An article in The Economist1 pointed out that the United States and United Kingdom used state capitalism at the end of the 18th century. It stated that every rising power relied on the state to kick-start growth or at least protect fragile industries. There has also been a fair amount of local media speculation in South Africa on a ‘super state-owned enterprise ministry’.
State-Owned Enterprises (SOEs) are always almost synonymous with the Chinese economy. However, some of the larger SOEs are from Iran, Russia, Saudi Arabia and Venezuela, predominantly in the oil and gas industry.
Before China opened up its economy, its SOEs provided lifelong employment to its employees – known as the Iron Rice Bowl concept. Since then, it has embarked on what is often referred to as ‘creative destruction’. China’s textile industry painstakingly restructured itself and introduced new technologies. This resulted in global dominance in the industry, mainly due to the competitive cost of its products and the efficiencies created by its infrastructure.
South Africa Vision 2030
The South African Government’s National Planning Commission produced the country’s very first National Development Plan to outline a vision for South Africa in 2030. Although in draft, the plan emphasises the need to build infrastructure, create jobs and increase competitiveness and exports. The challenge will be on how to implement and operationalise this plan.
What would the role of the state and SOEs be in Vision 2030? Is there a role for SOEs? Can the country learn from its largest trading partner, China, about how their SOEs operate?
Concerns often raised about SOEs globally include profit versus social motive, productivity and governance practices. In February 2012, a report commissioned by the Canadian Institute of CEOs dispelled many of these preconceived ideas. The biggest misconception is that the SOEs’ motive is political. The current key driver in Chinese SOEs is profitability, which evolved from the Iron Rice Bowl concept.
When ISCOR and the South African Railways were established, the motive was industrialisation to create jobs and to ensure independence from sanctions. Even if there has to be subsidisation to create jobs, it may be more cost-efficient than merely creating a welfare state which will not be sustainable in the long term.
Employing vast numbers of people in SOEs creates the opportunity to develop a more skilled workforce of artisans and machinery operators, who are exposed to using advanced IT systems and processes which are similar to other industries.
China’s socialist history and its sheer size have necessitated the use of central planning to manage its economy and nation.
In South Africa, for example, there is a very different political system, society and economy, but the sheer complexity of its current challenges and Vision 2030 may require some state intervention before the market allocates resources equitably.
In his State of the Nation Address 2012, President Jacob Zuma announced the priority of infrastructure-led growth and Finance Minister Pravin Gordhan allocated close to R1 trillion for capital expenditure.
The state will play a large and important role to be able to reach its goals.
Chinese SOEs recruit their management team by advertising globally to recruit the best and brightest talent. The rewards are numerous. The Economist reported that in 2009, the average Chinese SOE chief executive or chairman’s salary was US$88 000 and the highest was US$182 000.
However, the state-owned Assets Supervision and Administration Commission (SASAC) closely monitors Chinese SOEs in terms of their returns, to minimise potential agency and corruption problems.
China’s 12th Five-Year Plan emphasises the need for a more equitable society with an emphasis on better healthcare, clean energy and moving up the value chain. This can be translated into planet, people and profit, which is also advocated by South Africa’s King Report III on Corporate Governance. This is an area where Chinese SOEs can learn from South Africa and incorporate some of the principles of King III into their best practices.
When China decided that it had had enough of poverty, it entered on a path of economic reform. It implemented what Deng Xiaoping called ‘Socialism with Chinese Characteristics’.
Africa will embark on its own growth path and development, but probably by implementing its plan with unique ‘African characteristics’.
1 The Economist, January 2012, page 21-27