A post-crisis understanding of state capitalism

Has the Washington Consensus failed? Lalita Som's book explores this debate from the prism of case studies of eight countries, including the BRICS

State Capitalism: Why SOEs Matter and the Challenges They Face

Author: Lalita Som

Publisher:  Oxford University Press

Pages: 356

Price: Rs 1,695

In her book, State Capitalism: Why SOEs Matter and the Challenges They Face, Lalita Som starts with the premise that the Washington Consensus — which refers to the standard reform package for crisis-hit economies developed by Washington D C-based institutions such as the World Bank, IMF and the US Treasury Department — has failed. She highlights how the Consensus did not find many takers after the global financial crisis of 2008, whereas China’s state-supported capitalism has won admirers.

In the 1840s, Karl Marx’s disillusionment with utopian socialism grew after the failure of worker-led factories. Within a few months of workers taking over factories, they had to shut production because they could not operate their plants and compete. Marx argued for more scientific socialism, ultimately publishing the Communist Manifesto in 1848 and Das Kapital in 1867.

The failure of the Washington Consensus has sparked a similar debate about the state’s role in producing and allocating resources. The Covid-19 pandemic and the ensuing failure of the private sector to credibly address economic challenges has given a fillip to calls for a more structured, if not larger, role of the state.

Lalita Som explores this debate from the prism of case studies of eight countries, which include the BRICS economies (Brazil, Russia, India, China and South Africa), Indonesia, Singapore and Saudi Arabia. The book is divided into 11 chapters. Ms Som explains the “China Effect” and the post-2012 rethink of state capitalism once the frailties in the state enterprises of India and other countries were exposed in the first chapter. In the second chapter, she lays down a framework for evaluating state-owned enterprises’ (SOE) performance. Her focus remains state-owned banks and financial institutions, as she deems them the central pillars of state capitalism.

The sub-topics from the second chapter are mirrored across the case studies. Ms Som has carefully selected the most impactful sector and enterprise for each of the economy but does not deviate from the framework laid down in the second chapter. She starts by discussing the history of SOEs, veers towards the debate on regulation-versus-public-ownership, and then pivots to crony capitalism, the private agenda of public officials, misallocation of resources, and corporate governance. Ultimately, she discusses the conflicts that arise from ownership of enterprises and sets out her conclusions. The conclusions don’t differ much either, and once you have understood the basic framework of each country, they rarely offer any new takeaway. The part is more of a summary of Ms Som’s case study.

She repeats the exercise in earnest for all countries, with the last chapter dedicated to a larger conclusion in the global context. Although Ms Som does her best to present the reader with charts and tables to explain her arguments better, the repetitive nature of the work still makes it a dry read. Sometimes, in her effort to make the work more concise, she does not put things in context, and the debate is left hanging, without an examination of all sides of the argument. Take the case of India’s public sector banks (PSBs). It is true that PSBs have outperformed their peers when it comes to opening Jan Dhan accounts and providing services in rural areas, but she does not examine why were they unable to achieve this objective in the decades before the Jan Dhan scheme?

Ms Som sheds light on some significant discussions that are now part of the public discourse. She touches upon aspects of economic regulation and resource capture. Regulatory issues do not, however, find much space in

Ms Som’s discussion, except for their failure to address allocation concerns. The discussion on the state’s other responsibilities is also an essential one. Ms Som touches only lightly on these topics and does not go into detail on the issues and problems with these debates.

One central theme throughout the book is whether SOEs should be evaluated on profit-maximisation principles. Ms Som ventures to argue against such an approach but does not provide a cogent alternative. As an academic exercise, Ms Som’s work touches on all the right topics and provides a concise collection of case studies across major economies. But the partial nature of the analyses leaves the reader with more of the same questions than answers.