Foreign States in Domestic Markets

Political economy debates have focused on the internationalization of private capital. But foreign states increasingly enter domestic markets as financial investors. How do policy makers in recipient countries react? Do they treat purchases as a threat and impose restrictions or see them as beneficial and welcome them? What are the wider implications for debates about state capacities to govern domestic economies in the face of internationalization of financial markets? In response, the book develops the concept of ‘internationalized statism’—governments welcoming and using foreign state investments to govern their domestic economies—and applies it to the most prominent overseas state investors: Sovereign Wealth Funds (SWFs). Many SWFs are from Asia and the Middle East and their number and size have greatly expanded, reaching $9 trillion by 2020. The book examines policies towards non-Western SWFs buying company shares in four countries: the US, the UK, France, and Germany. Although the US has imposed significant legal restrictions, the others have pursued internationalized statism in ways that are surprising given both popular and political economy classifications. The book argues that the policy patterns found are related to domestic politics, notably the preferences and capacities of the political executive and legislature, rather than solely economic needs or national security risks. The phenomenon of internationalized statism underlines that overseas state investment provides policy makers in recipient states with new allies and resources. The study of SWFs shows how and why internationalization and liberalization of financial markets offer national policy makers opportunities to govern their domestic economies.

Introduction

This introductory chapter offers an overview of the book. It identifies the growing size and importance of overseas state investors and how they challenge current political economy analyses of the state. The phenomenon is well illustrated by Sovereign Wealth Funds (SWFs): state-owned investment bodies, often from Asia and the Middle East, that have bought shares in major firms in strategic sectors ranging from finance to communications and transport, as well as landmark buildings. The chapter presents the puzzle of the widespread acceptance of SWF investments: national responses to SWF purchases might have been expected to be hostile, especially as they represent entry into Western stock markets by non-Western overseas states. Yet many Western governments have accepted and often actively encouraged SWF investments, seeing them as an additional means to govern their domestic economies and pursue their political strategies. The chapter then situates this puzzle in the wider political economy literature on the role and power of the state in an increasingly internationalized economy. It argues that recent political economy works focus on the internationalization of private capital, ignoring the capacity of the state itself to become a cross-border economic actor. It summarizes the book’s findings that several Western governments have engaged in internationalized statism, underlining that the patterns of policy differ sharply from those that might be expected given popular and academic views of economic openness.

Healthcare Financing in Low and Middle-Income Countries and Achieving Universal Health Coverage

Using a comparative healthcare system approach, this paper discusses the existing healthcare financing methods in low-and middle-income countries in the move towards achieving universal health coverage (UHC). The article finds that traditional channels of financing the health sector in these countries include government’s budget, donors’ aid, national health insurance, and out-of-pocket model. Moreover, the paper explores other alternative mechanisms for raising resources for the health sector including tax on demerit goods, remittances, and sovereign wealth funds’ revenues. This paper is of particular interest to policymakers in low-and middle-income countries targeting to achieve UHC.

Foreign States in Domestic Markets

Comparison of the four countries shows that internationalized statism has developed in the UK, France, and Germany in ways that appear surprising given both popular and academic writings, although there are important cross-national differences in its forms. The US has seen the lowest level of internationalized statism, whereas the UK has pursued extensive and undirected internationalized statism. France and Germany occupy intermediate and more directed forms of internationalized statism. The findings cannot be fully explained by the Sovereign Wealth Funds’ (SWFs’) countries of origin and their choice of investments and also run counter to several expectations about the role of the state and general economic openness. Instead, the chapter offers a political and statist analysis of the growth of internationalized statism by looking within the state, notably at its structure, and the political strategies of policy makers. It also develops wider implications for political economy debates. The findings add to new statist arguments that the state is an active participant in internationalized and liberalized financial markets. Policy makers can use overseas state investors to pursue their domestic political strategies and adapt traditional forms of ‘industrial policies’. Internationalized statism shows that states can use developments in financial markets to find new resources and allies from overseas states to govern their domestic economies. By bringing in the state as an international investor, it shows how liberalization and internationalization can offer novel opportunities for states.

Directed Internationalized Statism in Germany

Germany has been seen as relatively closed to overseas equity purchases because of its corporate governance system based on insiders. Yet, after an initial period of debate, it has followed policies of directed internationalized statism towards Sovereign Wealth Funds (SWFs). A powerful coalition of the federal finance and economics ministries, together with representatives of firms, has argued that openness to SWF investment offers export orders and patient capital, in contrast to short-term private investors. The coalition has followed policies of welcoming and seeking SWF investment in industrial firms, large and small. Although a new legislative framework for non-European share purchases has been established, its powers have never been used against SWFs. The German case shows how economic and finance ministries, and representatives of companies, are able to use SWFs to reinforce key elements of the German model of capitalism such as patient capital and export-led growth.

Sovereign Wealth Funds and International Regulation

This chapter discusses the rise of Sovereign Wealth Funds (SWFs) as an example of the wider phenomenon of overseas state investment. It sets out the striking expansion in the number and financial size of SWFs, most of which are located in the Middle East and Asia, and then summarizes the lively debates about whether SWF investments are a threat to the West and how they should be regulated at the international level. It then considers the international legal and normative framework that has been created to regulate SWFs, as well as the key relevant elements of the EU’s policies and legal regulation. It concludes that there is little evidence that a binding international regulatory framework that strongly constrains the choices of recipient countries through law or norms has been established. Thus, much scope for national choices about policies towards SWF equity investments remains.

French Strategies of Directed Internationalized Statism

France has a popular and academic reputation as a state-influenced economy that is suspicious of foreign private investors, especially in strategic sectors and ‘national firms’. Yet this chapter shows that it has followed a strategy of directed internationalized statism, focused on attracting selected Sovereign Wealth Funds (SWFs) to specific ‘national champion’ firms and sectors. The political executive has welcomed SWFs, despite some parliamentary concerns over national security and a rhetoric of ‘economic patriotism’ that arose when private American firms sought to take over French ones. Although additional legislative powers for overseas investments have been created, they have not been used against SWFs. Instead, policy makers have used SWF investments to support domestic firms, notably by providing new sources of patient capital, supportive share owners, and export orders. The French case shows how policy makers can use overseas state investors as part of strategies to adapt longstanding policies of state-led industrial policies to liberalized and internationalized markets.

The UK Wimbledon Strategy

Although also labelled a ‘liberal’ market economy, the UK has strongly pursued internationalized statism in stark contrast to the US. It has followed a ‘Wimbledon’ strategy of seeking to attract Sovereign Wealth Funds (SWFs) from all over the world even if they take large stakes in prominent British firms. Both formal and informal instruments have been actively used to welcome SWFs, who have taken significant stakes in leading British firms in strategic sectors and bought nationally symbolic buildings and brands. The UK has followed strong internationalized statism thanks to the dominance of the political executive in policy making that has allowed it to frame SWF investments in terms of economic governance rather than national security and the weakness of the legislature in raising concerns. Despite domestic privatizations, it has welcomed overseas state capital that has reinforced existing strategies of aiding privileged sectors such as finance.

Internationalized Statism

This chapter sets out the analytical framework of ‘internationalized statism’ developed and applied in the book. Although the West is said to be living in an age of internationalized ‘economic (neo-)liberalism’, where capital flows have been liberalized, a ‘new statist’ literature argues that the role of the state has not declined as it adapts and finds novel instruments and forms of action to govern economies. Building on new statist studies, the chapter introduces the concept of ‘internationalized statism’: policies to use foreign states to govern domestic economies. It develops the concept, notably by distinguishing between the extent and form of internationalized statism. It underlines that whilst most political economy studies have focused on private international capital flows, states themselves can use liberalization of financial markets to cross borders, offering new opportunities for policy makers in recipient states to find allies and resources for economic governance Policies towards equity investments bynon-Western Sovereign Wealth Funds (SWFs) offer an empirically and theoretically important example of internationalized statism: SWFs are large and growing; most SWFs are in non-democratic countries; equity purchases offer the potential for overseas influence or control over companies. The chapter then sets out the book’s research design: four country case studies are chosen because of variations in different relevant explanatory factors. It concludes that the concept of internationalized statism contributes to understanding how national policy makers use state economic internationalization to govern their domestic economies.