The Developmental State in Developed Societies: The Evolution of Economic-Policy Making in France and Finland

While political economists continue to extol the virtues of state intervention in developing countries, their role in advanced, industrialized economies has long been a source of contention. Scholarship since at least the 1970s suggests that advanced, industrialized statist economies are often poorly positioned to cope with new challenges ranging from economic internationalization to rapid technological change. This paper challenges this broad characterization of state intervention by identifying an enduring, but evolving, role for the public sector in two historically statist societies, France and Finland. In contrast to recent literature on state-led or state-enhanced capitalism, this paper argues that statist economies adapt to contemporary challenges in two very different ways. In the French ‘marketizing state’, policy-makers relied principally on market competition to manage economic adjustment, employing coercion or, more often, compensating vulnerable groups with generous side payments. The Finnish ‘investment state’ also liberalized, but compensation was tied to investment in productivity-enhancing collective goods. These divergent responses reflect the degree to which policy-makers were embedded in industrial networks. In this way, the paper not only clarifies the state’s role in advanced, industrialized economies, but sheds greater light on the divergent ways in which developmental states evolve over time.