To me, privatization of industry should not be done prematurely. A nation has much more resources than a private company and is much less intimidated by risks, which appears far smaller to a nation than to you and me.
What I mean is the Chinese semi conductor industry, the Operating systems industry, and many other industries including aerospace industry. These industries if left by itself will be nothing, compared to Western ones, because they lack the resources, be it people, money, or our cyber army used for stealing secrets (though how successful is debatable).
To better illustrate, the Electronics game, the Automobile game, and the Real Estate game use to be national companies, but since they all gone private, but only as they became more ready, auto industry less so.
Without the country's effort to get factories full of people who knows how to assemble a TV, the capital to build more factories, the know how on how to operating them, and more, China would not be the manufacturing giant it is today.
There are , indeed, some limitations when one opts to privatize industry components. There are 8 key lessons to consider:
1.
Privatization works best when it's part of a larger program of reforms promoting efficiency. New Zealand, the U.K., Mexico, and Chile are all successful privatizers. Their privatizations were accompanied by reforms to open markets, remove price and exchange rate distortions, and encourage the development of the private sector through free entry. Revenue maximization should not be the primary goal of privatization. Far better to eliminate monopoly power and unleash potentially competitive activities than to boost the sales price by divesting into protected markets. Also far better to create regulations to protect consumer welfare than to maximize price by selling into an unregulated market.
2.
Regulation is critical to the successful privatization of monopolies. In the sale of Chile Telecom, everybody won--consumers, labor, government, buyers--and the productive efficiency of the company increased as a result of a well-developed, well-administered regulatory framework.
3.
Countries can benefit from privatizing management without privatizing the ownership of assets. Management contracts, leases, and concessions have been successfully used the world over, particularly in sectors where it is difficult to attract private investors. In Côte d'Ivoire, the leased water company improved technical efficiency, increased new connections, became more efficient in billing and collection of receivables --and reduced the number of expatriate employees by 70%. But because a change in ownership is usually needed to lock in performance gains, private management arrangements are likely to work best when they are a step toward full privatization.
4.
The sale of large enterprises requires considerable preparation. Successful privatizations of large enterprises have entailed breaking them into competitive and marketable units (in east Germany, Argentina, and Mexico), bringing in dynamic private sector managers (in many telecom and airline sales around the world), settling past liabilities, and shedding excess labor (in steel and railways in Argentina). Successful privatizing governments also assiduously avoided large new investments for plant modernization and equipment, since getting the private sector to finance and manage these investments was itself a major reason for privatization.
5.
Transparency is critical for economic and political success.Mexico and the Philippines made the sale of enterprises transparent by adopting competitive bidding procedures, developing objective criteria for selecting bids, and creating a clear focal point with minimal bureaucracy to monitor the overall program. A lack of transparency can result in political backlash, as in the early days of privatization in Poland, or even bring the process to a halt, as in Guinea.
6.
Governments must pay special attention to developing a social safety net. In Tunisia, generous severance packages encouraged voluntary departures and reduced the need for outright dismissals. In many countries--most recently in Eastern Europe and Central Asia--employee ownership schemes, unemployment benefits, and retraining-redeployment programs are being developed to ease the social costs of privatization.
7.
The formerly socialist economies should privatize in all possible ways that encourage competition, and they should experiment with all available methods that go beyond a case-by-case approach to privatization. Since the economic and social importance of SOEs is far greater there than in the rest of the world, flexibility is in order--not because privatization is less necessary, but because it is more so. Rampant institutional and policy deficiencies require experimentation with a wide set of privatization tactics. These include share give-aways (or mass privatization schemes), state-assisted financing methods, free or low-cost shares to employees in privatized firms, and new types of investment-management companies to run groups of companies and diversify risk.
8.
In changing the public-private mix in any type of economy, privatization will sometimes be less important than the emergence of new private business. Countries can freeze or restrain the expansion of public enterprises and encourage the growth of a dynamic private sector through free entry, as happened in Korea and appears to be happening in China.
References:
Kikeri, Sunita, John Nellis, and Mary Shirley,
Privatization: The
Lessons of Experience, World Bank, June 1992.
Bishop, Matthew, and John Kay,
Does Privatization Work? Lessons from
You said you been in China during the early days, then you should know how limited our industry was then, and if we are to look at other developing countries' industry relative to us, we can also see how far we have advanced.
So to me these two serves different purpose rather than the efficiency part. A car without an engine will not run, no matter how well made it is, on the other hand, a car that only has the engine will break down, every 10 meters, if that's the only good thing about it.
It seems like a dedicated balance.
Indeed. It is a delicate balance, but one thing that China needs to do -- if it intends to jettison its new products to the global market is to ensure a fair game , to its industry and to competitors. Tapping the domestic market is a shear way to reap immediate rewards, but by going abroad, one can ensure greater profits , plus, introduce a point of conjecture -- Chinese products are, INDEED, high quality and reliable, dependable.
China has changed a lot since I've first visited in the late 90's to what it has become now. Everything has changed; the social outlook, standard of living has increased, greater legal initiative, minority rights prerogative, educational reform, corporate law reforms, political transparency, anti-corruption drive, et al.
China is changing; China has changed... for the better.
the UK, London: London Business School, 1988.
Ott, Attiat F., and Keith Hartley, eds.,
Privatization and Economic
Efficiency: A Comparative Analysis of Developed and Developing
Countries, Brookfield, VT: Edward Edgar, 1991.
Privatization: eight lessons of experience
