A very British state capitalism: Variegation, political connections and bailouts during the COVID-19 crisis

Abstract

The COVID-19 pandemic has resulted in governments playing increasingly prominent roles as active economic agents. However, state capitalism does not necessarily serve broad developmental purposes, and rather can be directed to supporting sectional and private interests. As the literature on variegated capitalism alerts us, governments and other actors regularly devise fixes in response to a systemic crisis, but the focus, scale, and scope of the interventions vary considerably, according to the constellation of interests. Rapid progress with vaccines notwithstanding, the UK government's response to COVID-19 has been associated with much controversy, not only because of an extraordinarily high death rate, but also because of allegations of cronyism around the granting of government contracts and bailouts. We focus on the latter, investigating more closely who got bailed out. We find that badly affected sectors (e.g. hospitality, transportation) and larger employers were more likely to get bailouts. However, the latter also favored the politically influential and those who had run up debt profligately. Although, as with state capitalism, crony capitalism is most often associated with emerging markets, we conclude that the two have coalesced into a peculiarly British variety, but one that has some common features with other major liberal markets. This might suggest that the eco-systemic dominance of the latter is coming to an end, or, at the least, that this model is drifting towards one that assumes many of the features commonly associated with developing nations.

Keywords: COVID-19; Liberal Market Economy; State capitalism; United Kingdom; bailouts; comparative institutional theory; crony capitalism; economic crisis; political connections; state capture; variegation.

Figure 1.

UK sovereign 5-year credit default swap rates. Notes: Source: EIKON Refinitiv, UK Government, 5-year credit default swap (CDS) rates denominated in GBP (RIC code: GBGV5YGBAB = R). Calculated as log return of daily average between the bid and ask, in basis points.