Charting New Frontiers: A Contemporary Perspective on State Ownership

ABSTRACT Research Question/Issue Why have state owned enterprises (SOEs) and sovereign wealth funds (SWFs) grown so dramatically in the 21st century, despite the well‐known drawbacks of state ownership? How do countries choose between the two forms of state intervention? We survey theoretical and empirical literature and consider recent geo‐political phenomena to explore these issues. Research Findings/Insights Recent phenomena of deglobalization, a technological arms race, political and economic shocks, and rising energy prices can rationalize state capitalism's resurgence and also explain why SWFs have grown faster than SOEs. Theoretical/Academic Implications Four theories related to state ownership are examined to show that each applies differentially to SOEs and SWFs. A branch of agency theory, the agency costs of free cash flow, is extended into the domain of state ownership to explain SWFs' concentration in countries with significant SOE activity. Practitioner/Policy Implications Governance and institutional safeguards determine whether state capitalism builds or squanders citizens' value. Policymakers can use SOEs and SWFs to remedy different market imperfections. SWFs offer a lucrative outlet to redeploy revenues outside an opportunity‐limited SOE. SWFs also offer more discreet exposure to foreign markets.