Direct Intervention by the Subnational State: The Development of Public Venture Capital Programs in the American States

During the 1980s state governments in the United States embarked on an experiment in direct economic intervention by launching public venture capital programs. This paper examines class-, state-centered and neocorporatist theories, showing that relatively autonomous state governments responded to their fiscal dependence on corporate taxes, deindustrialization, and a mesocorporatist "pact" between capital, labor, and strong central administrations by creating and investing in these programs. Rationalization creates greater state autonomy but this is constrained by fiscal and political dependence on economic and political environments. These factors encouraged a long-term entrepreneurial perspective on economic development policy, while business power and electoral competition appear to contribute to more short-term indirect "smokestack-chasing" interventions, such as tax incentives and infrastructural investments. In comparative context, pluralistic states such as the United States appear more likely to adopt direct intervention at the meso-level, indicating the relevance of state theory to subnational interventions.