"SOE Reform and Privatization in China---A note on several theoretical and empirical issues"

State owned enterprise (SOE) reform is one of the biggest issues for every transition economy. Even the Chinese economy, which is widely known as a successful case for "gradualist" economic transition, has been faced with poor management and low efficiency of many SOEs. As in the case for well-known arguments on transition strategies, i.e. gradualism vs. shock therapy, there has been a heated debate centering on the effectiveness of privatization of state enterprises. Conventional wisdom is that if an economy is to be marketized, its property rights should be privately owned. In light of China's economic success in transition, however, recent developments generally tend to support the gradualist approach to SOE property reform. It is often said that ownership of property rights does not matter. In this paper we examine several issues surrounding privatization, particularly of state enterprises, which have long dominated socialist economies. Our conclusions are as follows. First, ownership still matters for improving SOE efficiency as well as achieving its good corporate governance. Other things being equal, there is no theoretical reason that holds that state property rights outperform private ownership in managerial efficiency. Second, privatization is neither a panacea nor quick remedy. But it is generally useful for small and medium-size firm's restructuring in transition economies. Third, in China in contrast to European former socialist countries, de facto privatization as well as macro privatization, i.e. rising share of private sectors in the macroeconomy, is proceeding, though formal and micro privatization, i.e. change in ownership at the firm level, are relatively underdeveloped. Finally, further development of private property rights will facilitate development of markets. We insist that there exist a close relationship among market development, privatization and institutionalization.

SOE Reform and Privatization in China : A note on several theoretical and empirical issues

State owned enterprise (SOE) reform is one of the biggest issues for every transition economy. Even the Chinese economy, which is widely known as a successful case for "gradualist" economic transition, has been faced with poor management and low efficiency of many SOEs. As in the case for well-known arguments on transition strategies, i.e. gradualism vs. shock therapy, there has been a heated debate centering on the effectiveness of privatization of state enterprises. Conventional wisdom is that if an economy is to be marketized, its property rights should be privately owned. In light of China's economic success in transition, however, recent developments generally tend to support the gradualist approach to SOE property reform. It is often said that ownership of property rights does not matter. In this paper we examine several issues surrounding privatization, particularly of state enterprises, which have long dominated socialist economies. Our conclusions are as follows. First, ownership still matters for improving SOE efficiency as well as achieving its good corporate governance. Other things being equal, there is no theoretical reason that holds that state property rights outperform private ownership in managerial efficiency. Second, privatization is neither a panacea nor quick remedy. But it is generally useful for small and medium-size firm's restructuring in transition economies. Third, in China in contrast to European former socialist countries, de facto privatization as well as macro privatization, i.e. rising share of private sectors in the macroeconomy, is proceeding, though formal and micro privatization, i.e. change in ownership at the firm level, are relatively underdeveloped. Finally, further development of private property rights will facilitate development of markets. We insist that there exist a close relationship among market development, privatization and institutionalization.International Journal of Development Planning Literature, 16, 2001, p. 241-258. 掲載予定

"A Note on the Theory of "Socialist Market Economy":@The Materialistic View of History in the Twilight"(in Japanese)

It is widely recognized in China, and even among some western economists, that the experiment undergoing with a title of "socialist market economy" has put spurs to its economy with the result that it not only has saved socialism but its international status has been raised much higher. The theory of socialist market economy, which is called a creature by Deng Xiaoping, is highly praised in China as a great breakthrough of socialist economic theory. It is unique in that the market mechanism is utilized to a full extent while public ownership is still held as a basic property right system. On the other hand, this theory is criticized for having sacrificed some essence of Marxist original ideas of socialism, or having mixed unnaturally the two contradictory elements in economic system, i.e. market mechanism and public proprietorship. Originally, Marx and Lenin imagined that the socialism which must have appeared after capitalism had to be a system without market, but fully and easily planned by people, without the state as a classless society, and with much more freedom and democracy than in capitalism. This scenario was based on the well known proposition: historical development is determined by a law of dialectic materialism. Needless to say, this proposition proved to be unrealized. Particularly contrary to Marx's prophecy, the socialist revolutions occurred not in advanced capitalist countries, but in less developed areas like Russia and China. In practice, the state continued to exist, even more strengthened. The new class structure was created. The market, which was abolished at first, gradually replaced planning. However, this proposition is still definitely indispensable for socialist regimes, since the ideology-oriented communist party, can be authorized for its dictatorship in the political scene on the basis of this "scientifically true" theory of human history. The history of "real socialism" is a history of a gap between the theory and reality. As this gap becomes wider, however, the people are not motivated by socialist ideology. This ideology is being regarded just as hypocrisy. China's economy was developed because it reintroduced the market, rather than because it is socialist. No matter how it is rationalized along the line of Marxist theory, the socialist market system was the farthest form from the vision of socialism Marx and others had originally in mind. It may be a final testimony of the collapse of the materialistic view of history. In this paper, we briefly trace the historical development of socialist economic theory, from Marx to the East European reformers like Brus and Ota Sik, then the process of changing socialist economics in China since the early 1980's, and finally consider what weaknesses a socialist system has both in theory and practice.