A comparative political economy of diversified business groups, or how states organize big business

Abstract

Diversified business groups are present in nearly all economies and dominate the private sector in most developing countries. This article seeks to add to existing theories, primarily economic and sociological, by analyzing the policies and state actions that promote and sustain business groups, and contribute to significant cross-national variations among them along dimensions of size, range of diversification, and reactions to globalization. The political economy explanation presented here emphasizes the role of politics and policy - especially regulatory policies and overall development strategies - in setting the external parameters of variation among groups, and also incorporates additional internal economic logics (economies of scope and risk reduction). This political economic approach helps distinguish the core logics of three main kinds of business groups - organic, portfolio, and policy-induced - that have reacted differently to recent trends in market reform and globalization.