State owned companies in China, do we need to revise economic theory?
There is a very interesting article in Financial Times today about performance of Chinese state-owned companies.
“… In 2007, the combined profit of the 150 or so companies controlled by the central government is expected to have reached Rmb1,000bn (£70bn, $140bn, €90bn). In the five years to 2008, this figure rose by 223 per cent. At the end of last year, the list of the world’s 10 most valuable companies contained four groups controlled by the Chinese state” […]
“What we are witnessing, in other words, is an experiment in capitalism that could challenge much of the conventional wisdom about state ownership. Plenty of countries have strong state-owned companies in semi-monopolies such as telecommunications or heavily regulated sectors such as energy and mining. Yet China is trying to create a series of leading public companies in industries exposed to cut-throat competition, where technology, design and marketing are crucial features – just the sort in which state-owned companies have typically suffered at the hands of private rivals.
At a time of growing discussion about whether there is a genuine “China model” for economic development that involves a much bigger role for the state, the fate of China’s public companies could help change the terms of the debate.”
Have we got it all wrong in Central and Eastern Europe? Should we stop privatization and rethink economic theory? I do not know. Certainly some privatization programmes were disasters, think of mass privatization in Russia, Czech Republic or Poland. If Jeff Sachs said one day he was sorry for advising mass privatization to the CEE countries. My tentative answer would be that in our region Chinese ownership/gradual model would not work. What we do not have, and Chinese do, is the ability to think in long-term strategic terms. Has anyone, ever asked a question how privatization plans contribute to achieving country long-term goals. Which industries will be key for country long-term success, what regulatory support should be given to achieve this success? No, no, no, no. We lived in a mantra that private ownership is always better than state ownership, and the open market competition will do the job and that privatization is good because it reduced the public debt (this was wrong, as debt fell in gross terms and was largely unchanged in net terms). In the 21st century the world is operating according to a broader set of rules. And Chinese are redefining the meaning of sound macroeconomic management anew. I wrote once that the world is moving away from Washington consensus to Beijing challenge. It does, very much indeed.