Rulers and Producers: How State Interventions Shape the Political Economy of Production

Abstract

States play an important role in structuring the production process. I examine three different types of state interventions and their subsequent effects on how firms, as the organizers of production, operate. I argue that existing theories of state intervention abstract away from important facets of how production is organized in modern industrial societies. By explicitly defining the firm as the unit of production, I outline several different avenues for state power to meaningfully shift how production inputs and outputs are allocated, showcasing three in particular with a focus on contemporary China.First, I find that states can utilize their ownership stake in industrial firms to better assess and collect taxes from industrial firms. This ownership stake can substitute for other more traditional tax bureaucracies, and also gives states the power to achieve political goals via the production process rather than tax-and-spend policies. Second, I show that political purges in authoritarian countries can reduce theft by private firm controllers by reducing the flow of government subsidies to private firms and thereby imposing fiscal discipline on firm controllers. Finally, I highlight the limits of state intervention, showing that even massive political shocks can have little effect on long-run distributions of human capital and productive labor.