A group of economists, Max Büge, Matias Egeland, Przemyslaw Kowalski, and Monika Sztajerowska, have published a new OECD white paper examining the trade and policy implications of SOEs. The OECD has long advised on SOE-related issues, and their white papers always contain a wealth of valuable information. This new paper, as introduced in this blog post, explores the shift of some SOEs from domestic entities to international enterprises:
Today, some contemporary state-owned enterprises are among the largest and fastest expanding multinational companies. They increasingly compete with private firms for resources, ideas and consumers in both domestic and international markets. . .
Yet, there is still very little reliable information on the importance of state-owned enterprises in today’s global markets and on the exact nature of the advantages they may be enjoying because of their ownership. Our recent research attempts to shed light on these issues (Kowalski, Büge, Sztajerowska and Egeland 2013), adding to the rather thin existing research base.
The whole post and paper are worth reading, but I’ll briefly highlight just one of their points. As their graph (reproduced below) indicates, SOEs have a huge–and increasing–impact on the global economy, largely due to the high number of SOEs in growing economies like Russia and China. Here is a comparison of the GDP of the UK, France, and Germany compared to total sales of SOEs among top 2,000 global firms in 2011.
These estimates are conservative, however, because the data do not include “unlisted state-owned enterprises such as statutory enterprises in, for instance, postal services or utilities.” Also, the data are conservative because “the state might also exert de facto control over a firm even while holding a minority share, for example, through a golden share or any other specific enabling legislation.”
Why might increasing SOE activity be a concern? The authors outline the worries:
The significant extent of state ownership among the world’s top companies raises a question about its impact on the global competition. The triple role of the government as a regulator, regulation enforcer and owner of assets opens a possibility of favourable treatment granted to state-owned enterprises in some cases. These advantages can take the form of, for instance, direct subsidies, concessionary financing, state-backed guarantees, preferential regulatory treatment, exemptions from antitrust enforcement or bankruptcy rules. They may well be justified in a domestic context, for example, to correct market failures, provide public goods, and foster economic development. But if their effects extend beyond borders, they may undermine the benefits from international trade and investment, which are predicated on the basis of non-discrimination and respect for market principles. Two recent OECD workshops on the issue (one in 2012 and in 2013) gathered numerous representatives of global firms and governments revealed this is indeed a serious concern.