TOWARDS A FRAMEWORK TO UNDERSTAND THE RELATIVE PERFORMANCE OF STATE-OWNED FIRMS

Abstract

This paper considers the factors influencing the comparative perfor-mance of state-owned and privately-owned enterprises (SOE/POE). The economics lit-erature has argued that firm performance is influenced by governance arrangements, leading to expectations of inferior perfor-mance from SOEs. Meanwhile, a political economy literature classifies countries ac-cording to the model of state engagement, which also has implications for SOE perfor-mance. We combine these two frameworks to provide a taxonomy. The first framework relating to governance concerns the rela-tionship between owners and managers, the relationship between large and small own-ers, and the functioning of the managerial labour market. The second framework con-siders three types of model of state engage-ment: the Welfare State, the Developmental State, and the Predatory State. Each of the six resulting taxonomies yields distinct out-comes in terms of SOE versus POE perfor-mance. In all models, SOEs perform better in a better governance environment than in a worse governance environment, and this ranking is the same in Welfare States and Predatory States. However, in Devel-opmental States with strong governance, SOEs may outperform POEs if they can benefit from superior state resources.