Saudi Arabia oil refinery Tom Stoddart/Hulton Archive/Getty Images

State Capitalism 2.0

The collapse of the Soviet Union may not have marked the end of history, but it did inaugurate a "golden age" for laissez-faire economics. And yet, in less than 30 years, the retreat of the state has been reversed, with sovereign owners playing a more active role in corporate governance.

GENEVA – The fall of the Berlin Wall almost 30 years ago represented a high-water mark in the retreat of the state from the global economy, signaling a defeat of socialist economics virtually worldwide. From dirigiste France to communist China, countries with widely divergent economic models began to adopt a more laissez-faire policymaking approach, predicated on the idea that the less state intervention, the better.

Amid this global rollback of statist and socialist economics, some state-owned enterprises (SOEs) were privatized outright. But the vast majority of “crown jewels” remained partly in the hands of governments, with a strategic private partner or private investors acquiring stakes through capital markets. Whatever its form, privatization did not just express a philosophical direction; it also had wide-ranging economic consequences, not least on stock exchanges, which were revitalized through SOE listings in countries as different as Italy and Egypt.

With the turn of the millennium, however, the retreat of the state from the economy stopped in its tracks. The success of economies such as China, which is driving economic development through its SOEs, and the United Arab Emirates, which is driving economic diversification through its sovereign wealth funds (SWFs), has raised potent questions about the efficacy of private-sector-led growth.