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Say no to reviving state-owned enterprises

With the presidential campaign in the final stage, revelations by the media and legislators of secret government workings and policies using public funds -- including plans for the establishment of an arms trading company (Taiwan Goal), an urban renewal company and an international investment company -- have become a source of conflict and public confusion.

Although the government may have funded less than 50 percent of the capital of these so-called private companies, it is still the majority shareholder, making it the big boss and main financier. This makes such companies virtual reincarnations of state-owned enterprises.

State-owned companies are often associated with a party-state. Taiwan and many other developing countries fostered such enterprises based on the theory of development economics and the practical need for rapid industrialization. In the past, these enterprises spearheaded national economic development. Like a hen leading its chicks, these companies silently led Taiwan's economic progress and industrialization.

The government should shake off the old economic development model piloted by the party-state system and embrace neo-liberal economic thinking focused on reducing state intervention and leadership.

Taiwan Goal, the urban renewal company and the international investment company are state-owned enterprises masquerading as private businesses. Explanations of their funding source, company organization, management and investment channels and goals are all questionable and unconvincing. It has also raised concern that the government may have used other means to elude discovery.

During its period in the opposition, one of the Democratic Progressive Party's much-vaunted ideals was to actively promote the privatization of these enterprises to increase the effective use of national resources. After coming to power, the party worked hard to implement these changes. The privatization of China Steel, Taiwan Motor Transport Company, the big three banks (First Bank, Chang Hwa Bank and Hua Nan Bank), China Airlines and Chunghwa Telecom are all part of its successes. But facing the threat of losing power, these ideals were soon dismissed. Instead, several investment firms directed by the government have been secretly formed, in essence resuscitating state-owned enterprises.

Taiwan should learn from South Korea and consider using financial policy tools to foster large private firms. The government should not provide 49 percent of the funding, nor should it appropriate the funds of various government business organizations, or avoid legislative or public scrutiny by investing in secret. Instead, it should support purely private large corporations or multinational firms engaged in foreign investment.

State-owned enterprises or government-invested companies, no matter how powerful, have agency costs that are invisible to legislators and administrators. Taiwan Goal and the proposed urban renewal and the investment company would all have eventually become new versions of the Taiwan Motor Transport Company, Taiwan Railway Administration, CSBC Corp (Taiwan) and Taiwan Fertilizer Company. These new state-owned enterprises will eventually become publicly funded tragedies, as their capital is borne by the public and the government, but profits are enjoyed by the few. Hopefully the government will think carefully over these points before proceeding.

Liao Kun-jung is a professor at National Chung Cheng University's Department of Political Science.

Translated by Angela Hong
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