The cultural roots of state-owned enterprises: evidence from Europe

This paper examines the cultural roots of state ownership of enterprises. Drawing on data for European countries, we show that the scale of state ownership of enterprises is smaller in individualist societies than in collectivist ones. This relationship is robust to a broad set of cultural, economic, and historical controls. We address endogeneity concerns by using genetic, epidemiological, and linguistic data as instruments for individualism. We propose several political economy mechanisms underlying this relationship. First, in collectivist societies, voter preferences are tilted toward more extensive state ownership of enterprises. Second, in collectivist societies, interest groups may be stronger and democracy may be weaker, both of which can result in a larger share of state-owned enterprises in the economy. We provide empirical evidence supporting these channels. Finally, we show that the negative relationship between individualism and the scale of state ownership also holds in non-European countries.