The fine line separating the state and the market has become even finer

For many years, the relationship between the state and the market seemed relatively straightforward. On the one hand, there were public enterprises, owned or controlled by the state; on the other, private enterprises, governed by their shareholders. And when a foreign company acquired a domestic firm, the state and its agencies – such as independent authorities responsible for safeguarding the market and competition – were essentially faced with a binary decision: to authorise or to prohibit the transaction.

That world is disappearing. Geopolitical tensions, technological competition between the United States and China, supply chain security, and control over data and strategic infrastructure are reshaping not only industrial policy, but something far more profound: corporate governance.

A recent and highly interesting paper by Curtis Milhaupt, Mariana Pargendler and Dan Puchniak on ‘Corporate National Identity’ offers a particularly effective lens through which to observe this transformation. The nationality of a company, the authors argue, can no longer be determined simply by looking at its place of incorporation, its registered office or the nationality of its controlling shareholder. It is the ever-changing result of the interaction between four dimensions: legal, economic, geopolitical and even symbolic.

But perhaps the most interesting point is another. The growing focus by governments on the ‘nationality’ of companies is changing the tools through which public authorities intervene in the market. The old ‘approve or block’ model is giving way to what the authors call ‘conditional engagement’: the state authorises the investment, but at the same time becomes continuously involved, directly or indirectly, in the company’s governance, imposing constraints and conditions on the system of governance and control that may evolve over time. Consider how the United States has intervened to alter the ownership structure and operational functioning of TikTok and its parent company, ByteDance.

The Pirelli case is another example. The main shareholder was the Chinese company Sinochem (controlled by the Beijing government), but through the ‘golden power’ clause, the Italian government imposed limits on its powers, strengthened management autonomy, regulated the composition of the company’s governing bodies and introduced specific safeguards regarding technology and data. Meanwhile, the ownership structure has changed, with Sinochem having sold part of its stake. But the most interesting development is another: through the ‘golden power’, the control that the Chinese shareholder can actually exercise has changed. The Italian intervention has ultimately ‘reoriented’ Pirelli’s governance from a purely private-sector model towards one in which the state has become a significant player.

Even more telling is what happened with the acquisition of U.S. Steel by the Japanese company Nippon Steel. After initially opposing the deal politically, the Trump administration ultimately allowed it to go ahead, subject to the federal government being granted a golden share. Nippon Steel owns 100 per cent of the share capital, but the US government holds a stake with no economic rights, which grants it powers over the company’s strategic decisions. Ownership is Japanese, but the golden share serves to separate ownership from national identity: U.S. Steel can belong to Nippon Steel and still, politically and strategically, be regarded as American.

These developments point to two profound changes. The first is that control over foreign investments no longer ends at the point of acquisition. It becomes an ongoing relationship: the state can influence the composition of governing bodies, shareholders’ rights, access to data, technologies, the location of investments and even decisions regarding divestments and employment levels.

The second change is even more radical. The boundary between private companies and state-owned enterprises is becoming increasingly blurred. Not because Western companies are becoming public enterprises in the traditional sense, but because ownership and control can now be decoupled. The authors themselves describe a ‘continuum’ between state-owned and private companies: golden shares, special powers, appointment rights and governance constraints allow states to exert influence without acquiring shares.

It is an interesting paradox. For years, the West has criticised China precisely for the blurred line between state and business. Of course, the political and legal systems remain incomparable. But the paradox is that today even Western democracies are experimenting with and increasingly adopting ever more sophisticated forms of public influence over private enterprises.

In short, the new economic geopolitics is not simply bringing the state back into the market. It is bringing it into the governance of companies. And perhaps the real question in the coming years will no longer be whether a company is public or private, American, Italian or Chinese. It will be a question of understanding who, regardless of ownership, truly holds the power to determine its strategic decisions. A question to which, increasingly, investors too will have to learn to put a price.