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Legitimacy, Financialization, and Varieties of Capitalism: Understanding Sovereign Wealth Funds in Europe

Periodic Reporting for period 4 - SWFsEUROPE (Legitimacy, Financialization, and Varieties of Capitalism: Understanding Sovereign Wealth Funds in Europe)

Reporting period: 2022-07-01 to 2023-01-31

Sovereign wealth funds (SWFs)—which are state-owned institutional investors—are changing the face of the global political economy and global financial markets. This new class of institutional investor can be found in nearly all types of political regime, from social democracies to autocracies, and in high-income developed economies and low-income developing economies. Our understanding of SWFs is incomplete, theoretically and empirically. This allows for an insufficiently critical appreciation of their status and influence, positive or negative, in the global and the European political economy. Significantly, this research project will develop a new theoretical and empirical appreciation of the relationship between the state and global finance, and the legitimacy and legitimization of state-sponsored institutional investors at home and abroad. While taking special interest in SWFs in the European context, the scope of this study is inherently global.

The project is divided into three overlapping sub-projects: the first investigated how SWFs become legitimate actors in global markets; the second sought to explain the variegated pattern of foreign state investment in Europe; the third explored why some European countries have established SWFs of their own.
The project addressed the incomplete theoretical understanding of SWFs in the global economy, as instances of state capital, by critically examining the concept of ‘state capitalism’ and its various manifestations across the social sciences. Our analysis shows that the concept ‘state capitalism’ not only lacks a unified definition, but actually refers to an extremely wide array of policy instruments, strategic objectives, institutional forms and networks, that involve the state to different degrees. Consequently, the analytical value of the concept state capitalism is weak, meaning its usage in scholarly as a well as public discourse in reference to SWFs is also weak. As such, we have identified a set of issues to make the concept more analytically robust, allowing for a more comprehensive critique of state capital and the relationship between the state and global finance. This theoretical work has been crucial for understanding the growth and significance of sovereign wealth funds in Europe and globally.

Researchers from the team have conducted field work in several locations, including Russia and China, and attended major international forums focused on SWFs. For example, work conducted on the China Investment Corporation, the country’s premier SWF, has demonstrated how global financial professionals facilitate and legitimate the integration of Chinese state capital in global markets. This work also unpacked the differential approaches to Chinese foreign investment, showing the key differences between investment through the SWF or state-owned enterprises. This is crucial for avoiding a monolithic view of Chinese foreign investment when researching Chinese state capital in receiving countries in the second subproject.

The SWFsEUROPE project, in addition to producing 12 journal articles, produced two monographs (Sovereign Wealth Funds; The Rise of State Capital), a PhD thesis (Investing for the State), and an edited volume (The Political Economy of Geoeconomics). Project team members have presented work and/or engaged with policymakers and practitioners, including at the European Commission, the Bank of Botswana, and the International Forum of Sovereign Wealth Funds.
The SWFsEUROPE project established itself as an incubator for linking different interdisciplinary work on the topic of state capitalism, organizing panels at international conferences and assembling several forthcoming special issues for peer-reviewed journals. As SWFs are state capital, making sense of state capitalism generally and across different policy domains, geographies, and other state entities (e.g. state-owned enterprises) is crucial for understanding and theorizing the role of SWFs in contemporary capitalism at global and national levels.
Book cover of Sovereign Wealth Funds
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