State-Owned Firms: Still Inefficient

14 August 2007 at 12:02 am 1 comment

| Peter Klein |

Generalissimo Francisco Franco is still dead, and state-owned firms are still inefficient. A survey of over 12,000 Chinese firms finds that “even after a quarter-of-century of reforms, state-owned firms still have significantly lower returns to capital, on average, than domestic private or foreign-owned firms.” This from “Das (Wasted) Kapital: Firm Ownership and Investment Efficiency in China” by David Dollar (great name!) and my former Berkeley classmate Shang-Jin Wei. “By our calculation,” they write, “if China succeeds in allocating its capital more efficiently, it could reduce its capital stock by 8 percent without sacrificing its economic growth.”

The paper is light on theory and interpretation, but there is a substantial literature on the problems of state ownership to which one can easily refer (good starting points here, here, and here.)

Entry filed under: - Klein -, Classical Liberalism, Institutions, Management Theory.

Bryan Caplan’s New Book Economic Freedom and Entrepreneurial Activity

1 Comment Add your own

  • 1. Marcin Tustin  |  15 August 2007 at 5:24 pm

    The title sounds familiar. An interesting question is what was the stated goal of such firms was. I suspect that maximising returns to capital was not one of those goals. In that case, this tells us little other than that managers do not optimise with regard to something which they are not supposed to, and which does not give them personally anything.

    A more interesting study would be to see if Chinese firms had maximised returns all other inputs, or with respect to labour inputs, or if they maximised outputs of goods, or what.

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