State involvement in the economy is today less obvious but no less important than in the past. That is the basic conclusion of Aldo Musacchio and Sergio G. Lazzarini in Reinventing State Capitalism. Their book examines the rise and fall of state-led development and describes new configurations of “state capitalism.” Today, state-owned enterprises (SOEs) are less common, but governments remain engaged as majority and minority shareholders in firms. Musacchio and Lazzarini provide a wealth of data on state capitalism in Brazil, making their book essential to anyone studying the Brazilian economy or state capitalism elsewhere. They also press research beyond the stale dichotomy of state-led development versus stateless neoliberalism. The book concentrates on Brazil, but its insights should resonate widely.

The authors trace the history of state economic intervention and then assess its contemporary permutations in Brazil, including the oil firm Petrobras, the mining giant Vale, and the national development bank Banco Nacional de Desenvolvimento Econômico e Social (BNDES). In the nineteenth century, government intervention was ad hoc and sought to solve market failures, such as by providing guarantees to railroad companies. Beginning in the 1930s, governments adopted expressly developmentalist ideologies and policies, epitomized by import substitution industrialization (ISI). After the 1970s oil shocks and the 1982 Mexican peso crisis, ISI waned, and many SOEs were dismantled. Due to the mounting costs of state-led development, “privatizing was an obvious option—a financial no-brainer” (p. 43).

Brazil fits this trend. The performance and balance sheets of its SOEs deteriorated during the 1980s, and by the early 1990s, Brazil had left behind the SOE model (what the authors term “Leviathan as an entrepreneur”). To account for this change, Musacchio and Lazzarini compare Brazilian SOEs to their private-sector counterparts with differences-in-differences analysis. Following the 1981–83 economic crisis, they find that SOEs tended to hire, while private firms fired workers. After democratization in 1985, SOEs had higher CEO turnover than private firms, which were busier shedding workers than sacking their leaders (esp. pp. 148, 161). Because SOEs simultaneously pursued economic and political objectives (e.g., avoiding layoffs), the model was untenable. Its “inefficiencies made governments rethink the role that SOEs should play in their economies,” and “privatization became necessary” (p. 163).

Around the world, governments “learned that they need more-sustainable ownership schemes” (p. 15); “the weakness of the Leviathan as an entrepreneur model became apparent” (p. 36); and a “sweeping program of privatization became a necessity” (p. 93). Thus, the authors suggest that new ideas propelled change. By contrast, the International Monetary Fund (IMF) and its conditionalities—regularly depicted as the bogeyman behind state retrenchment—are scarcely discussed. On the one hand, the authors are not political scientists, and their aim is more descriptive than explanatory. But on the other hand, they do want to account for this watershed. I wish the influence of ideas (“recognizing” the limits of an economic model) and interests (e.g., IMF mandates, domestic politics) were better disentangled. For example, although poor performance may have prodded Brazilian officials to rethink their SOEs (p. 163), “after 1986, Brazil was engaged in a series of radical structural adjustment programs” (p. 155). How these varied forces intersected and possibly conflicted is left aside; they are not the focus of this book.

Musacchio and Lazzarini’s main goal is to delineate two forms of state capitalism that emerged since 1990 (the concepts are depicted on p. 8). One type is the “Leviathan as a majority investor,” in which governments retain most of a firm’s voting shares while welcoming private investment. Brazil employs this model in strategic sectors, as seen in Petrobras, the Banco do Brasil, and the utility giant Electrobras. The operation of these firms is opaque: just 5% are listed on domestic exchanges. The government monitors them more closely and has less tolerance for losses than when they were SOEs, but “patronage and corruption” still prevail (pp. 98–107). Yet although the state remains the majority shareholder, these firms can benefit from “corporatization” (e.g., having a Board of Directors, ideally with many external members) and especially from listing on a stock exchange, where disclosure requirements enhance transparency.

The authors explore the implications of such strictures for Petrobras, Brazil’s state oil firm, by comparing it with Pemex (Mexico) and Statoil (Norway). (There is an excellent table comparing corporate governance among 30 national oil firms on pages 174–75.) They find that listing Petrobras—it is on the New York Stock Exchange—aided transparency, but the prevalence of government officials on its Board of Directors curtails the firm’s autonomy. So although Petrobras’s corporate governance structure parallels Statoil’s in key respects, its lack of independence renders it more like Pemex in actuality. The authors reach a similar conclusion in a chapter on Vale, Brazil’s mining giant. Even though Vale is independent—it is an example of “Leviathan as a minority investor”—the government weighs heavily on it indirectly, such as through holdings by the state pension fund. Musacchio and Lazzarini are circumspect about the benefits of partial privatization in rent-generating sectors (pp. 189, 194, 232).

In general, however, the authors believe that the Leviathan as a minority investor model can work well. They study investments made by Brazil’s development bank, BNDES. Development banks are common—there were nearly 300 worldwide in 2011—but controversial (pp. 233–38). Originally, BNDES lent to public-sector firms, but since the 1970s has focused on privatized “national champions.” In Chapter 8, Musacchio and Lazzarini find that BNDES’s loans are most efficacious when recipients lack alternative funding sources—that is, when BNDES compensates for a weak capital market. But in Chapter 11, they infer that BNDES lends mostly to established, profitable companies without capital constraints (only data on public companies are available). Since 2004, BNDES’s lending has shifted from electric utilities and telecommunications to Petrobras and Vale, two well-capitalized firms that were experiencing boom times. The authors conclude that politics, not industrial policy, largely accounts for BNDES’s activity. (Campaign donations to winning candidates correlate with loans from BNDES.) And yet, BNDES is not reckless: It lends to quality firms. It does not carry out ideal industrial policy, but it is not baldly corrupt.

Overall, Reinventing State Capitalism provides a nuanced picture of state capitalism in Brazil and a terrain rich for further research. Musacchio and Lazzarini conclude by describing factors that make different forms of state capitalism more likely and, perhaps, more effective—such as the depth of local capital markets, existing market failures, and levels of state capacity. Much as Peter Hall and David Soskice’s edited volume Varieties of Capitalism (2001) did, Musacchio and Lazzarini’s book will spark appraisals and explanations of the varied forms of state capitalism that exist today. In doing so, the authors press forward a perennial and vital debate in comparative politics over the relationship between states and economic development.