal rights to justice. Importantly, however, the initiation and effects of collective actions are contingent on the opportunities embedded in China’s fragmented governance structure. I argue that corporatist analyses characterizing Chinese business associations as lacking autonomy and as partners of the state have overlooked such associations’ potential to engage in confrontations with the state. Combining involvement in the formal institution and contentious collective actions, the association studied displays the tension between the incorporation system and social resistance in contemporary China.

State Business Relations and The Dynamics of Job Flows in Egypt and Turkey

This study is motivated by the ongoing interest of policy makers in the possible sources of job creation and destruction. The aim is to explore the dynamics of job creation, destruction and net job creation rates in Egypt and Turkey, including various firm characteristics, besides the firm size and age that have not been studied so far, such as the business-state relations (SBRs), whether the firm has been accredited with an international qualification of quality assurance and control and whether one of the owners is female. The analysis relies on firm level data derived from the World Bank Enterprise Surveys. We implement weighted ordinary least squares (OLS). The findings show constraints to finance and political instability are the main obstacles of SBRs in both countries, including also tax rates and constraints in electricity. The quality of SBRs is found to be positively associated to job growth.