Competition & Change

From IPCC reports to global asset managers and governments, calls for more green finance to fuel the sustainability transition are ubiquitous. Concurrently, the critiques of a benign embrace of financial techniques, products, and flows as solutions to the climate crisis are growing louder. As a field of inquiry, IPE has the right tools to address such controversies productively. Yet, we diagnose a lack of what we call a deep engagement of IPE with epistemic and practical questions of what green finance is, how it operates, and its outcomes. The ambition of this special issue is to develop a research agenda that examines the contemporary global and concrete forms of green finance and its governance in order to better understand the following dynamics: first, how political and economic power relations within global finance shape environmental governance outcomes, and second, how the climate crisis itself influences the governance of global finance. To facilitate such thinking, we propose to understand green finance as an evolving ecosystem in the broader web of global finance instead of a specific instrument, asset class or concept. We hold this to be a fruitful approach to engage questions of green finance in both a global and concrete manner across different sectors, geographies, actors, and structures. By acknowledging the global nature and implications of green financial flows, we can push forward thinking not only on climate change and environmental governance in IPE, but also turn attention to the ongoing contestations, contingencies, and crises of finance in the global political economy.

The European Green Transition requires massive financing efforts, with estimates of EUR 620bn EUR annually, and the headwinds are substantial. Central banks seem overstretched and busy tightening to combat inflation; treasuries are subject to austerity-inducing fiscal rules; and banking systems are afflicted by non-performing loans, fragmentation, and risk aversion. We employ the Monetary Architecture framework to analyze the EU’s monetary and financial system as a constantly evolving hierarchical web of interlocking balance sheets and study its capacity to find “elasticity space” to meet the financing challenge. To this end, we draw on a four-step scheme for Green macro-financial governance along the financial cycle of balance sheet expansion, funding, and final contraction. We find that, first, Europe’s monetary architecture still has ample elasticity space to provide a green initial expansion due to its developed ecosystem of national, subnational, and supranational off-balance-sheet fiscal agencies. Second, as mechanisms to consciously organize the distribution of long-term debt instruments across different segments are absent, its capacity to provide long-term funding is limited. Third, institutional transformation in the last two decades has greatly improved the capacity of the European monetary architecture to counteract financial instability by providing emergency elasticity. Fourth, the capacity of the European monetary architecture to manage a final contraction of balance sheets is limited, which is a general quandary in modern credit money systems. Our analysis points to the need for further investigations into techniques for monetary architectures to manage long-term funding and balance sheet contractions.

The ecological transformation of the economy is frequently approached politically with market-based policy, in particular derisking, which attempts to steer private financial actors into ecological and climate sustainability by taking on risks. To understand the effects of such approaches, I point to the relational and concrete dynamics that unfold between states and finance. Conceptually, I propose analyzing the investment chains that surround these programs, and the conditionalities that constitute its relations, which I read as manifestations of infrastructural power. I argue that conditionalities are the qualifier of the transformative potential of market-based policy programs. The proposed “micro-financial” analysis allows to unpack the inherent limitations of derisking-based governance approaches. These approaches come with a dependence on financial intermediaries, which results in weak conditionality and enforcement. Concretely, I analyze how under BlueInvest, a pilot within the European Green Deal (EGD), the European Commission (EC) mandates the European Investment Fund (EIF) to harness venture capital (VC) funds in order to foster the blue economy. I show how, as a consequence of investors’ intermediary position in derisking-based operations and the EIF’s profitability orientation, policymakers come to depend on venture capitalists, hindering strong and effective conditionality and hardwiring limited sustainability effects into the investment chain.

The mechanisms of green finance are structured and made enforceable through law. However, the legal geographies of green finance are not distributed evenly but are scattered across multiple sites of public and private authority and associated forms of legal expertise. This article investigates how legal technologies and knowledge practices shape the efficacy of green finance. Green finance rests on ‘asset coding’ as a socio-legal practice that is transnational yet rooted in few, salient sovereign jurisdictions and legal templates originating in the social spaces of transnational legal expertise. Through synthesizing literature from political economy, socio-legal studies and economic geography and building on a range of explorative interviews and documents, I suggest that underlying knowledge practices and legal technologies of ‘green asset coding’ contain important continuities with the way assets are coded into capital in conventional finance. This can constrain the efficacy and potential of green finance. The article outlines these continuities across three domains: Energy infrastructures, voluntary carbon markets, and ‘green’ offshore jurisdictions. Taking these continuities seriously invites for further critical international political economy (IPE) research in the nexus between law, finance, and the state, and underscores the need for transformative legal practices to achieve decarbonization at the pace needed.

This article considers recent efforts at extending the scope of green finance into insurance schemes to manage the losses associated with the climate crisis in vulnerable countries. Focusing on the case of the African Risk Capacity (ARC), the article argues that these efforts are particularly revealing of the contradictions of what we term the ‘climate-development-finance nexus’ – growing efforts to bridge climate and development activities, with an emphasis on mobilizing green finance in order to do so. In particular, the case of ARC shows how the promotion of insurance should be read as a set of ultimately failed efforts to navigate relations of international financial subordination. Approaching the ARC in this way helps us to understand why the latter has fallen into a shape at odds with the intentions of either member states or the donors who have supported it, the latter illustrated primarily by considering the role of the British Department for International Development. This case, then, is revealing of how green finance more generally is strongly shaped by statecraft within the constraints of existing patterns of financial subordination.

The last 20 years have seen the emergence and proliferation of transnational sustainable finance initiatives (hereafter: TSFI). From associations like the Principles of Responsible Investment to pledges like the Finance for Biodiversity Pledge, investors have connected with each other and with other kinds of organisations in transnational fora dedicated to sustainable finance. Taking inspiration from political economy scholarship on global corporate networks, we apply a network perspective to the transnational governance of sustainable finance, examining the overlaps between investors’ membership in TSFI. In particular, we aim to identify those investors’ that hold a large number of TSFI membership (collectors), that connect centrally located TSFI with those at the margins (mediators), and that take on active roles within TSFI (performers). Analysing membership data for 30 TSFI, totalling 10.602 observations, at three analytical levels, we identify a group of 21 investors holding core positions in the global network. The majority of these investors are active in asset management and located in Nordic or continental European political economies. The predominance of some of the world’s largest investors in our three member categories suggests that the transnational governance of sustainable finance relies in part on the activities of actors that are associated with harmful financial practices. Nevertheless, the simultaneous presence of publicly owned enterprises on our list of most connected members also indicates the importance of public leadership in the transnational governance of sustainable finance.

In this commentary article, we engage with the papers in the special issue to unpack the categories of ‘green’ and ‘finance’ to surface key concerns within IPE about different forms of power and governance which we suggest are key to assessing the ‘green turn’ in global finance: how it is currently constituted, on whose terms and for what purposes.

This contribution reflects on the ways in which the history of green finance can be told and the kinds of theoretical tools and perspectives that can be used to explain its evolution. We suggest that the origins of green finance—as well as the roots of some of its specific “pillars”—date further back than sometimes portrayed. Histories of green finance could also give more attention to China’s distinctive experiences, the role of financial regulatory initiatives, and environmental goals beyond those relating to climate and biodiversity. We also suggest ways in which this special issue’s proposed theoretical framework can be extended to help explain the emergence and trajectory of green finance. On this latter point, we note various explanatory factors that might be included and note insights from drawing on a wide range of theoretical perspectives.

The year 2020, with the outbreak of the COVID-19 pandemic and the subsequent crises, highlighted the significance of state intervention in shaping firm competitiveness. However, unprecedented government support for businesses has left us puzzled about the state’s role in firm internationalization, especially in emerging markets and the Global South, where government involvement has been accompanied by democratic backsliding and rising authoritarianism. Our Special Issue moves the current debate forward by exploring how the state’s changing role affects firm internationalization. The objective of this editorial is twofold: stimulating theory development by scrutinizing state intervention in emerging markets in recent decades and introducing the Special Issue articles. Contributions investigate how governments support the internationalization of their domestic businesses by focusing on firms’ institutional embeddedness and the impact of institutions as both resources and constraints to their internationalization. By linking the discourse on state capitalism with business internationalization, our empirical studies advance research on political economy and the state’s role in innovative ways, reflecting on recent geopolitical developments. Our introductory article situates the Special Issue papers in the state capitalism and firm internationalization literatures and discusses their implications for future research.

Small states play a critical role in the operation of the Global Wealth Chains, storing capital assets and funnelling financial flows. However, the knowledge of how such practices of financial transit emerge remains scant. Focussing on the 1990s as the formative decade of post-Soviet capitalism, the article focuses on the variegated financial internationalization in the Baltics, as Latvia developed a vibrant offshore banking sector, whereas Estonia pursued complete Westernization in bank ownership. Challenging the literature that relates the emergence of Baltic offshore finance with right-wing politics, and existing trade and cultural links with Russia, the article argues that the varieties of financial internationalization in the Baltics were due to ‘economic statecraft’ by the Central Banks (CBs). Drawing upon a survey of CB reports, parliamentary speeches, press archives, memoirs, and elite interviews, the article argues that the Baltic CBs’ path-setting decisions shaped the two distinct financial internationalization paths through three interventions: currency reforms, agenda setting, and banking regulation. Drawing on the literature on social embeddedness of CBs, the article attributes the differences in the two CB approaches to their informal alliances with broader society – domestic financiers in Latvia and the government in Estonia.

This study examines how changing state activism has influenced the internationalization of Czech and Hungarian MNEs after the global financial crisis. Identifying four key channels – state ownership, business and regulatory environment, industrial policies, and 'quiet politics' – we note distinctions in state-business relationships and characteristics of multinationals between the two countries. Hungary experiences a surge in state activism, while Czechia faces relative stagnation with occasional setbacks. Over time, the industrial policy and quiet politics channels have become increasingly important. This is reflected in changes among the top Hungarian multinationals, with new entrants and new owners of existing ones, while no significant changes are observed among Czech MNEs. The study introduces the concept of 'defensive internationalization' as a response to an unstable business and political environment, showcasing long-lasting impact on the location of headquarters. The increasing role of industrial policies and new EU programs may enhance the state’s influence on MNEs, yet they also raise concerns about corruption and public fund diversion.

African fashion reveals intersections between upgrading, manufacturing and internationalization alongside expanding cultural, political and social influence. Yet global value chain analyses of the industry reinforce a core-periphery dynamic with the location of lead firms in the Global North (GN) and actors lower down the value chain in the Global South (GS). This disappears GS actors in the creative economy, including fashion designers, who innovate, design and cultivate the brand followership associated with lead firms. This paper analyzes fashion designers in Lagos and Nairobi as economic, cultural and social value creators and therein lead firms from below (LFfB). It conceptualizes this dynamic, with a focus on lead firms within the global value chain framework that combines elements of conceptual interventions on state capitalism to offer the LFfB framework. The framework is deployed to analyse primary data from fashion design firms in two key hubs, Lagos and Nairobi. Findings demonstrate the significance of synergies between key areas of LFfB operation (research and development, inputs, distribution, sales and product design) and state capitalism’s support for production, trade and finance, as well as positive returns through international cultural recognition and national profile building. Nevertheless, the paper contends that challenges of state (in)action can undermine sustainable practices, competitiveness as well as multi-scalar internationalization.

The state’s economic role has become more visible, beyond regulatory features, since the 2008 global financial crisis. In several cases, the new interventionist turn goes parallel to the authoritarian populist turn in international politics. Although the two processes have their own dynamics, they are still interrelated. Rather than abolishing the façade of the market economy, right-wing authoritarian populist leaders are more likely to capture the market through politically loyal economic actors. To this end, public procurement is one of the fundamental mechanisms to allocate resources. In this paper, we tested this argument in the case of Turkey by examining all public procurement deals (867,260 in total) between 2010 and 2019. We found that over a relatively short period of 10 years, the level of competitiveness, measured by the effective number of companies that receive public procurement, has decreased substantively. We also showed that the decrease in competitiveness was not limited only to the highest level of procurement deals. Across all deciles of procurement deals, competition has decreased, especially after 2013 – and this trend has continued since then.

The recent multiple crises have led to a renaissance of the role of the state in the economy throughout the world. Hence, industrial policy is once again back at the agenda of academic and policy debates in advanced as well as emerging economies. We want to contribute to this debate by discussing the controversial results of a recent case of industrial policy—the “national champions” strategy of the Brazilian National Development Bank (BNDES) between 2007 and 2013. Being the centerpiece of Brazil’s move toward a more state-led economic model in the late 2000s, its successes and failures should be of great importance to the ongoing debate about industrial policy, state capitalism, and development. The national champions strategy has become an integral part of contemporary state capitalist models, with China being the most outstanding example. By looking at the Brazilian case, an upper-middle income democracy, and therefore a more representative case for countries with similar political settings, the paper aims to provide a critical appraisal of revived industrial policies in the early 21^st century as a separate policy tool of the newly emerging variety of state capitalism. We apply a political economy approach to highlight the context-sensitivity and institutional embeddedness of firms and the complementarities between several institutional spheres as resources and constraints for companies’ competitiveness and internationalization. The paper aims to contribute to the current debate about state-financed firm internationalization in general and the viability of a national champions strategy in particular.

Industrial policy has become one of the buzzwords of state interventionism in the political economy of states. Continuity and change in social contracts, the increasing complexity of multi-level governance in the world economy, and the need for greater degrees of co-ordination and greater amounts of capital in key industrial sectors all require a reinvigorated understanding of the state and of state power. This article seeks to develop such an understanding of one state form: the Developmental State. Through an analysis of the Argentine development experience under Nestor Kirchner (2003-07), this article will reveal the need to develop sophisticated understandings of the state and associated concepts of capacity and autonomy to fully grasp its role in the development process, with a particular focus on industrial policy. Such examination will draw attention to the changing nature of industrial policy, and how this is linked to changes in the state as a result of pressures from below (changing constellation of social forces) and from above (changing nature of global forces).