Innovation in State-Owned Enterprises: Reconsidering the Conventional Wisdom
Journal of Economic Issues, 48(3): 821-848
32 Pages Posted: 19 Apr 2014 Last revised: 20 Jun 2015
Date Written: March 17, 2014
A very well established economic literature maintains that State-owned enterprises (SOEs) are inefficient comparatively to privately-owned ones (POEs). In this paper we argue that SOEs' inefficiency is not due to the State ownership per se, rather it is caused by some conditions other than ownership which SOEs often, but not necessarily, relate to. In particular, we focus on dynamic efficiency - specifically, the production of technological innovation - of SOEs in manufacturing industries, where SOEs should contend with POEs in a competitive environment. We suggest that targeted measures aimed at increasing managers' commitment to long-term investment strategies and at reducing corruption and political interference, though being complex and difficult to implement, can be much more (positively) incisive on long-run technical progress than the simple privatization of companies. This leaves room for exploration and implementation of policies that might reconcile State ownership and market competition in industrial sectors.
Keywords: State-owned enterprises, innovation, privatization
JEL Classification: H11, L33, O31, P12
Suggested Citation: Suggested Citation