41 In the former Soviet Union former socialist regimes in Poland Hungary and

41 in the former soviet union former socialist

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41 In the former Soviet Union, former socialist regimes in Poland, Hungary, and Czechoslovakia, authoritarian regimes in many Latin American countries, and in China and Vietnam most of large state enterprises were over-staffed and had obsolete technology and deterio- rating facilities that made it difficult for them to compete effectively with Western multinational firms in global markets or to provide goods and ser- vices in adequate amounts and at reasonable prices in domestic markets. In many countries ineffective public enterprises not only failed to con- tribute to development but siphoned-off resources that could have gone to development activities, thus creating significant opportunity costs in resource-scarce economies. The costs of continuing to subsidize unprofit- able state enterprises took a heavy toll on the treasuries of even the largest countries. The government of China, for example, had to commit $11 bil- lion (17 per cent of the national budget) in direct subsidies and $20 billion in loans to inefficient state enterprises in 1990. Despite these high subsidies the state-enterprise sector’s industrial production grew by less than 3 per cent. 42 The highest rates of growth in the value of industrial output were in private enterprises (about 21 per cent) and joint ventures and foreign firms (56 per cent). 43 Recent studies of public enterprises in China found that, controlling for a variety of other factors, those provinces with a larger 40 H. Berument, “Public Sector Pricing Behavior and Inflation Risk Premium in Turkey,” Eastern European Economics, 41, 1(2003): 68-78. 41 Organization for Economic Cooperation and Development, Reforming the Economies of Central and Eastern Europe, Paris: OECD, 1992. 42 David Shambaugh, “China in 1991: Living Cautiously,” Asian Survey, Vol. XXXII, No. 1 (1992): 19-31. 43 Erin McGuire Endean, “China’s Foreign Commercial Relations,” in U.S. Congress, Joint Economic Committee, China’s Economic Dilemmas in the 1990s, (Washington, D.C.: U.S. Government Printing Office, 1991): 741-757. Can Public Enterprises Contribute to Development?
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28 Public Enterprises: Unresolved Challenges and New Opportunities proportion of state-owned enterprise industrial production have lower pro- vincial economic growth rates. 44 With the increasing globalization of economic interaction across nation- al borders, many countries with large numbers of public enterprises found that they inhibited both national development and international integration. By the early 2000s, the government of Vietnam, for example, explicitly rec- ognized that most state-owned enterprises no longer met development needs due to their small scale and irrational structure and their failure to focus on key areas of the economy. 45 The government reported that Vietnam’s SOEs have “backward technology and weak management capacity with low levels of autonomy and accountability in business and production,” weak manage- ment capacity, unclear objectives, weak accounting systems, and low levels
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