试听180秒072：Is the Private Sector the Emperor of the Economy

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Hello, Himalaya’s subscribers. My name is Timothy Taylor. 

And today  we're going to discuss is the private sector the emperor of the economy. I'd like to start by talking about boats, not boats with motors, not boats with sails, but boats that move because people are rowing them with paddles. Now some of you studied history might be thinking about the galley ships from 2000 years ago with oars sticking out on both sides used by ancient civilizations like the Greeks and the Romans. Or back in the early fifteen hundreds during the Ming Dynasty, China also used long, thin boats called Wu Gong Chuan that got their power from about twenty rowers on each side. They were an important part of some of China's victories in naval battles with Portugal at that time. 

But of course, my guess is that when most of you think about ships with paddles, you don't think about thousands of years ago. You think about the Duan Wu Festival each year, in English often called the Dragon Boat Festival. In China the historical tradition of having a contest for people to see who can row about the fastest can be traced back more than two thousand years to the Warring States Period of Chinese history. But what matters right now is you have in your mind the idea of a boat it's powered by many different people who are rowing with oars. Now there's some obvious problems，for every boat that is rowed with oars, rowers all need to row at the same time in rhythm with each other. Also, they can't really steer themselves. They often have their bat on the direction in which they're headed. 

So they need to have something to keep them in rhythm, like a drum, or a person who is calling out and a way of steering. Now here's my question. Who is in charge of this boat? Is it the rowers who provide the power, or is it those who keep the rhythm and do the steering? There's no question they are all needed to win a dragon boat race，but who's in charge? Ask this question because there's an old saying among economists, when it comes to the role of government in the economy, the old saying is “ government should steer, not row. ” 

You can think about the private sector in most economies as the rowers providing the energy pushing the boat forward. Indeed, you can think of all the workers and consumers and savers and investors in an economy as the rowers and the government as having a role in keeping things in rhythm and doing some steering. In this lecture, we're going to talk about one of the biggest economic shifts all over the world of the last few decades, a shift from state run firms to privately run firms. And we're going to make two main themes in this lecture. One is the rise of private firms in China and in other places around the world in the last few decades. 

And second we’ll talk about how China and others have made the transition away from state-owned firms and toward private firms. Our first main theme is the rise of private firms in China and other places. And we've talked a lot in earlier lectures about the shifts in China's economic reforms since the late 1970s and early 1980s. But it's useful to think of these changes as part of a broader shift that was happening all around the world. As one example, here's what was happening in the United Kingdom during the early nineteen eighties. 

At the start of the 1980s, here is a list of some companies that were owned by the British government. There is British Telecom, a national phone company, British Gas, the national gas company, British Steel, the national steel company. There's also a national water company, a national electricity company. There's British Aerospace. There were various companies in the oil industry like Brit Oil which looked for oil in the north sea near Britain. And Enterprise Oil which did oil exploration and production. And there's also British Petroleum where the government owned a fair amount of stock. 

The government also owned British Airways, an airline company and British airports authority for running airports. You add up all of these and others government owned firms in the early 1980s, about 10% of the total gross domestic product of Britain, but over about ten years in the 1980s, nearly 90s, those firms were sold off to private markets and became private firms. This wasn't just the United Kingdom either. All across countries of western Europe, there were similar changes. In fact, through the 1980s and 1990s, governments in more than a hundred countries sold off state-owned companies. 

In the late 1990s, there was roughly one hundred billion dollars per year in sales of state-owned firms, which were being sold off to private investors and private firms around the world，call that maybe six hundred billion in Chinese yuan. Now, this happened all around the world. Some of the biggest sales were in Latin America, but there is one other enormous example, which is the privatizations that happened after the Soviet Union broke up in 1991, dividing up into Russia and fourteen other different countries. The Soviet Union, like China before its reforms, had also had an economy with a very high degree of central planning and government ownership. It essentially include all the largest companies in the economy of the Soviet Union. 

The state-owned sector declined in size very rapidly in Russia and in many of these other new countries created by the breakup of the Soviet Union. Now, the reasons for this shift should be familiar to you from earlier discussions. There was concern all around the world, not just in China, that state-owned firms were often not very productive, and often they were not contributing much to economic growth. In some cases, the situation was that state-owned firm were monopolies, as we talked about in earlier lectures monopolies like to keep prices high and charge consumers more and they're not very likely to make big investments about how to change and evolve in the future. 

In some cases, the state-owned firms all over the world had turned into zombies， making losses year after year, getting more and more loans from government or state-owned banks and just making it very hard for other firms that otherwise could have been healthy to prosper and do well. And in a few cases, it was even true that state-owned firms around the world had become corrupt and a large part of their profits were going to make managers rich, or maybe a few politicians, not to really focus on providing goods and services to customers. 

Now, again, so the major issue all over the world in the 1980s and 1990s. Now, China is one of the most extreme examples of a shift from state-owned firms to private firms. And partly because it's such an extreme example, the move away from state-owned firms has been going on for longer in China than in many other countries. It's sort of continued into the first two decades of the twenty first century, but over time, the state-owned sector in China has been gradually becoming a smaller share of China's total economy and a smaller share of China's total employment. 

My point is that China's experience is part of a broader recognition by governments all over the world that even if there are a small number of companies where it does make sense for the government to really run the company. In many, many more cases, the economy works best and grows best，if the government will just steer and not try to row. Let's move to our second theme：what are some ways in which China and other nations has shifted away from state-owned firms? Now, China's leaders have said many many times that state-owned enterprises are important to China's economy, and in certain areas to China's values as a country.

China's leaders have also said many times that state-owned enterprises need to be run efficiently and smoothly, and should where possible face the pressures of competition. So the challenge in China has been trying to combine modern corporate governance and government leadership in a way that you can get both more efficiency and growth, but also meet China's national development goals. How can this be done? Well, by and large, China has steered away from what used to happen in the rest of the world, just selling off firms to private investors. And China has also steered away mostly from just shutting down such firms. Instead, China has tried a bunch of other approaches, and let me just sort of run through many of them here. 

One approach has been to consolidate some state-owned enterprises, that is jam a couple of them together, for example, if there's one state-owned firm that's being run really well and efficiently, you might have that firm take over some others. It's a little bit like the market for corporate control we talked about earlier, but instead of being taken over by outside investors who bring in new managers, the government itself is bringing in the new managers. Now of course, this can work in some situation, but not others. If you take two zombie firms and merge them together, you just have a bigger zombie firm unless something substantial changes. 

Another shift in China has been phasing out the social functions of state-owned enterprises. Back in the 1980s and into the 90s，state-owned firms in China often provided all sorts of social services, housing, health-care, sometimes education support of the retired and elderly and so on. So one of the shifts in China has to let state-owned enterprises focus on providing goods and services and let other kinds of government programs，other kinds of government spending deal with the social issues that helps of course state-owned enterprises not be，not need to lose money on those particular kinds of spending. 

Yet another approach is that when a state-owned firm is a big holding company and by a holding company, I mean it's a company that owns a lot of other firms, you can take the giant state-owned firm and break it up into smaller parts so that each part becomes an individual company. Now those could be sold off to investors and sometimes China has done this by selling to an investment group that's led by the existing managers of the firm or it could be merged into another company. And yet another step is that in China, there have been movements towards shutting down parts of large state-owned firms that are losing money. 

Imagine, for example, that a big state-owned company has fifty factories, and some of the factories have efficient production. They have sales revenues much higher than their costs, and some of the factories may be older or more polluting, and they just don't produce very efficiently. So any revenues from their sales are below their costs. So of those fifty factories maybe pick the ones that are outdated and just shut down those particular factories. There have been experiments throughout China with this idea of having employees or managers of state-owned firms own stock in the company. 

The idea is that if they own stock, that will increase their motivation to help the company perform better because they own a slice of the company. And ideas often tried in the United States and parts of Europe as well. Yet another approach is to bring in other investors, including both domestic private sector firms from China, and in some cases potentially investment by foreign firms as well. Particularly some areas like travel, medical care, electricity, and power and utilities have been opened up in recent years to both private and foreign investment in China. Another step is to encourage state-owned firms to sell in international markets. 

If the state-owned firm can't sell international markets, it's maybe a signal that that firm is falling behind in its efficiency and productivity. If the firm can succeed in international markets, then maybe it doesn't need much government support. It could even become an attractive target for to be taken over by private sector investors. Yet another step when evaluating the performance of state-owned firms are China's government has used to just sort of look if the firm was growing in size. But now they're looking a little more carefully in saying, why is the firm growing? 

If the firm is just growing because its borrowing lots and lots of money year after year, then maybe we need to take closer look, instead of encouraging managers of state-owned firms just to borrow in order to get large, maybe we should encourage them to make profits and then use some of those profits to reduce the amount they borrowed in the past. Another kind of trade off is to encourage state-owned firms to take some of the money that the firm is borrowed and see if they can get the lender to agree to do a trade. 

The lender would give up the debt that was owed, but in exchange, would get stock in the firm. So the firm would no longer have debt payments to make any more. And a final step. You can encourage state-owned enterprises to stop investing in the same old things they've always done. The idea is if there's some things that aren't making enough money shift over to new industries, one example that often comes up is that, of course, some construction projects to build additional infrastructure are a good idea. But there is a concern in some areas that spending on construction is sort of too easy and too simple, and sometimes its leading to building stuff that won't be used, in which case it would be better to focus that investment capital in other areas. 

Now, all of these things are happening in China, not all at the same place panel at the same time, of course. Some companies, some areas, some industries get more focus on one than another. But overall, it is clearly a goal of China's government to have the state-owned firms become healthier, not to have so much borrowing when they fail, and where possible to have these firms face more competition and pressure for efficiency. And while doing this, of course, still to meet the nation's development goals. The underlying theme here is that just because government has an important goal that should be met, it doesn't always mean that government workers or state-owned companies have to be the ones doing the job directly. 

The power of competition between providers is important to remember too. Let's finish with a few review questions. What does it mean when economists say “government should steer, not row?” Around the world, how the numbers of state-owned firms changed since the nineteen eighties? And what are some of the ways that China has been trying to reduce the debt and borrowing of state-owned firms? In the next set of lectures we’ll shift away from talking about how companies are run and start talking about the economics of pollution. 

I'm Timothy Taylor. Thank you for listening to Himalaya.