0.20 General introduction to savings mobilization  (Page 6/9)

We saw in Chapter ___ that government owned enterprises are present in all emerging nations. Call them all SOE ^s state-owned enterprises.

In some countries (China, Iran) the SOE sector is bigger than the private-business sector. More than ¾ of all Chinese firms are SOE ^s . In Russia, SOE ^s are 62% of total firm – Brazil – 38% (500 SOE ^s ). China still has a big round of privatization from 1985-2005, still has 468,000 SOE ^s . Some were huge. Three of the world’s 10 largest firms are SOE ^s .

And ------ All three are Chinese (Sinopec, China National Petroleum and CNOC China National Oil Co.) other nations with big SOE sectors include: Brazil, Russia, Indonesia, Zambia, Ecuador, Venezuela, India, Pakistan etc.

SOE ^s are found in almost every sector- oil and gas (Petrobras) and hard minerals. (P.T. Timal) (Combibol XXX)

Banking and finance, construction, electrical power, pawn shops, you name it.

In early models of socialism, as for example that of Poland’s Osker Lange in 1940, SOE savings were supposed to provide much of the total savings needed for investment in emerging nations.

How has this worked out?

Not so well, although some SOE ^s are well managed and do make profits that count as government savings.

Example

Unfortunately, these natural resource firms are exceptions to the given rule that SOE ^s account for a negligible proportion of governments savings across the world (except in oil and gas, where it is very difficult to have an excess of expenses over revenues.

If you look at the NI accounts of countries, you will generally find that government savings through SOE ^s tend to be either negative or insignificant, except in the big oil explorers.

China and India both report that SOE ^s in their countries had positive savings.

Chinese report that for their 468,000 SOE ^s , the rate of return or the government equity invested in them is 4% (however, note that all Chinese SOE ^s get ample and subsidized credit from Chinese SOE ^s in banking.

India has 217 SOE ^s owned by central government and 850 SOE ^s owned by regional government.

Some of the Indian SOE ^s owned by central government made huge losses in 2010.

Air India losses and MTNL (Tekon) were in excess of $2 Billion U.S. Even so, India government maintains that rate of returns on equity in their SOE ^s is 14-15%?

Take away from this – One should not count on generating much public savings through SOE ^s unless they are large oil exporters.

That means that in the search for more government savings, need to find ways to insure that tax collection greater than government current spending.

History – In fifties, sixties and early seventies, the typical development strategy was reliance on government savings to finance investments, both public and private investments.

Why?

Because , it was argued, growth in private savings in emerging nations is inevitably constrained by law per capita income as well as higher consumption properties especially among the few wealthy families (cite: En vez de la miseria by Jorge Ahumada, Publisher: Santiago de Chile, Editorial del Pacífico [1958], found in Fondren Library).