Are Government-Backed Corporations Inherently Less Profitable?
The popular attack of government-backed enterprises is that it encourages inefficiency and takes the enterprise's focus off of profit. Is that true?
In the cases where the corporation must have other social agenda (promoting social welfare as a general goal), government backing definitely encourages that. Now, they have a large financier for any social task that is conducive to the government's goals, whatever they may be (Think: Samsung and Korea).
In other cases, is that attack true? Think back to the bailout days when banks left and right got money (but with strings) from the treasury. In response, the companies clamored to climb back to profitability in order to pay back the treasury and drop any suggestions that they were acting against the interests of the taxpayer.
And just now, after GM is 60% nationalized (Yup, we own 60% of GM now), it announces that it "cannot afford business as usual," implying that it could prior to nationalization.
Clearly, it is not always the case that having government backing for some enterprises or industries is the worse way of organizing economic activity, and in many cases it is the better way--for industries that have significant national impact or cannot sustain themselves.
Samsung could not have achieved a fifth of Korea's entire GDP and a third of its trade volume without the backing of the South Korean government. Given the facts, America should reexamine its fears of national industries, say, starting with health, insurance, and energy.
- Jinghao's blog
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Comments
A common fear is that a
A common fear is that a government industry/enterprise equals a monopoly, so the lack of competition allows for more inefficiency.
Monopolies are only
Monopolies are only inefficient if they choose to abuse their monopoly powers. A government-owned monopoly that's watched by hundreds of millions of taxpayers will feel much more pressure to perform at a socially-optimal level than a private institution that just wants to earn lots of money.
True, it depends on what the
True, it depends on what the task is. However, governments tend to be less efficient in many circumstances, I think.
re:
I can't say they're less profitable. Sticking with cars, look at how successful Volkwagon is, a company basically started by the state.
The car companies were an unfortunate example of heavy burdens the government had already placed on them (interstate sales tax, in-state taxes), the unions oppressive demands, and encouragement and growth of the foreign market, not just poor decision making. Can the government make a business that could compete internationally? I really doubt it; the bureautards have enough business to worry about now, and will likely create an overbloated industry that will barely serve greater Michigan.
That's true. The oppressive
That's true. The oppressive unions were a great burden on them, but they definitely did make the decision to drive the company, once America's largest (GM), into the ground. In this case, I think the government can do something to at least put them on stable footing, if as a much smaller company.
Some of the most profitable enterprises worldwide have been state-owned or subsidized. Look at Gazprom, China Mobile, Samsung, and Japan Post. Obviously, you don't see American companies in this list, but it could happen.