Varieties of privatization : informal networks, trust and state control of the commanding heights

Abstract

Why did ordoliberal Germany unconditionally privatize its aerospace and defense industries in the 1980s, whereas the neoliberal government in the United Kingdom established significant state control? To shed light on this puzzle, this article builds on the Varieties of Capitalism (VoC) and theorizes how different production regimes – complemented by distinct legal traditions – shape governments’ decisions about how to privatize state-owned industries. I argue that Germany’s coordinated market economy included informal networks between state and business actors that were based on trust. These relationships enabled the government to transfer ownership of the defense industries to the private sector without retaining any formal control. The United Kingdom’s liberal market economy, by contrast, lacked such informal trust-based networks. That explains why the British government maintained formal control instruments and thus intervened more forcefully in its aerospace and defense sector. The comparative process-tracing analysis draws on original sources, such as formerly secret archival files and interviews with decision-makers. The article’s contribution lies not only in extending the firm-centered logic of VoC to coordination between corporate actors and the state, but also in institutionalist theory-building: Trust-based coordination within informal networks systematically reduces vulnerabilities and can thus substitute for the arguably constant need of formal control.