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Strategy, Independence, and Governance of State-owned Enterprises in Asia

Essay by Henrique Schneider*

State-owned enterprises (SOEs)—are important, especially in an Asian context. According to Fortune Magazine’s (2018) 500 list, three out of the world’s top-10 largest companies by revenues were Chinese SOEs: State Grid (rank 2), Sinopec (rank 3), and China National Petroleum (rank 4). Depending on the degree of direct and indirect government support, the next five ranks contain at least a group of near-state enterprises—near-state meaning compa- nies in which the state either is a minor shareholder or has an institutionalized stake: Royal Dutch Shell, Toyota Motor, Volkswagen, BP, and Exxon Mobil. This only leaves two of the world’s ten largest companies neither belonging to nor being backed by the state, Walmart (rank 1) and Berkshire Hathaway (rank 10).

Adopting an even more restrictive understanding, SOEs—companies of which the state is the majority shareholder—account for around 25% of the Fortune 500 entries by number of companies. Around 15% of them are in the People’s Republic of China (PRC), 5% are in other Asian countries, and 5% are in the rest of the world. Following the same criterion, in the list for the year 2005, SOEs constituted only about 6% of the total.

SOEs not only seem to be important as an economic phenomenon; they also seem to be especially relevant to economies in Asia. Some SOEs are not only economi- cally important but also play other, non-economic roles, like attracting, fomenting, and diffusing knowledge and education or securing the political interest of the state.

In recent years, successful SOEs have served as symbols of the (re-)emergence of many Asian economies. On the other hand, there are concerns about SOEs’ governance structures. The Organisation for Economic Co-operation and Development (OECD) published its Guidelines on Corporate Governance of State-Owned Enterprises as early as 2005, most recently updating them in 2015 (OECD 2015). In a 2016 report, the same organization cautioned governments to strengthen their governance standards in SOEs (OECD 2016a). In 2017, the OECD again reminded governments that SOEs could lead to remarkable distortions and to unfair competition (OECD 2017). In 2018, the OECD compared different practices on the governance of SOEs around the globe. It insisted on the need to strengthen monitoring and reporting mechanisms (OECD 2018a). In another report, it identified the independence of boards as success factors in the performance of SOEs (OECD 2018b), and, in yet another, it highlighted risk management as elemental (OECD 2016b).

However, not only international organizations but also state agencies are paying attention to the governance structure of SOEs. An example of national evaluation— in the “East” and the “West”—is the PRC’s State-owned Assets Supervision and Administration Commission (SASAC), which is advancing an agenda on the reform of SOEs to strengthen their governance, focusing especially on the independence of the institutions and their board members as well as on the economic desiderata that the SOEs must fulfill (SASAC 2018). India is considering restructuring and privat- ization (Khanna 2012; Mishra 2014).

On a regional level, the Asian Development Bank (ADB) has published many reports on SOE reform, the most recent being its thematic evaluation State-Owned Enterprise Engagement and Reform (ADB 2018), in which it states that “SOE reform is challenging, but critical” (xxii). This reform, according to the evaluation, should focus on government oversight and the political independence of SOEs, because they tend to improve the governance and performance of those entities (xxv).

This paper is interested in the governance of SOEs. With insights gained from institutional economics, it answers the following question: How can countries reform SOEs to strengthen their governance? Here, this paper claims that, although the guidelines and lessons learned that the above-mentioned authors have identified are necessary for SOE reform, they are not sufficient.

This paper asserts that, in a setting based on new public management (NPM), the ownership strategy and independence are building blocks for the good governance, and for the reform, of SOEs. As important as this answer is, it comes with a limitation of scope. Why does the state set up a company under its control or of which it is the main shareholder? The answer is either to secure strategic sectors or operations or to produce goods in a productive, innovative, and customer-oriented way. While the first part of the last sentence follows a political paradigm, the second follows an institutional paradigm, in this case NPM. In answering the question about how to govern SOEs, this paper limits its scope to the latter, deliberately leaving questions about politics and political economy aside. In reality, however, the two paradigms come together. The last section of the main body of this text briefly addresses this limitation of scope. Other papers deal in more detail with the interaction of politics and institutions regarding SOEs.

The remainder of this text proceeds as follows. After defining state-owned enterprises and new public management, the paper develops a framework for ownership strategy and independence. An examination of how the three factors— new public management, strategy, and independence—enhance the governance of SOEs leads to its conclusion (reviewing its limitations) and to policy recommendations …

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Strategy, Independence, and Governance of State-Owned Enterprises in Asia


*Henrique Schneider is a professor of economics at the Nordkademie University of Applied Sciences in Elmshorn, Germany and chief economist of the Swiss Federation of Small and Medium Sized Enterprises in Bern, Switzerland.

Henrique Schneider’s essay “Strategy, Independence, and Governance of State-Owned Enterprises in Asia” is the first of 16 contributions from various Economists in the book “Reforming State-Owned Enterprises in Asia – Challenges and Solutions”, published by ADBI, in the “ADB Institute Series on Development Economics”.

This book analyzes state-owned enterprises (SOEs), which are still significant players in many Asian economies. They provide essential public services, build and operate key infrastructure, and are often reservoirs of public employment. Their characteristics and inherent competitive advantages as publicly owned enterprises allow them to play these critical roles. Their weaknesses in governance and inefficiencies in incentive structures, however, also often lead to poor performance.

The gorilla and orangutan, or how freedom could be lost

GIS Statement* by Prince Michael of Liechtenstein

As in the dystopian “Planet of the Apes” films, people in the developed, democratic world may find themselves stripped of their freedom and wealth if they continue turning a blind eye to the autocratic tendencies of expanding governments. Another big leap in this expansion is taking place during the coronavirus pandemic

Today’s collusion between politics and science looks like it comes straight from a certain classic film (source: GIS)

Wearing masks may be a sensible precaution during a pandemic but looking at the people hidden behind them brings to mind the famous Asian pictorial maxim of three monkeys embodying the principle of “see no evil, hear no evil, speak no evil.” Like them, we are turning a blind eye to an alarming situation, refusing to hear and talk of it.

When the Covid-19 drama started in China in late 2019, Western democracies were unimpressed. Europe slept until mid-March, when governments began panicking: closing borders, ignoring the right to the free movement of goods originating in the European Union by blocking deliveries of medical supplies to other member states, and freezing the continent in hard lockdowns. Fundamental civil rights, such as the freedom of movement and assembly, were suspended. Public debate was practically silenced

Governments assumed authoritarian powers based on the opinions of selected virologists. Those questioning the measures taken, or merely demanding an open discussion, were marginalized and called all sorts of names. In many countries, governments presented their strategies as the only ones possible, “alternativlos.”

No brilliant results

In an emergency, such a heavy-handed approach may be acceptable for a brief period when a government acts quickly on imperfect knowledge in the face of significant danger. However, one year later, little has changed: arbitrary policies remain in place, and so does the ban on debating them. When you shut down public debate, making the proverbial monkey cover its mouth, inevitably, frustration rises and the opposition becomes radicalized. And your “alternativlos” policies cause all sorts of damage in the real world.

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The gorilla and orangutan …


*GIS is a global intelligence service providing independent, analytical, fact-based reports from a team of experts around the world. We also provide bespoke geopolitical consultancy services to businesses to support their international investment decisions. Our clients have access to expert insights in the fields of geopolitics, economics, defense, security and energy. Our experts provide scenarios on significant geopolitical events and trends. They use their knowledge to analyze the big picture and provide valuable recommendations of what is likely to happen next, in a way which informs long-term decision-making. Our experts play active roles in top universities, think-tanks, intelligence services, business and as government advisors. They have a unique blend of backgrounds and experience to deliver the narrative and understanding of global developments. They will help you develop a complete understanding of international affairs because they identify the key players, their motivations and what really matters in a changing world. Our experts examine the challenges and opportunities in economies old and new, identify emerging politicians and analyze and appraise new threats in a fast-changing world. They offer new ideas, fresh perspectives and rigorous study.

A “New Deal” For Indian Country?

by Terry Anderson

Deb Haaland, a Native American, is now the secretary of the Department of the Interior. The department houses the Bureau of Indian Affairs, the agency for relations with Indian tribes. Chief Justice John Marshall referred to these groups in 1832 as “domestic dependent nations.” In that same decision, Marshall declared the relationship of Indians to the federal government “like that of a ward to his guardian,” making the secretary the guardian. The ward-guardian relationship became further entrenched in federal law when the Dawes Act of 1887 and the Burke Act of 1906 explicitly said Indian land was to be held in trust by the Department of the Interior and could not be released from trusteeship until the secretary of the interior—now Haaland—deems Indians to be “competent and capable.”

Painting herself the same dark shade of green as her boss, President Biden, has won Secretary Haaland support from environmentalists, but this is not the leadership Native Americans need from her. As interior secretary, Haaland is in a position to oppose the explicit racism in federal Indian policy, for nothing is more racist than calling people wards and giving the government the authority to decide whether they are competent and capable. Will Haaland’s policies acknowledge that Indians are “competent and capable” or will they continue holding them in colonial bondage?

Secretary Haaland can make changes in the Bureau of Indian Affairs (BIA) because she is the trustee of fifty-six million acres of Indian Country. (Throughout Indian Country the acronym BIA is taken to mean “bossing Indians around” by wrapping them in “white tape.”)

Letting the Tribes Prosper

Start with Haaland’s position on oil and gas development. She has consistently said she would “stop all oil and gas leasing on federal lands” and supports “a ban on fracking,” while calling for “no new pipelines.” Holding to these positions and moving the Biden administration’s Green New Deal forward, however, would have major effects on reservations, especially those with significant energy potential. If Native Americans are competent and capable, and they are, theirs is the right to make decisions about oil and gas development on their lands …

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A “New Deal” For Indian Country?

Vernon Smith Prize – Virtual Awards Ceremony

vernon smith prize 2020 winners online awards ceremony
13th International Vernon Smith Prize  |  Winners received their Prizes in an online awards ceremony. Top left to right: Carlos Gebauer (Moderator), Susanna Gopp (ECAEF Host), Dikshya Mahat (3rd Prize). Bottom left to right: Ethan Yang (1st Prize), Prinz Michael of Liechtenstein (ECAEF President), Jorge Jraissati (3rd Prize). The second co-prize winner Krzysztof Lesniewski could not join the conference call due to illness. (Sceenshot: ZVG)

Back in January, we announced the winners of the 13th International Vernon Smith Prize, leaving us organizers with a very uncommon problem: How to run the Awards Ceremony with strict Covid-19 restrictions in place?  The winners were not able to follow the usual invitation. They could not attend a physical event in Vaduz, Liechtenstein. Instead, the award ceremony was held virtually through a Zoom Webinar on 8 February 2021. Because now, more than ever, it is important that we continue to recognise the achievements around us. It is a powerful way for us to continue forward, even when it feels like we are at a standstill.

Via Zoom Webinar, the winners did successfully defend the essays after an international jury did judge their works. Prince Michael of Liechtenstein honored the winners.

1st Prize:
Ethan Yang (USA)


2nd Prize:
Christoph Lesniewski (Poland)


3rd Prize:
Dikshya Mahat (Nepal) and Jorge Jraissati (USA)
ex aequo


The prizes have been awarded on the basis of originality, grasp of subject, and the logical consistence of the argument.

Topic was:
‘Is the Public Interest really in the public’s interest?’

About 85 years ago, F. A. von Hayek already has warned us that even “if people agree about the desirability of planning in general, their agreements about the ends which planning is to serve will in the first instance necessarily be confined to some general formula like ‘social welfare’, the ‘general interest’, the ‘common good’, ‘greater equality’ or ‘justice’ etc. ”

Agreement on such a general formula is however, not sufficient to determine a concrete plan, even if we take all the technical means as given”. Although, these ambiguous, emotionally charged and politically domineering slogans still arouse the fantasy of intellectuals and politicians alike, a conceptual definition of these ‘multi-purpose’ terms appears to be of no concern for them. It is a regrettable fact that especially economics, far more than the other social sciences, is obsessed with the reiteration of popular, yet meaningless buzz words.

The following prize money was given to winners:

1st Prize: €4,000  |  2nd Prize: €3,000  |  3rd Prize: €2,000


The International Vernon Smith Prize for the advancement of Austrian Economics is an annual essay competition sponsored and organized by ECAEF – European Center of Austrian Economics Foundation, Vaduz (Principality of Liechtenstein).

CEPROM/ECAEF Conference postponed

Due to the current development of the Covid-19 pandemic regretfully we are forced to postpone our V. CEPROM/ECAEF Conference (scheduled March 30, 2021) to December, 2021. We apologize for the inconvenience and will keep you posted.

Principality of Monaco:

V. International
CEPROM/ECAEF Conference

(In honor of Jacques Rueff, 1896-1978)

Topic:

“Is the Public Interest
really in the public’s interest?”

– with Lessons from the Past Pandemic –

The conference is developed and organized by ECAEF (European Center of Austrian Economics Foundation, Liechtenstein). It is hosted by CEPROM (Center of Economic Research for Monaco). By invitation only. Stay tuned for updates regarding the Conference Program.

Designed and Arranged by ECAEF – European Center of Austrian Economics Foundation (LI)

Locally hosted and organized by CEPROM- Center of Economic Research for Monaco (MC)

By invitation only

Academic Director: Kurt R. Leube (ECAEF; krleube@gmail.com)
Administrative Director: Emmanuel Falco (CEPROM; cecile@mlp.mc)
Media Contacts: nsaussier@palais.mc
Conference Date: December 2021 (exact Date to be announced)
Location: Musee Oceanographique de Monaco, Principality of Monaco
Conference Languages: English/French; simultaneous translation

Conference Program

09:00-9:30 Registration
09:30-9:45 Welcome: H.S.H. Prince Albert II and H.S.H. Prince Michael of Liechtenstein

9:45-12:00
Session I: The Public Interest: On its Substance as a Governmental Concept
09:45-10:00 Chair: Peter A. Fischer (CH)
10:00-10:30 Limits and Necessities of Regulation: Public Interest Lessons from the Past Pandemic – Henry I. Miller (USA)
10:30-10:45 Discussion
10:45-11:15 Coffee break for all participants
11:15-11:45 A false Dichotomy? The Public Interest and Inequality – Axel Kaiser (CL)
11:45-12:00 Discussion

12:00-13:45 Break

13:45-15:30
Session II: The Public Interest: On its Meaning as an Economic Policy Function
13:45-14:00 Chair: Carlos A. Gebauer (D)
14:00-14:30 Bliss Point Economics: On the Root of Public Interest Evil – Terry L. Anderson (USA)
14:30-14:45 Discussion
14:45-15:15 In the Name of the Public Interest? Government Debts and Reckless Monetary Policies – Lars P. Feld (D)
15:15-15:30 Discussion
15:30-16:00 Coffee break for all participants

16:00-18:00
Session III: The Public Interest: As a Guide to and a Fact-Check on Public Policy Measures
16:00-16:15 Chair: Peter A. Fischer (CH)
16:15-16:45 Conjectures, Refutations or Fakes? Only an Unbiased Science is in the Public’s Interest – Josef H. Reichholf (D)
16:45-17:00 Discussion
17:00-17:30 On the Zeitgeist and the Public Interest – Johan Norberg (S)
17:30-17:45 Discussion
17:45-18:00 Closing Remarks: Kurt R. Leube (A/USA)
18:00 End of Conference

Please note: Some paper titles might be edited or changed.