Building an island of state capacity: How the UK state implemented the Thames Tideway Tunnel with market-based finance

This article contributes to the literature on state capacity in financialized political economies by studying the market-based investment setting for the Thames Tideway Tunnel, a £4.2 billion sewer, built underneath central London to prevent raw sewage from spilling into the River Thames. Most analyses conclude that financial statecraft undermines state capacities, as it empowers finance and exposes states to uncontrollable risks. This article moves beyond these accounts by arguing that public policy officials engage with finance instrumentally, taking on risks to solve the governing challenges they face. It demonstrates that state action can build islands of state capacity with financial statecraft in fragmented policy environments. Based on expert interviews and documentary analysis, the article traces how the UK’s Ministry of the Environment experimented with a policy instrument and used investment capacities from different levels of government, to implement the Thames Tideway Tunnel through institutional equity investment and share risks in the privatized and financialized environmental sector. The paper concludes that under the current conjuncture, financial statecraft will play an important role in addressing the climate crisis. Therefore, further comparative research is required to explore its normative paradox.