Restructuring Must Be Sufficiently Aggressive

SOEs are losing their effectiveness. The financial health of many SOEs is not guaranteed for safe operation. The rate of returns on capital is limited. Particularly, many are facing risk of collapse. Therefore, it is imperative to prevent indiscriminate credit which results in bad debts for economic groups. And, one urgent method is to eliminate their subsidiary banks, finance companies and venture funds and divest investments in financial institutions. The Government needs to review, reconsider and reassess multi-business State-owned economic groups. It is vital to separate the ownership right of the Board of Directors and governing power of the Board of Executives, as well as enhance supervision effectiveness by improving management and supervision rights of SOEs of concerned ministries and departments. The plan aims to ration State monopoly in business and production business, thus distorting the market, causing huge damage for consumers, restraining economic growth and competitiveness.

 

I think restructuring in general and SOE restructuring in particular are in the process of changing the entire system. For a successful restructuring, it is crucial to distinguish the ambiguous goal of profit and non-profit. If they do for profit, they will compete to the last on the market. But, when they operate for a non-profit purpose, the State must “take care of” them. The State does not cover risks for enterprises nor entail risks to them by issuing administrative decisions.

 

The Government must comply with market laws, reduce public investment, and stop abuse of State ownership, especially the limits on the degree of privatisation.

 

SOE restructuring must be based on the principle of respect and full utilisation of market rules and must ensure requirements of renovation, integration and sustainable development.

 

The doi moi (renovation) process has been in place over the last 20 years, but it remains flawed because it is influenced too much by the economic interests of large groups. Thus, further oversight of the Government is needed for prospective success.

 

Until now, we have not worked out two age-old problems of SOEs: One is representative and conflict of interest; and other is ethical risk that may lead to risk-taking and lack of responsibility. To put an end to these problems, it is crucial to increase the degree of market competitiveness and surveillance. Accordingly, we must carry out equitisation as a revolution, although this is not a new issue. We will focus on large entities, fundamentally reshuffle governance and create transparency in oversight.

 

We need to draw experience from Argentina, which massively opened up social services like health, power and water supply to the private sector and then lost the power of controlling prices. This caused social unrest. The State should only reshuffle fields that the private sector cannot or does not want to do, such as national security and defence, large investment in infrastructure and public utilities. The primary role of the State is to support the society to enrich and it will collect taxes. When it grants power to the private sector in such fields as health and electricity, it needs to have a specific and careful roadmap allowing it to maintain some price control once the private sector pushes them up.

 

It is not true that economic restructuring means letting private sector do everything apart from the most difficult tasks reserved for the State. The State sector still plays the role in the economy and it can engage in highly profitable business segments. Powerful capitalist economies like the United States, the European Union and Japan are also falling into very bad economic crises. In those economies, means of production and social wealth are in the hands of tycoons and the people are staging demonstrations on the streets. There are different models in other countries and the question is which model we choose, taking the best advice to strengthen our own force. The experience from the handover of SOEs to the private sector leading to political collapse and social unrest in the former Soviet Union and Eastern European nations remains clear. For that reason, the State still has to take command power over the economy, and its real power is exercised through SOEs.