Milan Babić's book offers a refreshing analysis of the changes of neoliberal global capitalism and the role of states in this process during the last two decades. His core argument is that states have become important market actors by using the opportunities offered by globalization. Many states have built up sovereign wealth funds (SWF) that have become important global players. State owned enterprises or national development banks invest massively abroad, and thus become transnational. They do this out of economic motives, and can do so because they use the opportunities offered by neoliberal globalization, such as the deregulation of trade and investment, the legal protection of transnational investors, and access to globalized financial and equity markets. These opportunity structures create a transnational agency space, in which state capital and other economic actors “can move in a way that is relatively free from the shackles of the old, domestically oriented world economy” (35).
The focus on states as global market actors sheds a very different light on the debate on state capitalism that has been triggered by the rise of the BRICS (Brazil, Russia, India, China and South Africa) as challengers to the western dominated global economy. The BRICS’ economic model is often seen as the return of state intervention in the economy, and thus a shift away from global neoliberalism. Underlying this view is a dichotomous understanding of states and markets, where states act against markets, domestically to protect their industries, and internationally to foster competitiveness with non-market tools. What Babić instead argues and shows is that states seek to exploit the opportunities offered by globalization to foster their own economic interests. States become competing states who employ “transnational state capital in order to reap the benefits of a globalized economy” (16).
The rise of the transnationally competing state is a novel development, and denotes a far-reaching transformation of the state. It is distinct from historical forms of state capitalism. Here, Babić distinguishes the industrializing state of the late nineteenth and early twentieth centuries, and the protection state in the post-World-War-II period. In the former, states used tariffs, state ownership, and economic nationalism to foster industrial catch-up processes, and fiercely competed with each other over resources and territories. The protecting state emerged after the horrors of war and socio-economic crisis in the first half of the twentieth century, and sought to protect populations and domestic industries against the disastrous consequences of unbridled economic liberalism and competition. Arguably, one potentially important omission in this historical reconstruction of state transformations is that of the developmental state—the statist-nationalist response of industrializing countries especially but not only in East Asia to a western dominated world economy. The deployment of state-bureaucratic tools to foster international competitiveness seems an important precursor of the contemporary competing state, and can shed some light on why East Asia is one of the regions where competing states have emerged that do not build on natural resources.
The competing state however also differs from what was thought for a long time as the characteristic state form of globalization: the competition state. This state form was built on the assumption that states have few possibilities to shape globalization. Rather, they are forced to cut welfare entitlements, labor costs and taxes, and provide attractive conditions for foreign investors to survive in a globalized world. The competing state “is, in many respects, the dialectical answer to the competition state.” It emerges “when some states manage to turn the tables and themselves become active global market participants, instead of solely being pressured into the competition state straightjacket.” (37)
However, not all states can turn the tables this way. Babić empirically shows that while over 150 states have built up transnational investment connections, only very few are able “to actually compete with other economic actors for gains in the global economy” (41). Among them are such diverse economies as China, Norway, France, the United Arab Emirates, Canada, Qatar, or Singapore. What unites them is that their political elites seek to exploit the opportunities of globalization, and that they have accumulated vast resources that can be engaged globally. These can be of different origins. Resource revenues, especially from oil, loom large, but foreign reserve currencies or other commodity revenues can also be used. Competing states also pursue a variety of strategies. Babić distinguishes between two ideal types. The financial strategy aims at receiving good returns on investments. It manifests itself in broad and diverse ownership ties and limited stakes in the company. Controlling strategies instead aim at “captur[ing] important assets, technologies, or simply know-how from foreign firms” (44). Here states go for majority or fully owned firms.
Two chapters bring the different strategies to life. The financial strategy is introduced with two cases. Norway, banking on its legacies of statism and its discovery of oil in the 1960s, has emerged as a “competing state occupying an extraordinary position within global financial markets” (82). Its SWF is invested in eighty-five countries, albeit with a concentration on US stock markets, and the major motive is getting high returns. As such, it has no interest in acquiring controlling shares in enterprises. One curious aspect of the Norwegian state strategy is its continuing dependence on income from oil, while it simultaneously seeks to disinvest from carbon fuel. Singapore stands out as a competing state that is statist in its transnational outward investments, while highly liberal in its bid for attracting inward investment. As Singapore cannot rely on natural resources for funding its competing state, it offers offshore financial services, and recycles some of the income through state-owned investment vehicles.
More politically controversial are the controlling strategies pursued by countries such as China or Russia, or Germany and France. China is by far the largest and most powerful competing state, displaying a unique combination of “sheer size, geographical spread and diversity of investments” (57). Its controlling strategy has gradually evolved in sync with its catch-up industrial policies. Currently, and in line with its “Made in China” policy, it increasingly invests in lead firms at the cutting edge of technological development. Russia instead is a prime example of a geopolitical competing state. With a strategy forged under the Putin regime, it displays “strong ties between the Russian government, oligarchic elites and fossil fuel industry,” which “make it especially prone to direct political influence which is often used to target states . . . in its European vicinity” (66). Russia's competing state remains largely carbon-fueled, invested in the fossil fuel industry, and often aiming to lock in other countries on a similar path. This makes it a central and also very vulnerable actor in contemporary geopolitical crises and struggles over climate change. In France and Germany, the controlling competing state emerged from the legacies of former national champions, mostly in energy, transportation, and logistics. Both limit their investment to Europe.
What about the European Union itself? Babić sees in recent European initiatives, such as the “geopolitical Commission,” “digital sovereignty,” and “strategic autonomy” signs of a nascent European competing state. I wonder, however, whether the EU will ever muster the political will to engineer that transformation. After all, for most of its existence, the EU was anxious to become an overachieving competition state, as it were. With such legacies, the EU finds itself in a tough space. Confronted with a geopolitical competing state in its direct neighborhood, and being a prime target for investments from controlling competing states, most prominently China, it has already started to experience a political backlash. Rather than providing an impetus for shoring up a competing state, this might trigger the EU's transformation towards multiple—far right—protectionist states.
One of the core claims of the book is that the competing state is a highly unequal form. Only few states have the resources to develop comprehensive competing state strategies, which gives these states also the economic power to influence and disrupt international politics. At the same time, the competing state is increasingly contested. Above all, controlling states face growing headwinds, as host countries start to push back against their economies being taken over by what is increasingly seen hostile foreign states. These two aspects—inequality and contestation—make for an increasingly explosive mix, which plays out in the big problems of our time: geopolitics—and, I should add the increasingly loud drums of war—and climate change. Two crucial questions to ask are whether the (or even a) global economic order can survive current geo-economic struggles, and whether, with so many powerful competing states being wedded to fossil fuel, decarbonization can be achieved. Clearly, Babić cannot provide answers to these questions. However, in a thought-provoking tour de force, he takes us through the implication his framework has for thinking about them.
Taken together, this is a truly fascinating book, and it belongs to the type of books we would want to see more often. It is conceptually innovative. One of its strengths is that it draws on an eclectic body of scholarship, rather than being wedded to any particular school in international political economy (IPE). This makes for a fresh and inspiring read. It is built on innovative operationalization and measurement of developments in the global economy and exploits a wealth of comprehensive data. Here it clearly pays off that Babić has been member of the Amsterdam based CORPNET research group, from where some of the theoretically most interesting empirically grounded work in IPE has come in recent years. Last, but not least, the book does not shy away from asking the big questions of our times and providing a framework for how to think about them.
