Along with macro-economic stability, the IMF and the World Bank have consistently pressed the virtues of private enterprise, and the privatisation of state enterprises. In developed countries, there is considerable evidence that private firms tend to be more cost-efficient than public ones. But in the learning phase of development, the public–private ownership distinction is framed differently, that is, in terms of what kind of company is able to absorb knowledge and make technological progress. When the state’s regulatory capacity is weak, it is sometimes easier for governments to pursue industrialisation objectives via state firms. Japan, Korea, Taiwan and China all made rapid technical progress using state-owned companies, particularly at an early stage; China is today making greater use of state firms than any successful developing nation before it. This does not prove that state ownership is superior to private. It merely demonstrates that it is not such an important consideration as developing countries have been told. In failed, autarkic socialist states like the Soviet Union, and India and China in their pre-reform incarnations, the absence of export discipline and competition were the real developmental culprits, not who owned firms’ equity.
What works for a developed country might not necessarily make sense for one that’s developing. Many countries that have not yet reached developed status, were able to utilise state firms to pursue industrialisation and grow their economy. State firms might be less efficient in developed economies but it does not mean that they are detrimental to the economic growth of a state.
