Private equity firms and industrial policy: elaborating the state-finance nexus in state-led markets

Under what conditions can the state discipline private equity firms into delivering the investment required to meet the coming needs of industrial transformation? States have sought to crowd in private capital to finance industrial development, but the results have so far been less than satisfactory. Prevailing accounts of financial industry power largely characterise an arms-length state-finance relationship that has unfolded in private-led markets where private equity firms have contributed to the secular growth in non-productive economic activity. This article problematises the assumption of private-led markets and argues that state-led markets present a counterfactual in which the disbursement of public money entails strict policy discipline and tight embedding between the state and private equity firms, which provides the conditions for them to emerge as unlikely champions of industrial policy. Two cases of co-investment between Chinese and European sovereign wealth funds demonstrate the power dynamics at play. Where PE firms in the Sino-Irish co-investment facilitated the international scaling of Irish firms in China, the PE firms operating in Europe failed to embed Chinese firms into regional supply chains in the Sino-Belgian co-investment.