State ownership of enterprises occupies an uneasy place in the history of capitalism. State-owned enterprises (SOEs) are commonly portrayed not as part of capitalism’s normal evolution but as temporary departures from it. In this line of reasoning, capitalism advances through private enterprise, while governments enter production only when markets falter or politics intrudes. State ownership, especially through nationalization, appears in the historical record mostly as a response to extraordinary moments such as war, economic crisis, or ideological upheaval rather than as a durable feature of capitalist development. Public enterprise becomes a temporary expedient, called upon to stabilize markets, rescue failing industries, or redistribute economic resources, before giving way once again to private ownership. The result is a historical narrative in which state ownership appears episodic and reactive rather than as a recurring organizational form through which capitalism itself has evolved.
Some of the most influential narratives in the history of capitalism and in economics have reinforced this episodic interpretation of state ownership. On the one hand, business historians in the United States have often treated public enterprise as peripheral to the broader history of capitalism.Footnote 1 On the other hand, economists have emphasized the political and managerial pathologies associated with state ownership, thus justifying its demise through privatization. That is, for economics, public enterprises are portrayed as vulnerable to rent seeking by politicians and interest groups, constrained by multiple and often conflicting objectives, and governed by weak incentive structures that dilute managerial accountability. Decision-making is understood to respond to electoral cycles, distributive pressures, or bureaucratic bargaining rather than market signals. From this perspective, state ownership embodies the classic failures associated with the “grabbing hand”—soft budget constraints, weak managerial discipline, and political interference—making public enterprise an inherently inferior ownership form, justifiable only under narrowly defined conditions such as natural monopolies or acute market failures.Footnote 2
This episodic view of state ownership has been especially influential in accounts of postwar Western Europe, Latin America, South and East Asia, and, more recently, Africa and the Caribbean, where state ownership is frequently portrayed as a “failed experiment” that expanded well beyond any defensible economic rationale. Histories of nationalization often point to governments operating bicycle factories, food-processing plants, hotels, automobile manufacturers, and other commercial enterprises as evidence that public ownership exceeded its legitimate scope.Footnote 3 The disappointing performance of many SOEs during the fiscal crises of the 1980s and 1990s then became emblematic of state ownership more generally, reinforcing the conclusion that public enterprise represented a historical aberration whose political and managerial shortcomings ultimately justified privatization and market liberalization.Footnote 4
Yet this interpretation itself emerged within a particular historical moment. Much of the modern literature on state ownership was written in the aftermath of the oil shocks and the Volcker disinflation, when fiscal crises and privatization reshaped governments’ role in the economy. Under these conditions, it was understandable that scholars viewed state ownership primarily through the lens of fiscal distress, political inefficiency, and privatization. While this literature captured important features of that period, it also encouraged a reading of state ownership as a temporary deviation from capitalism rather than as a recurring ownership arrangement that governments repeatedly adopted to address structural coordination problems.
Over the past two decades, however, business historians have increasingly challenged this interpretation, showing that state ownership has been far more persistent than previously assumed and that governments repeatedly relied on public enterprise not simply in moments of crisis, but whenever private markets proved unable to coordinate investment, infrastructure, or industrial development.Footnote 5 Additionally, the reactive view of state ownership tends to ignore a systematic consideration of contexts in which private markets failed not temporarily, but structurally—where weak capital markets, missing intermediaries, or fragmented supply chains created voids that SOEs were designed to fill.Footnote 6
Taken together, these revisionist accounts point toward a broader organizational logic. Across capitalist economies, governments repeatedly adopted alternative ownership arrangements when private markets were unable to coordinate economic activity efficiently. This organizational logic has been conceptualized in several complementary literatures. In strategy and international business, this insight has been captured by the concept of institutional voids, which explains how organizational forms emerge to compensate for shallow capital markets, missing intermediaries, limited talent markets, incomplete contracting institutions, and other deficiencies in market-supporting institutions. This organizational logic underlies much of the literature on diversified family groups (business groups), whose internal capital and labor markets have been interpreted as efficient responses to such institutional voids.Footnote 7
A similar insight appears in comparative political economy. The Varieties of Capitalism literature argues that capitalist economies rely on different institutional arrangements to coordinate production rather than converging toward a single organizational model based solely on market interactions among private parties. Recent comparative political economy work has included state ownership as a defining feature of different varieties of capitalism.Footnote 8
These concepts also resonate with a much older tradition in business and economic history. Long before strategy, international business, and comparative political economy developed the language of institutional voids or varieties of capitalism, historians had examined the same underlying mechanisms under different names.Footnote 9 Gerschenkron’s substitute institutions, Cameron’s financial intermediaries, Amsden’s developmental state, and the historical literature on natural monopolies, coordination failures, and late industrialization all examined how capitalist economies created alternative ownership and organizational arrangements when private markets alone could not sustain industrialization.Footnote 10 From this perspective, institutional voids do not introduce an entirely new explanation; they provide a common vocabulary that helps synthesize a large historical literature. This article argues that SOEs should be understood within that broader tradition—not as exceptional departures from capitalism, but as one recurring ownership arrangement through which capitalist economies addressed persistent coordination and institutional failures.
The United States constitutes an important exception that reinforces rather than weakens the argument advanced here. As Toninelli observes, by the late nineteenth century, two broad patterns of capitalist development had emerged. Continental European countries increasingly relied on the entrepreneurial state, using public ownership to coordinate investment in network industries and strategic sectors. By contrast, the United States developed what Toninelli characterizes as the regulatory state, relying more heavily on independent regulatory agencies and large private corporations to perform many of the coordination functions that elsewhere were undertaken by SOEs. The American experience should therefore be understood not as the universal trajectory of capitalism, but as one institutional configuration among several.Footnote 11
Additionally, this article does not seek to portray state ownership as a superior alternative to private ownership, nor to advance normative claims about how different ownership forms should perform in theory. Such arguments tend to lose analytical traction when examined in the longue durée, as empirical findings comparing the performance of firms under different ownership structures are highly contingent on historical context. The extensive privatization literature of the 1990s and early 2000s, for example, produced a large body of evidence suggesting superior performance by private firms relative to wholly SOEs.Footnote 12 More recent studies, however, find substantially smaller—and often negligible—average performance differences once comparisons account for differences in ownership structures and institutional contexts.Footnote 13
This reinterpretation also helps explain both the persistence and evolution of state ownership since the twentieth century. SOEs were often among the first large modern enterprises in their respective economies, playing a central role in building infrastructure, supplying strategic inputs, and developing managerial and technical capabilities. As many of these firms expanded, they accumulated organizational capabilities, economies of scale and scope, and technical expertise that enabled them not only to survive successive privatization waves but, in many cases, to compete and internationalize during the late twentieth and early twenty-first centuries. The continued prominence of SOEs in sectors such as electricity, oil and gas, mining, and infrastructure today is therefore not simply a historical legacy, but the outcome of a long process of organizational capability building that began much earlier in capitalist development.Footnote 14
This reinterpretation also helps explain the remarkable resilience of state ownership. Rather than disappearing once the crises or institutional failures that gave rise to them subsided, many SOEs proved far more durable than the episodic view would predict. Organizations created to address institutional voids often evolved into large, complex enterprises whose accumulated capabilities, economies of scale and scope, and strategic importance enabled them to survive successive waves of privatization and, in many cases, to compete and internationalize.Footnote 15 The continued prominence of SOEs in sectors such as electricity, mining, oil and gas, and infrastructure therefore reflects not only the persistence of coordination problems but also the institutional durability of the organizational solutions that governments created to address them.
The organizational consequences of this reinterpretation constitute the article’s second contribution: a narrative that portrays SOEs as Chandlerian vehicles for the development of the early managerial class. Classic accounts of managerial capitalism, most notably Chandler’s, have emphasized the rise of salaried managers within large private corporations in early industrializers, where scale, complexity, and throughput overwhelmed owner-entrepreneurial control. Yet outside the United States, including most of Western Europe, the organizational conditions for such a managerial revolution were often created first within SOEs.Footnote 16 In capital-intensive sectors such as electricity, transport, oil and gas, mining, steel, and telecommunications, SOEs were frequently the largest and most complex organizations in their economies, requiring formal hierarchies, standardized procedures, internal labor markets, and professional management long before comparable private firms emerged. In this sense, public enterprise did not stand outside the Chandlerian transformation of capitalism but constituted one of its principal institutional carriers in late-developing and mixed economies. By underscoring SOEs as sites of managerial formation and technical learning, this article extends the history of managerial capitalism beyond its traditional private-sector focus and highlights the role of state ownership in building the organizational and human capital foundations of modern capitalism.
This article has two additional sections and a conclusion. The following section develops a historical reappraisal of state ownership across capitalist economies, organizing its evolution into four analytically distinct stages and showing how governments repeatedly relied on public enterprise to overcome persistent coordination failures and eventually to develop capabilities that provided durable resilience. The third section examines the organizational consequences of this process, arguing that many of these enterprises evolved into Chandlerian organizations that fostered managerial hierarchies, technical capabilities, and professional management long before comparable private firms emerged in many late-industrializing economies. The conclusion draws together these arguments to reassess the place of state ownership in the evolution of capitalism.
The Organizational Evolution of State Ownership
Recent business history has reinterpreted state ownership as a recurring response to the coordination problems of capitalist development rather than as a temporary departure from private enterprise. Across regions and periods, governments turned to ownership when fragmented markets could not organize network infrastructure, mobilize capital at sufficient scale, secure strategic inputs, or coordinate complementary investments across sectors. The precise form of intervention varied with historical conditions, but the underlying logic was consistent: state ownership provided an organizational means of internalizing interdependencies that private firms and arm’s-length contracts could not readily manage.
This section organizes that history into four stages. The stages are analytically distinct, but they also build upon one another. Early experience operating network industries created administrative and technical capabilities that enabled governments to act more assertively as industrial entrepreneurs during war and economic crisis. Those interventions, in turn, provided the institutional foundations for the large developmental portfolios of the postwar era. Their rapid expansion eventually generated a mismatch between organizational scale and supervisory capacity, contributing to the fiscal and governance crises of the 1980s and 1990s. Yet the resulting privatization wave reconfigured state ownership more often than it eliminated it, producing the hybrid and corporatized enterprises that remain central to contemporary capitalism.
Stage 1. The State as Owner of Last Resort (c. 1815–1914)
A central claim of the historical literature is that the earliest expansion of state ownership in capitalist economies was driven less by ideology than by the organizational demands of constructing and governing large technical systems. Private firms were often capable of building and operating individual railways, ports, or utilities. The more difficult problem was coordinating these enterprises as integrated networks. Large technical systems required common standards, compatible investment plans, unified tariff structures, and long planning horizons, yet fragmented private owners had neither the incentives nor the authority to internalize all of these system-wide complementarities.
Millward’s comparative work on Western Europe shows that governments initially attempted to address these problems without assuming direct ownership. They relied on concessions, subsidies, guarantees, municipal franchises, and regulatory controls to induce private investment and reconcile commercial incentives with broader objectives of integration and territorial coverage. Over time, however, governments discovered that contractual governance could not always produce coordinated investment, stable pricing, or service in less profitable regions. Public ownership therefore tended to emerge gradually and selectively, following extended experimentation with alternative arrangements rather than from a general rejection of private enterprise.
Electricity provides a particularly clear illustration. Early electrical systems were typically organized around local producers serving geographically limited markets. As these systems expanded, however, the economic benefits of interconnection depended on common technical standards, coordinated generating capacity, and synchronized investment in transmission. Fragmented provision made such integration difficult. Millward argues that the formation of regional and national systems advanced most decisively when governments intervened either through direct ownership or through state-controlled coordinating bodies capable of imposing common standards and sustaining long-term investment. Public enterprises and coordinating authorities such as Vattenfall in Sweden and the Central Electricity Board in Britain emerged from this effort to transform disconnected local utilities into integrated technical systems.Footnote 17
A similar organizational logic operated in railways and ports. These industries required large sunk investments and generated strong complementarities across routes, terminals, and regions. Competition among individual operators could produce duplicated infrastructure, incompatible gauges, unstable tariffs, and disconnected lines rather than a coherent national network. Moreover, private operators had weak incentives to extend service to peripheral regions or maintain excess capacity for strategic and developmental purposes.Footnote 18 As Toninelli, Comín, and Díaz Fuentes emphasize, the movement toward public ownership was therefore uneven and pragmatic. Governments often assumed control only after concessions, guarantees, and regulation failed to deliver integration, coverage, and financial stability, with a clear link between early public enterprise and the construction of national infrastructure and production systems.Footnote 19
Firm histories in other regions underline how this first stage was shaped by coordination failures and pragmatic governance, not a generalized program of state-led industrialization. In Chile, the creation of the Empresa de los Ferrocarriles del Estado in the late nineteenth century was meant to unify rail traffic across regional lines and stabilize rates, particularly for segments of the network that private operators found unprofitable. In Mexico, destructive competition among railway firms produced financial instability and fragmented routes, prompting the federal government to consolidate control through Ferrocarriles Nacionales de México beginning in 1907. Guajardo Soto treats these cases as emblematic of an early Latin American pathway in which public enterprise arose as a response to systemic coordination problems—often through consolidation and reorganization—rather than as a comprehensive attempt to displace private enterprise.Footnote 20
By the beginning of the twentieth century, this organizational repertoire was also being extended to industries valued not only for their network characteristics but for their strategic importance. Millward highlights how ownership or state participation became attractive when industries combined macroeconomic importance with security implications—oil, coal, shipping, and later electricity—because these sectors influenced trade balances, fiscal capacity, and wartime readiness.Footnote 21 A canonical example is the British government’s acquisition of a controlling stake in the Anglo-Persian Oil Company in 1914. The move was not framed as a repudiation of private enterprise but as a strategic intervention to secure naval fuel supplies and reduce vulnerability to foreign disruption, and it anchored a durable state role in an industry that would become central to twentieth-century geopolitics. In the stage logic of Toninelli’s framework, such cases matter because they illustrate how early ownership practices expanded beyond municipal utilities and transport into strategic sectors even before the post-1945 surge of nationalizations.
Taken together, this first stage reveals an organizational pattern that would recur throughout the history of state ownership. Millward and Toninelli converge on an interpretation of this early stage of state ownership as selective, incremental, and narrowly targeted. Governments moved toward ownership after extended experimentation with concessions, guarantees, and regulation revealed persistent coordination failures, and their objectives were typically framed in terms of integration, standardization, and service coverage rather than industrial transformation. This early experience also built administrative and managerial capabilities within the state—knowledge of operating capital-intensive systems, coordinating investment cycles, and managing politically salient pricing decisions—that later made more ambitious public-enterprise strategies feasible. In this sense, the first stage of state ownership was less an aberration than a foundation: it created the institutional and organizational repertoire through which governments would later act more explicitly as entrepreneurs.
Stage 2. The State as Entrepreneur and Strategist (c. 1914–1945)
The period spanning the First World War, the interwar years, and the Second World War marked a decisive transformation in the character of state ownership. Whereas earlier public enterprises were largely confined to network coordination in infrastructure and utilities, this second stage saw governments increasingly deploy ownership to secure strategic industries, reorganize industrial sectors, and absorb risks that private investors were increasingly unwilling or unable to bear. War and economic instability expanded this residual role. Governments increasingly became investors and risk bearers of last resort, creating, financing, and reorganizing enterprises when private capital could not or would not sustain production under conditions of exceptional uncertainty. Ownership consequently evolved from a mechanism for maintaining infrastructure into an instrument of strategic control, industrial restructuring, and productive expansion.
War altered both the risks associated with investment and the costs of relying on fragmented private provision. Supply interruptions, military demand, foreign dependence, and uncertainty over future prices made long-term investment less attractive to private capital precisely when governments required rapid expansion of output. In sectors such as electricity, railways, shipping, coal, oil, and steel, the state therefore assumed risks that private investors were unwilling to bear and direct investment according to strategic rather than narrowly commercial priorities.
This was more than an acceleration of the nineteenth-century pattern. Governments no longer intervened solely to rescue failing firms or preserve existing services. States became both entrepreneurs and strategists, establishing new enterprises, consolidating fragmented producers, financing capacity expansion, and redirecting production toward national objectives. As Henry de Jong emphasizes, it is during this period that the idea of the state as an entrepreneur—actively creating, reorganizing, and expanding firms—gained both practical relevance and political legitimacy.Footnote 22 War mobilization, supply insecurity, and repeated financial crises exposed the limits of private investment in capital-intensive industries and expanded the set of sectors in which direct state involvement appeared necessary.
Millward shows that wartime transformed the rationale for ownership. Electricity, railways, shipping, and coal were no longer viewed simply as network industries requiring coordination, but as strategic assets essential for military preparedness, fiscal stability, and economic resilience. Governments therefore assumed ownership not because private firms disappeared, but because fragmented private capital could not reliably mobilize investment under conditions of war and uncertainty.Footnote 23
Toninelli situates these interventions within a stage-based interpretation in which the interwar period represents a transition from ownership as coordination to ownership as strategic intervention.Footnote 24 In his view, nationalization during this phase increasingly reflected an intentional effort to reorganize industrial sectors rather than merely to regulate them. Ownership became a mechanism for consolidating firms, rationalizing capacity, and redirecting investment toward activities deemed essential for national development or security. While the scope and intensity of intervention varied across countries, the underlying logic was shared: public ownership offered a means of exerting control where markets proved unable to deliver stability or scale. The crucial shift was that ownership ceased to be merely a coordinating mechanism and became an instrument of industrial policy.
During the interwar period, Latin American governments increasingly utilized state ownership to secure control over strategic natural resources and manage economic instability. Major economies in the region illustrated this logic through the creation of vertically integrated “national champions.” Argentina pioneered this model with YPF in 1922 to counter foreign dominance in oil, establishing a precedent for state-led energy security. Mexico followed in 1938 by nationalizing its oil industry to form PEMEX, a move driven by both resource nationalism and the pragmatic need to sustain fiscal revenues amidst capital flight. Similarly, Brazil established firms like The National Steel Company (CSN) and the iron ore mining giant Vale. These enterprises allowed governments to coordinate complex logistics, capture resource rents, and guarantee supply chains, functioning as essential pillars for industrialization rather than vehicles for generalized state control.Footnote 25
By the end of the Second World War, governments had accumulated far more than experience operating individual enterprises. They had developed ministries, engineering staff, financing mechanisms, managerial expertise, and organizational routines capable of creating, restructuring, and coordinating firms across entire industries. This institutional learning explains why the postwar expansion of state ownership proceeded so rapidly. The second stage therefore marks a pivotal transition: governments moved beyond coordinating infrastructure and acquired the organizational capabilities needed to construct the large developmental portfolios that characterized the postwar era.
Stage 3. The State as Ecosystem Builder (c. 1945–1970s)
The decades following the Second World War marked the high point of state ownership and the most ambitious attempt to use public enterprise as an instrument of economic development. Unlike earlier stages, governments no longer relied on individual enterprises to solve discrete coordination failures or secure strategic sectors. Instead, they assembled portfolios of complementary SOEs spanning energy, mining, transport, steel, food, telecommunications, finance, and manufacturing. As such, the value of these portfolios of complementary SOEs derived not only from the performance of individual firms but from the complementarities among them. These enterprises functioned not simply as producers but as builders of industrial ecosystems, coordinating the intermediate inputs, infrastructure, and complementary investments upon which downstream private industry depended.
As Toninelli emphasizes, the distinguishing feature of this stage was not simply the expansion of state ownership but its explicit developmental purpose. Governments increasingly viewed ownership as a means of coordinating complementary investments across sectors, exploiting economies of scale and scope, and accelerating industrial transformation in ways that fragmented private firms could not easily replicate, particularly in capital-intensive sectors requiring high throughput and long planning horizons.Footnote 26
In Western Europe, postwar reconstruction and growth strategies rested heavily on the consolidation of industries where scale was essential for productivity and cost reduction. De Jong stresses that governments viewed public ownership as a means of coordinating investment in industries characterized by large economies of scale, such as energy, steel, and transport, where duplication of capacity and fragmented investment had previously limited efficiency. In Italy, the creation and expansion of ENI and ENEL exemplify this logic. ENI was designed as a vertically integrated oil and gas company capable of coordinating exploration, production, and downstream investment at scale, while ENEL, created in 1962 through the nationalization of electricity generation and distribution, unified a previously fragmented system into a single national operator. This consolidation enabled the rationalization of capacity, the standardization of pricing, and the exploitation of scale economies in generation and transmission. As Carnevali and Tolliday show, these enterprises combined developmental ambition with managerial and technical sophistication, operating as high-throughput organizations rather than as residual public utilities.Footnote 27
The developmental logic of state ownership was even more explicit in late-industrializing economies, where governments sought to construct entire industrial ecosystems rather than strengthen individual sectors. In Brazil, state ownership extended well beyond the creation of isolated national champions. Instead, successive governments assembled a portfolio of complementary enterprises spanning steel (Companhia Siderúrgica Nacional), mining (Companhia Vale do Rio Doce), oil (Petrobras), electricity generation and transmission, petrochemicals, telecommunications, and capital goods manufacturing. These enterprises were designed to address interdependent bottlenecks simultaneously. Domestic steel production required reliable supplies of iron ore, electricity, transport infrastructure, and engineering capabilities; petrochemical production depended on coordinated investments in extraction, refining, and pipelines; industrial expansion more broadly required complementary investments in telecommunications, ports, and logistics. By organizing these sectors through ownership, the Brazilian state sought to coordinate investments that private firms could neither finance nor synchronize on their own, thereby creating the upstream conditions for downstream private industrialization. Once the intermediate goods infrastructure and network were there, the private sector developed automobiles and a variety of specialized capital goods industries.Footnote 28
South Korea illustrates that developmental portfolios did not require complete state ownership of manufacturing. Rather, they required state control over the strategic upstream sectors upon which private industrialization depended. As Alice Amsden emphasizes, Korea’s rapid industrialization unfolded under conditions of severe capital scarcity, weak technological capabilities, and limited private coordination. Rather than replacing private enterprise, however, the Korean state selectively owned and controlled the upstream sectors—particularly steel, electricity, and finance—that private conglomerates required to expand manufacturing.
State-owned Steel Company (POSCO) and Korea Electric Power Corporation (KEPCO) illustrate how developmental portfolios could be organized around complementary upstream enterprises. Steel production depended on reliable electricity, port infrastructure (also state-owned), transport networks (all state-owned and operated), and long-term financing from state-owned development banks, while industrial expansion required electricity generation to grow in tandem with manufacturing demand.Footnote 29 By retaining ownership and control over these strategic enterprises, the Korean government coordinated investments across sectors that private firms could not easily synchronize through market transactions alone. The result was not the substitution of public for private enterprise, but the creation of an industrial ecosystem in which private conglomerates could specialize in downstream manufacturing while relying on publicly coordinated provision of essential intermediate inputs.Footnote 30
By the late 1970s, developmental portfolios of this kind had spread across much of the world, producing the largest expansion of state ownership in modern economic history. Drawing on cross-country data compiled by Musacchio and Lazzarini, one can calculate that SOE output averaged just over 7% of GDP in developed mixed economies and nearly 12% in nonsocialist developing countries between 1978 and 1985, with considerably higher shares in countries that relied heavily on public enterprises in energy, mining, transport, and heavy industry. Within Western Europe, SOE output ranged from modest levels in the United States and Belgium to over 20% of GDP in countries such as Portugal and France (the two heaviest nationalizers in Western Europe), while Spain combined a relatively moderate GDP share with an exceptionally large portfolio of state-owned firms. In middle-income economies, SOE output often exceeded 10% of GDP and reached substantially higher levels in resource-rich or late-industrializing countries, including Mexico, South Africa, Venezuela, and Chile. The expansion was even more pronounced in low-income economies, where public enterprises frequently accounted for more than 15% of GDP and, in several African and Middle Eastern cases, well over 30%.
The scale of state ownership was qualitatively different in socialist and command economies. By the end of the 1980s, SOEs accounted for close to 90% of output across Central and Eastern Europe and the former Soviet Union, reflecting near-complete public ownership of industry, finance, and infrastructure. Importantly, the economic weight of SOEs in mixed economies was not driven primarily by employment but by capital intensity. By 1980, SOEs accounted for roughly 17% of total capital formation in non-socialist economies, reflecting their concentration in electricity, telecommunications, oil, steel, and transport. In countries such as the United Kingdom, Pakistan, and Turkey, SOE output shares substantially exceeded their employment shares, underscoring that the high-water mark of state ownership was fundamentally about control over large, capital-intensive systems rather than the socialization of labor markets.
These figures underscore that the expansion of state ownership was driven less by the nationalization of labor-intensive activities than by governments’ concentration in capital-intensive upstream sectors such as energy, transport, telecommunications, mining, and heavy industry. In other words, the rise of developmental portfolios reflected an effort to organize the commanding heights of industrial economies rather than to replace private enterprise across the board.
Across much of postcolonial Africa, the expansion of state ownership followed a distinct historical pathway. Rather than creating new enterprises from scratch, newly independent governments frequently inherited colonial utilities, transport companies, and extractive enterprises that they then transformed into state-owned corporations. Elsewhere, governments nationalized foreign-owned firms to gain control over strategic natural resources and to strengthen their bargaining position in international commodity markets. The South African case illustrates how SOEs were used to consolidate scale in intermediate inputs under conditions of capital scarcity, technological complexity, and geopolitical constraint. Firms such as Eskom in electricity and Iscor in steel were central to the country’s industrial strategy, supplying power and basic materials at a scale necessary to support mining, manufacturing, and infrastructure development. Public ownership facilitated long-term investment planning, the internalization of risk, and the coordination of capital-intensive projects in sectors where private provision was limited or politically constrained.Footnote 31
In many newly independent states in Africa, Asia, and the Caribbean, these enterprises also became among the first large national organizations under domestic control, serving simultaneously as instruments of industrial policy, fiscal capacity, and state building. After gaining independence from European powers, new nations inherited colonial companies that they transformed into SOEs and they also nationalized foreign companies to gain control of key sectors, especially primary resources.Footnote 32 Peak nationalizations and SOE creations happened between the late 1960s and the 1970s.Footnote 33 The prototypical example of colonial enterprises that were consolidated as SOEs after independence to gain economies of scale and market power is that of bauxite, which, according to Dani Rodrik, changed completely the bargaining power of governments vis-à-vis the multinational aluminum companies that purchased the raw material.Footnote 34
Postwar electrification across much of Africa followed a closely related logic to what happened in Europe and Latin America, though under far more severe constraints. As Hanaan Marwah shows in her work on electricity, the provision of electricity in African economies was shaped by acute coordination failures and strong scale economies across generation, transmission, and distribution, which made fragmented private provision infeasible. Large power plants required long planning horizons, high fixed costs, and creditworthy off-takers, pushing governments to organize electricity systems through vertically integrated, state-owned utilities. Yet the developmental use of scale in these systems was highly uneven. Electrification efforts were concentrated in urban centers, mining enclaves, and heavy industry, where demand was dense, politically salient, and often contractually secured through long-term supply agreements. Household access, particularly in rural areas, expanded slowly and largely as a by-product of urbanization rather than as a primary objective of state-owned utilities. In this sense, African electricity SOEs illustrate both the developmental rationale of state ownership—its capacity to coordinate large, capital-intensive systems—and its distributive limits, as scale economies were mobilized primarily in support of industrial production rather than universal service.Footnote 35
The expansion of these developmental portfolios around the world, however, also transformed the organizational problem confronting the state. As public enterprises multiplied across sectors, governments were no longer supervising a handful of strategic firms but managing large, interdependent portfolios with heterogeneous commercial, social, fiscal, and political objectives. The same complementarities that made these systems powerful instruments of industrialization also made their performance difficult to evaluate and their finances increasingly intertwined with those of the state. By the 1970s, slower growth, external shocks, rising borrowing costs, and mounting fiscal pressures exposed weaknesses in the governance and financing of many public-enterprise systems. The crisis that followed therefore did not simply mark the exhaustion of state ownership. It revealed a growing mismatch between the scale and complexity of developmental portfolios and the institutional mechanisms available to monitor, finance, and discipline them.
Stage 4. The Reinvention of State Ownership (c. late 1970s–2010s)
By the late 1970s, the expansive role assigned to SOEs began to collide with a markedly different macroeconomic and institutional environment. Governments had dramatically increased the number, size, and functional scope of SOEs in the preceding decades, expecting them to fulfill ambitious objectives that went well beyond production. Public enterprises were asked to stabilize employment countercyclically, sustain rapid growth through large capital expenditure programs, innovate in capital-intensive industries, and, particularly in former colonies, contribute to social inclusion and inequality reduction. Yet this expansion of mandates was not matched by corresponding improvements in corporate governance, financial oversight, or supervisory capacity. As a result, the performance problems that emerged in the 1980s and 1990s reflected not the intrinsic limits of public ownership, but a growing mismatch between organizational scale and institutional control.
The consequences of this governance mismatch were visible along several dimensions. As public-enterprise systems expanded beyond the supervisory capacity of governments, problems emerged not only at the firm level but also in the allocation of capital and the management of public finances. Four manifestations were particularly important: weakening innovative performance, growing fiscal exposure, distortions in credit allocation, and severe information asymmetries between enterprise managers and their public owners. Together, these problems undermined the developmental rationale of many SOE portfolios and fueled the perception that state ownership itself had failed.
One consequence of this mismatch was that many SOEs failed to deliver on the dynamic capabilities expected of them. Despite operating in sectors where scale and learning were critical, public enterprises were often no more innovative than their private counterparts and, in some cases, adapted more slowly to technological change. At the same time, their macroeconomic role diverged sharply from the countercyclical ideal. Rather than stabilizing public finances during downturns, SOEs became significant sources of fiscal pressure. In the context of the oil shocks, global recession, and rising interest rates of the late 1970s and 1980s, many enterprises required direct budgetary transfers, debt guarantees, or emergency recapitalizations. These interventions drained public resources, weakened fiscal discipline, and reduced incentives for internal efficiency at precisely the moment when governments faced tightening budget constraints.Footnote 36
SOEs also absorbed a disproportionate share of domestic credit, particularly in economies with underdeveloped financial markets. Preferential access to state-owned banks or implicit government guarantees allowed public enterprises to expand borrowing even as private investment was constrained, contributing to capital misallocation and crowding out. Weak supervision amplified these problems. Financial and operational information from SOEs was often incomplete, delayed, or politically filtered, creating severe information asymmetries between enterprise managers, finance ministries, and legislatures. These gaps generated recurrent fiscal surprises as contingent liabilities materialized unexpectedly. In addition, the scale and autonomy of large SOEs facilitated international expansion. Many enterprises became multinational firms with subsidiaries abroad, borrowing in foreign currency to finance expansion. When global interest rates rose sharply in the early 1980s, these external liabilities fed back into domestic balance-of-payments and debt crises, further destabilizing public finances.Footnote 37
It is in this stage that accounts emphasizing the excesses of state ownership typically draw their emblematic cases, highlighting public enterprises that operated far beyond sectors traditionally associated with natural monopoly, infrastructure, or strategic coordination. In Western Europe and Latin America, the literature often points to state involvement in automobiles, computers, consumer goods, food processing, tourism, and diversified manufacturing conglomerates as evidence that public ownership expanded into competitive markets where private firms already operated. Loss-making firms such as state-owned automobile producers, national computer champions, or diversified industrial groups sustained through repeated fiscal transfers became cautionary examples of politicized investment, weak exit mechanisms, and the persistence of state ownership beyond any clear economic rationale. Poor performance by these enterprises, especially during the fiscal crises of the 1980s and 1990s, was subsequently taken as representative of state ownership more broadly, reinforcing the episodic interpretation in which nationalization appeared as an overextension later corrected through privatization and market-oriented reforms.Footnote 38
The overextension of state ownership, the examples of excess, and the accumulation of fiscal pressures, governance failures, and information asymmetries during the 1980s created the political and economic conditions for large-scale privatization. Governments facing rising public debt, recurrent balance-of-payments crises, and pressure from international creditors increasingly viewed divestiture as a means of restoring fiscal control and reducing exposure to contingent liabilities. In many cases, privatization was less a verdict on the productive efficiency of SOEs than a response to urgent macroeconomic constraints and weak monitoring capacity. Selling assets allowed governments to generate one-off revenues, transfer investment obligations to private actors, and simplify fiscal accounts at a moment when traditional instruments of macroeconomic management were under strain. This logic helps explain why privatization advanced most rapidly in countries experiencing acute fiscal stress, rather than in those where SOEs were demonstrably least efficient.Footnote 39
The diffusion of privatization was accelerated by international financial institutions. Following the Latin American debt crisis and similar fiscal crises elsewhere, structural adjustment programs sponsored by the International Monetary Fund and the World Bank frequently encouraged—or in some cases required—the privatization of SOEs as part of broader stabilization and liberalization packages. Privatization thus became not merely a domestic policy choice but also an important component of the international policy consensus that emerged during the 1980s and early 1990s. Governments seeking debt restructuring, fiscal support, or new lending increasingly adopted privatization programs alongside trade liberalization, deregulation, and fiscal adjustment.
Yet this period should also be understood as the reinvention rather than the disappearance of state ownership. Privatization frequently targeted commercially oriented firms while governments retained ownership in network industries, strategic sectors, and natural resources. At the same time, many surviving SOEs underwent profound governance reforms, including corporatization, partial privatization, stock market listings, professional boards, and centralized ownership agencies. Rather than marking the end of state ownership, the reform era transformed the organizational forms through which governments participated in capitalist economies.
In Europe, East Asia, and Latin America alike, governments often retained regulatory authority, minority ownership stakes, or informal influence over formerly public firms, particularly in infrastructure, energy, and natural resources. Many divestitures targeted competitive or downstream activities, while upstream networks and strategic assets remained subject to state control. Moreover, the sequencing of privatization frequently reflected administrative capacity rather than sectoral logic, with firms that were easiest to sell divested first regardless of their strategic importance. As a result, the privatization wave of the late twentieth century reshaped the organizational boundaries of the state without eliminating its economic role. The historical record thus suggests that privatization was best understood as a pragmatic reconfiguration of state capitalism under conditions of fiscal and institutional stress, rather than as a definitive resolution of the long-standing tensions inherent in public enterprise.
Furthermore, a large body of literature, mostly in economics, publicized all sorts of empirical tests to show that the performance of SOEs relative to private enterprises was inferior, either by comparing firms before and after privatization or by trying to match SOEs with similar private firms at the time.Footnote 40 The experiment had failed and almost everything should be privatized. But the privatization experiment then ran into some issues. First, it was not a purely efficiency-enhancing correction to failed state ownership. Instead, as Massimo Florio argues, privatization was a historically contingent political and fiscal process, shaped by macroeconomic pressures, European integration, and changing doctrines of public finance, rather than by clear evidence of superior private-sector performance. In Florio’s account, privatization represents a reorganization of state involvement in the economy, not a simple retreat of the state.Footnote 41 Multiple surveys of state ownership then also confirmed that rather than a permanent retrenchment of the state, the 1980s–1990s privatizations were a temporary phenomenon.Footnote 42
Privatization did not eliminate state ownership so much as alter its organizational form. Disappointing outcomes in some privatized industries, particularly natural monopolies and infrastructure sectors, revealed the limits of replacing ownership with regulation where regulatory institutions remained weak.Footnote 43 At the same time, governments continued to regard energy, transport, finance, and natural resources as strategically important. Rather than returning wholesale to the public-enterprise model of the postwar era, many states experimented with new hybrid ownership arrangements that combined continued public control with stronger market and organizational discipline.
The most visible result was the rise of the hybrid SOE. Through partial privatization, stock-exchange listings, minority private investment, and strategic partnerships, governments retained significant influence while exposing enterprises to audited disclosure, external investors, commercial performance targets, and more professional boards. These mechanisms did not remove political objectives or guarantee efficiency, but they altered the governance environment in which public enterprises operated.Footnote 44 Hybrid SOEs increasingly competed internationally, raised capital in private markets, acquired foreign firms, and adopted managerial practices associated with large multinational corporations. Their emergence demonstrated that the alternatives were not limited to traditional state bureaucracy or complete privatization.Footnote 45
Reinvention also occurred on the owner’s side. Governments gradually recognized that effective state ownership required institutions capable of monitoring enterprises as a portfolio rather than supervising them through dispersed ministries. Many separated ownership responsibilities from regulation and policymaking, centralized oversight in specialized agencies or state holding companies, clarified financial and nonfinancial objectives, and introduced regular performance evaluation, audited financials, and more systematic capital-allocation procedures. Institutions such as SEPI in Spain, APE in France, Temasek in Singapore, Khazanah in Malaysia, FONAFE in Peru, and SEP in Chile reflected different versions of this broader movement toward the professionalization of state ownership.Footnote 46
These reforms did not resolve all of the tensions inherent in public enterprise. Political intervention, soft budget constraints, conflicting mandates, and uneven transparency remained persistent risks. Nevertheless, the combination of hybrid ownership and more capable supervisory institutions transformed state capitalism. Governments narrowed, reorganized, and professionalized their enterprise portfolios rather than abandoning them, helping to explain why SOEs reemerged not as remnants of an earlier developmental era but as large, internationally active, and durable organizations within contemporary capitalism. Today the largest engineering firms are state-owned, the largest banks, the largest steel mills, utilities, road builders and operators, etc.
State Ownership and Managerial Capitalism
Understanding SOEs as central organizational actors in labor markets, especially for managers, also requires revisiting the history of managerial capitalism beyond the early industrializers. In the classic Chandlerian account, the managerial revolution emerged in the United States when the scale and complexity of enterprise exceeded the coordinating capacity of owner-entrepreneurs, giving rise to salaried managers and hierarchical control.Footnote 47 He emphasized the importance of the providers of intermediate goods for the rise of managerial capitalism: “The railroad, telegraph, steamship, and cable made possible the modern mass production and distribution that were the hallmarks of the Second Industrial Revolution. . . These new high-volume technologies could not be effectively exploited unless the massive flows of materials were guided through the process of both production and distribution by teams of salaried managers.”Footnote 48 Even if much of the literature of managerial capitalism implicitly equated this revolution in management with private corporate enterprises, it was SOEs that were behind the rise of this managerial class in late developers.
That is, outside the United States, the same industries Chandler identified as key intermediaries and key final scale-intensive producers were often organized under state ownership. In much of Western Europe and the late-industrializing world, governments became owners of the largest firms—or monopolies—in oil and gas, mining, steel, chemicals (especially petrochemicals), electricity, railways, telecommunications, airlines, and heavy engineering. These sectors shared precisely the characteristics Chandler associated with the rise of managerial capitalism: capital intensity, technological complexity, and the need for coordinated control over production and input flows.
State ownership thus emerged not as an alternative to Chandlerian enterprise, but as one institutional route through which Chandlerian organizational forms were realized under different historical conditions.Footnote 49 Where private capitalism remained dominated by family firms—often small, opaque, and capital constrained—SOEs became the earliest organizations to operate at national scale, integrate complex production systems, and employ large cohorts of engineers and professional managers. In these contexts, the managerial revolution unfolded primarily within the public sector, even as it laid the foundations for subsequent private-sector development.
Evidence from Western Europe already complicates the sharp public–private divide implied by traditional narratives. Studies of public utilities, railways, and energy firms show that SOEs developed sophisticated managerial hierarchies, accounting systems, and internal labor markets well before many private firms in the same economies. In France, Italy, and Britain, public enterprises in electricity, transport, and heavy industry became sites of managerial experimentation, professional training, and technological standardization, often drawing on engineering elites recruited through meritocratic channels. These organizations resembled large private corporations in their internal structure, even as they operated under public ownership.
The role of SOEs in fostering managerial capitalism becomes even clearer in late-industrializing economies. In Latin America, large state-owned firms in oil, mining, steel, electricity, and transport were among the first organizations to require formalized management structures capable of coordinating thousands of employees and complex production processes. In Mexico, by 1980, there were 1,150 SOEs employing almost one million people.Footnote 50 Research on Brazil’s public enterprises shows that firms such as Petrobras, Vale (during its period of state control), and the federal electricity companies developed internal promotion systems, technical training programs, and bureaucratic routines that were largely absent in the private sector at the time.Footnote 51 These enterprises functioned as de facto managerial academies, producing cohorts of engineers and administrators who later circulated into private firms, regulatory agencies, and political office.
India presents a parallel case. While private business groups dominated much of manufacturing, SOEs—particularly Indian Railways, steel plants, and power utilities—were the primary employers of engineers and technical managers throughout much of the twentieth century. According to Aharoni, in India, CEO recruitment for SOEs was monitored by the Public Sector Employment Board, and its tasks included assisting ministers in recruiting 90,000 managers to supervise the two million employees of SOEs (in the 1980s).Footnote 52 Historical studies emphasize that Indian Railways alone constituted one of the largest managerial organizations in the world, with elaborate hierarchies, standardized procedures, and internal labor markets that dwarfed those of most private firms.Footnote 53 In this setting, the managerial revolution Chandler described occurred most visibly within the state sector, rather than through the displacement of family ownership by managerial capitalism in private enterprise.
China further underscores the importance of state ownership in shaping managerial hierarchies. Historical work on Chinese enterprise shows that early corporate forms remained embedded in kinship networks and state patronage, limiting the emergence of autonomous managerial authority in the private sector.Footnote 54 By contrast, SOEs—both before and after market reforms—developed large bureaucratic structures, formal career ladders, and technocratic management systems designed to coordinate production at scale. According to Christopher Marquis and Kunyuan Qiao, in China, the rise of managerial authority did not emerge from the separation of ownership and control or from professional managerialization, but from the transformation of Maoist cadre institutions into enterprise leadership roles.Footnote 55
This historical evidence suggests an important reinterpretation of the managerial revolution. Rather than being confined to privately owned corporations in early industrializers, managerial capitalism often emerged first within SOEs in economies where private firms lacked the scale, capital, or institutional support to sustain complex hierarchies. In these contexts, SOEs performed organizational functions analogous to those attributed to business groups in the emerging-markets literature—internalizing labor markets, training managers, and coordinating investment—but at a national rather than familial scale.
Recent work on the history of engineers underscores the importance of having large organizations demanding technical training for their employees and managers, and this demand was driven by SOEs in much of Western Europe, Latin America, Asia, and Africa in the post-WWII period. Bill Maloney and Valencia Caicedo show that engineers played a central role in technology adoption and structural transformation during periods of industrial takeoff, and that engineering density is strongly associated with long-run economic performance even after controlling for other forms of higher education.Footnote 56 Their analysis highlights that the accumulation of technical human capital depends not only on educational supply, but on the presence of large organizations capable of absorbing, deploying, and retaining engineers in production and infrastructure-intensive activities.
Just as an example, Musacchio and Lazzarini compiled the biographies of 800 CEOs of private and state-owned enterprises in Brazil between the 1960s and the 1990s. Most CEOs of state enterprises were trained in public universities, mostly in engineering and management. By the 1970s, half of them had graduate degrees, even if less than half had MBAs. Most of the undergraduate degrees (90%) were “technical” (defined as technical according to the field of study, e.g., a geologist for a mining firm, a petroleum engineer for an oil firm, etc.). Interestingly for the Brazilian case, a third of the managers were military managers, most with engineering backgrounds. These authors even document a performance advantage for SOEs that had CEOs trained in top universities or with military-technical backgrounds.Footnote 57
Conclusion
Reintegrating SOEs into the core narrative of business history reveals state ownership as a recurring and often indispensable feature of capitalist development. Across much of the world, SOEs were not marginal actors or temporary deviations from an otherwise privately organized economy, but among the largest, most capital-intensive, and most strategically significant enterprises of their time. They organized infrastructure, coordinated access to energy and raw materials, stabilized supply chains, and internalized risks that private markets were unable or unwilling to bear. Seen through this lens, state ownership appears less as an anomaly to be explained away and more as a historically grounded organizational response to the depth and persistence of institutional voids—particularly in late-industrializing economies where markets for capital, coordination, and intermediate inputs were structurally incomplete.
This article argued that SOEs should not be understood as episodic departures from capitalism, but as recurring organizational responses to the coordination problems that accompanied capitalist development. Across the nineteenth and twentieth centuries, governments repeatedly relied on public enterprise when private markets proved unable to coordinate the provision of infrastructure, strategic inputs, and industrial ecosystems. Seen in this way, state ownership emerges not as an interruption to capitalism, but as one of the organizational forms through which capitalism evolved.
More broadly, this reinterpretation suggests that the history of ownership should be understood less as a succession of competing ownership regimes than as an evolution of ownership forms responding to changing coordination problems. Throughout the nineteenth and twentieth centuries, capitalist economies repeatedly experimented with different ownership arrangements. Sometimes these took the form of private corporations, diversified business groups, cooperatives, and limited liability companies; in other settings, they took the form of SOEs. Rather than representing competing economic systems, these ownership forms frequently complemented one another in building infrastructure, coordinating investment, and enabling industrial development.
This perspective also broadens the history of managerial capitalism by showing how different ownership forms fostered the rise of professional management under different historical conditions. Chandler showed how large-scale enterprise created professional management within private corporations in the United States and other early industrializers. Yet much of Europe, Latin America, Asia, and Africa followed a different trajectory. There, many of the first organizations requiring complex managerial hierarchies, engineering expertise, and internal labor markets were SOEs operating in electricity, transport, mining, steel, oil, and telecommunications. Recognizing these firms as Chandlerian organizations extends the geography of managerial capitalism while demonstrating that state ownership, no less than private ownership, could provide the organizational foundations for the emergence of modern managerial enterprise.
In this sense, the history of capitalism is not simply the history of markets replacing states or states replacing markets. Rather, it is the history of societies repeatedly experimenting with different organizational forms to solve changing coordination problems and institutional failures. Private firms, business groups, cooperatives, development banks, and SOEs all emerged under different, and often challenging, institutional conditions to organize production, mobilize capital, and coordinate investment. SOEs were therefore not exceptions to capitalism but one of the enduring ownership forms through which capitalism itself evolved.
Acknowledgments
The author would like to acknowledge exchanges and comments over the past two decades that helped shape this narrative, especially conversations with Dan Bogart, Alvaro Cuervo-Cazurra, Andrea Colli, Walter Friedman, Sergio G. Lazzarini, and Felipe Valencia.
Author biography
Aldo Musacchio is the Carl J. Shapiro Professor of International Finance at Brandeis University and a Faculty Research Associate at the National Bureau of Economic Research. He is the coauthor of Experiments in Financial Democracy (2014) and Reinventing State Capitalism (2014).
