Private spending on R&D has large external benefits to other firms in the same industry – with private rates of return around 14 per cent and social rates of return around 40 per cent. We therefore evaluate the UK’s existing 20 per cent subsidy to the cost of R&D in large corporations. This is estimated to increase the amount of such R&D by 25 per cent. If the social rate of return on the extra expenditure is 40 per cent, the ratio of benefit to additional cost to the taxpayer is 14:1 – a good ratio.

Chapter 4 shows how the emergence of novel policy beliefs led to the adoption of globalized state-led development. It documents the policy beliefs of policy-makers from the Brazilian Workers’ Party regarding the benefits of state support for nationally controlled MNCs for the country’s long-term development. It traces the emergence of these novel policy ideas to the epistemic and policy learning of policy-makers and shows how these ideas guided industrial policy and BNDES reform. To further validate the argument, the chapter addresses competing explanations for policy adoption centered on political coalitions, macroeconomic conditions, and business pressures.

The introduction presents the book's core puzzle of why states promote the outward investments of national firms despite the political and distributional costs of doing so. It previews a theory of globalized state-led development whereby policy-makers promote the internationalization of domestic business to pursue the structural transformation of their home economies. The chapter also describes the book's research strategy of within-country and cross-national comparisons of globalized state-led development in Brazil and China.

State intervention can spur development, but only when executed with competence and accountability. This chapter explores when, how, and why state action works. It surveys successful industrial policies and failed ones, identifying the institutional conditions that distinguish them. Rather than demonize or glorify the state, it argues for adaptive, evidence-based strategies that blend public purpose with market discipline.

Chapter 5 shows that development banks provide policy-makers with the ability to address policy contestation. I document the varying policy contestation from labor unions, civil society organizations, and legislators to each type of internationalization support: acquisitions and greenfield investments, project finance, and mergers among domestic firms. I then show that this variation obeyed differences in the salience of associated domestic effects and in BNDES’ funding strategy for each intervention. The chapter shows that BNDES relied increasingly on providing equity financed through market sources to finance politically sensitive overseas investments. These dynamics reveal the “fragile autonomy” of states under democracy: their capacity to support national firms in global markets depends on their ability to strategically mobilize or obfuscate their interventions and pushes them toward more market-conforming instruments of industrial policy.

Chapter 6 studies the effects of state support on firm internationalization. Based on an original dataset of the history of the foreign production and innovation investments of large Brazilian MNCs, it compares the internationalization trajectories of supported and non-supported MNCs before and after state support is introduced. Using a difference-in-differences design, it provides evidence of the effectiveness of state support for MNCs: Supported firms outpace non-supported firms both in access to markets (measured by number of host countries and access to free trade agreements) and knowledge (measured by the innovation ecosystems of the host countries and whether they establish a research and development center abroad). It further probes the mechanisms underlying this effect, relying on in-depth interviews with firm managers of supported firms and bank bureaucrats, the chapter shows that BNDES’ relational banking approach can explain why BNDES support generates positive results despite evidence of political considerations in allocation decisions.

Chapter 9 concludes the book by further probing the theory’s generalizability, mechanisms, and implications. It starts with the theory’s applicability to the illustrative case studies of India and Mexico. It next hones in on the ideational mechanisms – learning and experimentation – that account for how a developmentalist legacy is updated and discusses other potential mechanisms, including emulation and competition. It lastly assesses three implications of the book’s theory. The first is whether state support for nationally controlled MNCs can continue to be an effective strategy under the current wave of backlash to globalization in advanced economies. The second is whether states that lack a developmentalist legacy can support the internationalization of national firms at a more limited scale. The third is whether the internationalization of national firms is compatible with more expansive definitions of development that go beyond structural transformation.

Chapter 2 presents a theory of globalized state-led development that helps us understand the conditions under which this model is adopted and implemented. It begins with the developmentalist dilemma faced by states: how can they help national firms benefit from global markets while managing the domestic political tensions these interventions provoke? This tension has important points of comparison with the challenges faced by the East Asian developmental states, yet has become more acute. Globalization and democracy have deepened the developmentalist dilemma by increasing the relevance of international production and innovation networks, constraining policy space, and heightening political contestation. A theory of globalized state-led development explains the conditions under which governments navigate these competing pressures by supporting national firms at home and abroad.

Chapter 7 examines how relational banking operates through in-depth case studies of the ties between the BNDES and two Brazilian MNCs: JBS (an agribusiness firm) and TOTVS (an information technology firm). This case selection explores the comparative advantage-conforming and defying components of Brazil’s globalized state-led development. Through this granular empirical approach, the reader can observe the state’s interventions at the firm-level and isolate the precise levers and sequence through which the state influences firm behavior. The chapter presents both attitudinal (firm managers recognize the relevance of the state) and behavioral (support is temporally and sequentially connected to changes in the firm’s foreign investment portfolio) evidence that state financing shapes the internationalization trajectory of firms and helps states achieve their industrial policy goals.

This chapter describes Rwanda’s record within the manufacturing sector. Until recently, the Rwandan Patriotic Front (RPF) did not prioritise manufacturing-based growth because of the high transport costs associated with its landlocked geographical position. While there has been some attempt at refocusing on industrial policy since 2015, because of a rising trade deficit and the urgent need to create employment, there has not been substantial progress. Rwanda has not achieved significant advances in increasing industrial employment, production and exports. After presenting the evolution of Rwanda’s industrial policy, the chapter provides detailed examples of three sectors: apparels (textiles and garments), construction materials and pharmaceuticals. In line with dynamics in other sectors, domestic capital has been marginalised in favour of supporting RPF-affiliated firms or relying on foreign investors. Some foreign investors like Volkswagen and BioNTech have invested in Rwanda with much fanfare, but most success has been driven by RPF-affiliated firms. Rwanda’s hopes for structural transformation fall at a key domestic hurdle: building effective state–business relationships aimed at technological capability acquisition for latecomer firms.

Chapter 11 applies the ideas in the text to the area of state aid, industrial policy, and competitive neutrality. This chapter observes that controls on state aid are difficult to explain through a consumer welfare lens. The chapter describes the controls on state aid in the EU, including the private- investor test and the concept of selectivity. The chapter concludes with a discussion of industrial policy in the US and how legislation which has one objective (at least on the surface) can affect trade between countries and therefore could have a chilling effect on investment and competition in the long run. This suggests the need for international rules (as exist in the EU) to protect and promote investment, competition, and international trade.

Based on extensive in-depth interviews and primary documents, Chapter 5 presents a case study of a middle-performing county in central China to illustrate the core arguments of the book. It shows how the local state reassigns rural land rights in an effort to drive urbanization and industrialization. It provides data on how local officials respond to performance targets by using land to attract investment in both real estate and industry. The chapter also provides data on the county’s debt-fueled infrastructural development employing land-backed LGFVs and presents data on economic activity and fiscal revenue. The chapter illustrates the nature of popular dissatisfaction over the reassignment of land rights and how local officials use law to deflect discontent and conflict away from the state itself, while exacerbating conflict between villagers and village collectives and among neighbors. It shows how villagers, unable to effectively challenge the state, seek to exclude others from sharing in land-taking compensation funds by using contested ideas about household registration (hukou), marriage, village charters, and land contracts. Villagers manifest legal consciousness, including awareness of legal aid, and engage in legal mobilization, including negotiation, mediation, petition, litigation, and protest.

Chapter 2 uses official data and primary documents to examine land as a factor of production and the legal status of land in China’s political economy. It highlights how insecure property rights and incomplete markets for land diverge from the liberal economic model. As codified in law, the state generates rents through its ability to take land from the rural sector at below-market prices to sell into the urban real estate and industrial sectors at higher and lower prices, respectively. This pattern is reminiscent of the planned economy and enacts urban bias. Local governments rely on land for revenue, as a tool of industry policy, and for capital mobilization through local government financing vehicles (LGFVs). Informality persists in the form of illegal land conversion and “small property rights” in urban villages and elsewhere. Beyond the analysis of land law at the rural-urban interface, the chapter also analyzes land rights within the rural and urban sectors, respectively. Within the agricultural sector, reforms have improved the property rights of rural households to arable land, but limits on rights and sources of insecurity remain. Urban households have been the beneficiaries of housing reforms, giving them a vested interest in resisting property taxes.