Fifteen years ago Jean-Jacques Servan-Schreiber sent a chill through the West with the opening words of The American Challenge: “Fifteen years from now it is quite possible that the world’s third greatest industrial power, just after the United States and Russia, will not be Europe, but American industry in Europe.” We can now see that Servan-Schreiber was wrong about the continued predominance of American industrial power, but right about “multinationalization” as marking a new chapter in the economic history of capitalism. In much the same way, Joseph Monsen and Kenneth Walters, professors at the business school of the University of Washington, may be wrong about the nature of the “threat” of nationalization, but I believe they are right in calling attention to a striking change in the structure of economic life. This is the rise of state-owned companies, as perhaps the most rapidly expanding form of modern enterprise.

Monsen and Walters write:

Capitalism in Western Europe is changing rapidly. In some countries state-owned companies amount to nearly half of the industrial sector, including control of key industries. European governments now have a direct ownership stake in over half of Europe’s fifty largest companies. Few Americans are aware that many familiar companies are government owned. Renault, Alfa Romeo, British Petroleum, Airbus Consortium, British Leyland, Volkswagen, Swedish Steel, and Rolls-Royce—to name only a few—are companies in which governments are the sole or largest shareholder. Government companies in Western Europe make aluminum pans, air-plane engines, tractors, computer software, cakes, office equipment, advanced electronic equipment, computers, and cars and trucks—and run hotel chains. Although the private sector is for the moment still larger than the state-owned sector, the state-owned segment is beginning to dominate in more and more industries, and it expands to new products and markets each year.

Monsen and Walters make an impressive case for their position, both by country and by industry. A country-by-country summary would look like this:

France. The Mitterrand government has brought thirty-six banks into state hands, essentially nationalizing all major sources of credit. These nationalized banks continue to expand their business, the largest single recent expansion being the purchase by the Banque Nationale de Paris of Bank of the West in California. “The top four French banks are listed among the ten largest banks in the world,” write the authors, “a claim that neither the United States, Britain, nor Japan can make.”

France was already nationalizing important firms well before the Mitterrand election. The takeover of the two largest French steel companies, Usinor and Sacilor, took place in 1978. Meanwhile state control had also been spreading through diversification: Edouard Bonnefous, president of the French senate’s finance commission, pointed out in 1977 that whereas the number of state-owned companies had declined from 170 to 130, the number of subsidiaries of state companies had grown from 266 to 650. Hence the Mitterrand government only accelerated an existing trend when it bought out CGE, the top electrical, electronics, and nuclear engineering group, St.-Gobain, the biggest glass and other building-materials maker, and Rhône-Poulenc, the largest chemical manufacturer, to name only a few.

Great Britain. The British have been nationalizing since the end of World War II. The most recent moves have been the takeover of Rolls-Royce in 1971 followed by British Leyland in 1974. Meanwhile, the British National Oil Corporation exploits the oil fields of the North Sea and the partly stateowned British Petroleum markets it. BP is also an expansion-minded enterprise, having recently acquired Kennecott Corporation through BP’s Sohio subsidiary, as well as a large share of US Steel’s coal reserves. Britain also has a nationalized airline, a nationalized shipbuilding company, and a nationalized steel company. The Thatcher government has said that all these companies are candidates for “reprivatization”; so far, all have remained under government ownership or control. Perhaps more significant, the National Enterprise Board, a state holding company, has been using its £1 billion capital to finance high-technology ventures, the largest being Celltech, a genetic engineering company. “Even so determined an exponent of capitalism as Thatcher,” write Monsen and Walters, “has come to accept, if not openly advocate, the role of state ownership in new high technology businesses.”

West Germany. Here is surely one of the bastions of market forces and private enterprise in Europe. Yet, as Monsen and Walters point out, the German government has large investments in industry. VEBA, West Germany’s biggest industrial company, is 44 percent state owned. The government is also the owner of 40 percent of Volkswagen. VIAG is the acronym for another stateowned conglomerate with interests in aluminum, steel, and shipbuilding. According to the German Finance Ministry, the government has holdings (some of which, of course, may be only nominal) in some 600 companies. And as with French and British companies, state ownership seems to be entirely consonant with—indeed, perhaps the precondition for—aggressive expansion. VW has become the fourth-largest domestic US auto manufacturer, thanks to its acquisitions here, and is now moving into office automation and computer systems: “Consistent with its status as a state-owned company that places growth ahead of profits,” Monsen and Walters write, “an executive with Triumph-Adler, since 1980 a VW subsidiary, revealed that Volkswagen does not even expect any return on its investment until the end of the 1980s.”


There is always a danger of overstating the case in a study of this sort. Since Monsen and Walters’s book was written, for example, there has been a strong expression of sentiment against nationalization from the Thatcher government, accompanied by some actual “reprivatization” of state-owned firms, including British Telecom, a large and strategic telecommunications enterprise. Nevertheless, I believe that the authors are basically correct in claiming that a pattern of expanding nationalized sectors, many units of which are themselves aggressively seeking to expand, has become a salient feature of virtually all European economies. In Italy, for instance, IRI, a state holding company that is one of the most dynamic enterprises in the country, now controls steel, airlines, banks, mining companies, and scores of other firms. In Norway the state share of industry almost doubled in the 1970s, reaching 30 percent by 1978, not counting the oil sector. In Austria the state owns five of the nine largest firms, has a minority position in the sixth, and controls the bank that nominally owns two of the remaining three. In Sweden, the government has taken over the shipbuilding industry, owns half of Swedish Steel, the two biggest textile concerns, and has interests in pulp and paper, and minicomputers.

Another measure of the surge toward nationalization is the ownership of European industry. Taking the data liberally and often literally from Monsen and Walters, we find:

Automobiles. Half the European auto industry is nationalized, the biggest firms being Renault, British Leyland, Alfa Romeo, Volvo, and SEAT—not to mention the government shares of VW and BMW.

Electronics and Computers. State-owned firms are important in Britain, France, and Italy, and in all European nations there are state plans for the expansion of the industry.

Aerospace. Airbus Industrie, a consortium of state-owned and state-controlled companies, has emerged as the most powerful and expansive competitor for Boeing and has captured most new sales outside the US.

Oil. Not counting the United States, state-owned companies now produce 85 percent of the noncommunist world’s oil supply, and have acquired diverse companies “downstream”—toward the consumer. Oil is state-owned in most European nations.

Steel. Six of the top fourteen European steel manufacturers are government owned. Germany is now the only European nation with a large private steel industry.

Airlines. Every European nation except Switzerland has a state-owned airline, and during the last decade these airlines have increased their share of international passenger traffic from under 70 percent to over 85 percent.

The same general pattern can be found if we look at the pulp and paper industry, mining, aluminum, telecommunications, office equipment, and still others. Monsen and Walters estimate that state-owned investment now accounts for a fifth of all German capital formation in industry, and for a quarter of British, almost half of Italian, more than half of French, and two-thirds of Austrian investment. “Industry in Europe and in some other areas of the world,” they conclude, “appears to be in the midst of a transformation from private to state ownership.”

The nationalization of European industry has two important consequences for American industry. The first, much written about these days, is the formidable threat that nationalized foreign industry poses to its American counter-parts. The threat does not arise from any advantage that state-owned industry gains from its superior efficiency. On the contrary, Monsen and Walters present ample evidence that—with some exceptions such as Renault in France or the state-owned oil companies generally—most nationalized firms are unprofitable, suffer from high unit costs, and do not foster new industrial processes. Their competitive advantage comes because they are subsidized by their parent governments. For example, in 1977 British Steel was able to undersell not only the already obsolete American but the highly efficient Japanese steel makers on the West Coast of the United States. This extraordinary competitive edge was not the result of British superior technology or managerial skill—British Steel was running a plant system generally as dilapidated as the American and had losses that year of about $800 million. The British company had the edge because they deliberately sold below cost—acting as an arm of the British government, which was more concerned with maintaining employment in the English steel towns than in preventing losses from below-cost sales.

The subsidies that make for an export advantage, of course, do not have to go to nationalized firms. The United States, along with many other nations, has long subsidized its merchant marine, its farmers, and its national defense industries, often with export markets in mind. That nationalized firms have direct access to the public purse, however, can be decisive in the struggle for world markets. The British government, for example, agreed to finance Pan Am’s purchase of Lockheed’s new TriStar plane in order to swing the engine contract to Rolls-Royce. I have already mentioned the emergence of Airbus as the major competitor to Boeing: France, West Germany, and Britain financed the operation at all stages. At the same time nationalized firms are protected from managerial mistakes or failures to read the market correctly. To quote again: “When such firms as Aeritalia, Air France, Air India, Sabena, and British Airways suffer immense losses—as they have in many years—there is no question about their future ability to operate. Not one major foreign state-owned airline has dropped out of the industry. Their government owners see to that.”


The threat of state-subsidized competition is likely to become much more severe in the coming years. Monsen and Walters cite a depressing number of industries where the competitive outlook is anything but encouraging. New production from state-owned companies in Brazil and Korea will worsen the outlook for the US steel industry. In the microprocessor and semiconductor industries, the former American domination has already been seriously undermined by the Japanese, who have the advantage of government-financed investment, and by the prospect of state-financed investment in Europe. And along with the rise of Airbus, new competition seems likely from Japan, where the government is supporting ventures in the aerospace industry.

What can the United States do about this threatened invasion by nationalized or state-supported enterprise? In one form or another, as Monsen and Walters make clear, the answer is more government intervention. This may take the shape of a tighter enforcement of trade laws that permit the US to impose countervailing duties, to monitor violations of “anti-dumping” laws, to raise tariffs generally, or to impose quotas: in a word, protectionism. Or it may require more direct action by creating our own institutions for financing those industries deemed to be of importance for our economic well-being. For all the rhetoric deploring protectionism and the effects of using government as a prop for business, many of these measures will likely be used. It is one thing to preach the theory of free trade—which, incidentally, always pictures the effects of foreign competition as hitting the economy like buckshot, not as landing on one portion of it like a mortar shell—and another to allow labor and capital both to suffer, not because they have failed to match foreign productivity but because they have failed to match foreign subsidies. Along with the authors, I doubt very much that nationalization will be used as an American counterweapon; but I agree with them that a variety of counterattacks will be launched—if not under the label of protectionism, then under that of “industrial policy,” “reindustrialization,” “national planning,” or whatever.

In their conclusion, Monsen and Walters take up a second general challenge of nationalization. This is the possibility that the United States, in defense of its capitalist way of life, will have to turn away from an increasingly socialistic Europe toward the more market-oriented countries of the Pacific rim—Japan, South Korea, Singapore, Malaysia, Taiwan, and Australia. “Industrial civilization is clearly shifting to these economies,” write Monsen and Walters, “and they may soon achieve competitive productive parity with the United States, leaving Europe far behind.”1

“Even if Europe’s future is not quite as bleak as we fear,” they go on, “the United States will need to build new trade relationships in the next decade because of the profound ideological changes that have occurred in the European economies. Nationalization and pervasive state ownership are simply not compatible with the concepts of free market economics and free international trade.” Thus the question raised by Monsen and Walters is whether the great challenge of nationalization is not to American trade—which, as I think they would agree, can be protected in one form or another—but to the very heart of capitalism itself.

Here I would construe the “threat” of nationalization differently from the authors. The difference hinges on conceptions of capitalism, that elusive abstraction of political economy. If the core of capitalism lies in a system of independent enterprises coordinating its actions through a relatively free market network, then indeed the rise of nationalized firms comes as a deeply anticapitalist development. For not only are the nationalized firms themselves available to carry out “socialist” objectives, but their direct access to funds—an access that seems impossible to restrict—vitiates the purpose of the market, which is to subordinate individual enterprise to the collective determination of all enterprises and households.

But it is possible, I think, to conceive of capitalism in a different way, by which the emergence of nationalized enterprises is no more subversive than was the equally startling appearance of the giant trusts and mergers in the period of small-scale capitalism. This conception emphasizes the all-pervasive principle of the expansion of capital as defining the essence of capitalist society, much as the principle of vassalage defined feudal society, or that of a divine priest-king the ancient civilizations of the Nile and the Orient. Both Adam Smith and Karl Marx made this the central organizing principle of capitalism—vital, unquestionable, imperious. It is this never-satisfied expansion of enterprise that sets in motion the processes by which capitalism achieves its essential operating success, establishes its particular form of hierarchy, and pursues its long-term goals.

From that point of view, nationalization is the manner by which capital is expanded under conditions in which private accumulation, for whatever reason, no longer works. As Monsen and Walters’s examples make clear, nationalized firms are strongly directed toward expansion. It is true that they do not amass capital for the direct benefit of their managers, but then neither do the bureaucratic corporations of the private sector. The motives of state-owned firms—or rather, the motives of the political leaders to whom its executives are ultimately answerable—may be to capture strategic markets, to assure a flow of foreign exchange, or simply to keep their work forces employed—all necessary for the successful operation of the larger society. In this way nationalized companies play the same role as other unprofitable state activities, such as road building or education—providing the social underpinnings that business itself cannot afford to provide but must receive in order to carry on its expansive activities. Adam Smith long ago recognized that the government had the duty of providing “certain public works and certain public institutions, which it can never be to the interest of any individual…to erect and maintain; because the profit could never repay the expense to any individual…although it may frequently do much more than repay it to a great society.”2 What was a compelling argument for national turnpikes in Smith’s day has become equally compelling for nationalized companies in ours.

No doubt, the pursuit of economic advantage by state firms blurs the boundaries between the so-called private and public sectors. This means only that capitalism emerges as a “social formation” (to use Marx’s term) that fulfills its essential capital-expanding purpose through different instruments, among them the use of certain state capacities not ordinarily available to private enterprise. It also means, however, that it is a mistake to view the rise of nationalized business in Europe as necessarily marking the decline of capitalism. What seems more likely is that European capitalism is undergoing a transformation that, in one institutional guise or another, lies ahead for America—and further ahead for the countries of the Pacific rim. If I am correct in this interpretation of events, the rise of nationalized industry signals the appearance within capitalism of a new form of capital, comparable to that of the multinational corporation whose advent was first dramatized by Servan-Schreiber. In its wake, this development will assuredly open up new possibilities for, and bring new contradictions to, capitalism, as the state now lends its immense powers to capitalism’s expansive, history-shaping force.

This Issue

December 8, 1983