38、State-owned Enterprises Can Solve the Problems of Employment and Development

On the Use of Profit of the State-owned Enterprises

April 2004

State-owned enterprises, as the name suggests, are the enterprises that all the people own. These enterprises have always had the problem of insufficient vitality and even some enterprises are considered by people as baggage because of many problems left over by history, such as triangular debts, too many retired workers, too heavy enterprise’s burden, and bad enterprise benefit, etc. However, state-owned enterprises are not a burden but a cornucopia that can create numerous employment opportunities and much wealth.

As the author mentions in other articles, there is no essential difference among state-owned enterprises, private enterprises, and foreign multinationals, all of which aim to make money, profit, increate surplus value, obtain the highest profit at the lowest cost, and keep and increase the value of capital. The differences among them are investors, beneficiary of enterprises and money to whom. State-owned enterprises give the money to the country, private enterprises give to the boss, and foreign multinational groups give to the capitalist. There is no difference in other aspects and it also should not have.

There is something in common between how to make the state-owned enterprises full of vitality and how big capitalists increase the wealth.

Firstly we can look at how the big capitalists operate and manage their own enterprises. It is very simple that big capitalists manage the enterprise’s wealth macroscopically, not microscopically.

Big capitalists may invest ten or a hundred or more enterprises, so how does they manage these enterprises? It is very simple that they just need to invest and create these enterprises. Certainly, they are very cautious about the investment. After they determine to invest the industry and think the industry is promising, they will invest. Otherwise they will hold the money to wait for the timing. After the enterprises are created, they will recruit managerial talents to help them manage the enterprise and make the enterprise operate normally. They will not directly be involved in the operation and management of enterprise and only strictly supervise the finance to make all the money in his wallet. Except for the normal flow capital and staff’s wages, the rest all belong to them. Big capitalists only need control the direction of investment and finance to make tens of thousands of people to help him make money and they will close the enterprises that lose money or have no hope and withdraw the capital to invest other aspects. This is the basic principle for big capitalist to make money. It seems to be very simple to say it, but it is not easy to do it.

1. How to determine the investment project is not easy for the common people to understand. It needs a smart mind and eye of a politician, or it will cause huge loss if a wrong investment is made.

2. The person managing the enterprise’s finance should have vision, experience, and knowledge. Whether the financial personnel are loyal, will do false account, will escape with the money, are corrupt and will betray the company, and have a working ability are a series of complicated problems, which is not easy for everyone to confirm. Any errors may result in huge loss and investment failure.

3. How to make use of incentive mechanism to inspire the managers of enterprise to make money. On the one hand, it should prevent them to betray the company, and on the other hand, it should let them give full play to the enthusiasm, which is really a troubling thing.

So the capitalists should have conspicuous and admirable points to manage dozens of enterprises based on individual ability.

We look at state-owned enterprises again. The author finds that state-owned enterprise has something in common with big capitalists’ subordinate enterprises that the owner of enterprise’s ownership does not directly manage the enterprise. Why say that?

Big capitalist owns the ownership of the subordinate company, but they do not directly get involved in the enterprise’s operation and management.

Party central committee owns the ownership of China’s state-owned enterprises, but it does not directly get involved in the enterprise’s operation and management.

Therefore, the economic relationship and the management idea of two kinds of enterprises are the same.

In theory, the state-owned enterprises can draw lessons from successful big capitalists and large multinational in management mode. Besides, state-owned enterprises have more advantages than large multinational.

1. The state-owned business is an economic entity supported by the country. Even the private enterprise has a greater scale, from the points of economic strength and resources, the advantage can’t compare with state-owned enterprise.

2. The credit of state-owned enterprises is much higher than that of other enterprises, which does not need more explanation because state-owned enterprises have the support from the country. The credit is the most important intangible assets in the business.

3. The loyalty of financial personnel in state-owned enterprise can be controlled by the nation. If the country arranges special institution to manage the finance, the financial personnel’s loyalty can be controlled in a highest level with any administrative means, while the financial personnel’s loyalty in other enterprises cannot be ensured through the nation’s administrative means.

4. The state-owned enterprises are not invested by one person, but by a nation and all the people jointly. So compared with those single capitalists, state-owned enterprises have more advantages.

Because the investment model of state-owned enterprises is the same as the capitalists, they can draw the lessons from the successful big capitalists’ management concept to serve for our state-owned enterprises when the state-owned enterprises meet difficulties in the process of actual operation.

If we can understand, all the things are not complicated. Making money or countless money is far beyond the common people and they will not dare to think, but it is little complicated for the investors who have money. The problem is whether we have the courage to want and do.

According to the investment theory of big capitalists and multinational, the author puts forward the following plan for the reference. If the plan can be realised basically under everyone’s efforts, state-owned enterprises can theoretically create countless chances of employment and social wealth to make so many ordinary Chinese out of poverty and become rich.

Under the existing condition, where do the new jobs come from?

If the nation sets a new factory and enterprise, it needs a large number of new workers. On the other hand, if an old factory is closed, it is certain that the workers in the old factory will lose the job and become laid-off workers, which is simple to understand for everyone.

Therefore, in spite of the bad benefit, bad operating condition, and even loss, the nation still provides subsidies to the large state-owned enterprises to pay for the workers’ salary in order to reduce unemployment and social pressure.

The nation’s macroeconomic regulation and control mainly refers to the project examination and approval system. When the local governments or enterprises need to invest in new projects, they firstly should write the report and apply to the related department and apply the loan from the bank after the examination and approval.

The author thinks this mode is complicated, passive, and has holes, which is not conducive to investment and employment.

According to the author’s points of view:

1. No matter from the economic law or actual problem, the finance department of state-owned enterprises should perform unified management by the central government. The profit created by the enterprise should be allocated by the representative of the owner of enterprise—the central government. In other words, except for the salary, premium, and capital flow, all the money made by the state-owned enterprises should be allocated by the central government.

2. After obtaining the money, the central government should actively and purposefully set up new enterprise and factory and invest new project according to the report of all the enterprises and central macro planning.

3. For those enterprises with loss, the central government should assign a specialist for assessment. If there is no investment value, it should close the enterprise immediately and turn over the remaining assets to the country. Enterprises that suffered long-term loss is not allowed to exist, which is a waste of money of the people and country.

4. The central government should use all means to strictly control the financial leaderships’ loyalty to the country because they hold huge capital. If there is fraud, it will cause a huge loss to the party and people.

5. The central government only pays the wage and bonus for local government and leaders of enterprise according to a certain proportion based on the money made for the people. Certainly, it should provide appropriate guidance and help in operation and management for them.

6. The central government hands in the actual operation and management of the enterprise to the local government and leaders of enterprise and law. As long as the business behaviour is lawful, it should not ask anything and interfere and should give them complete management right.

In fact, in simple words, people give the money to the central government, and the central government uses the money to set up better and more profitable enterprises for the people to truly improve the people’s level of life and close the loss enterprise and non-performing enterprises.

Macroeconomic regulation and control is important, but it is not as direct and quick as direct investment. Government’s macroeconomic regulation and control is an indirect management for the capitalist countries that have no ownership of the enterprise and cannot directly invest. In the socialist countries, there is no need for managing state-owned enterprises. The survival of state-owned enterprises is directly controlled by the nation.

Of course, people give the money to the central government so the central government should pay attention to investment efficiency. But it is normal business to be successful or to fail, and not every investment can be successful. We also cannot require the government to achieve 100% success rate of investment. Eight successful projects in ten can be considered as a basic success. It should summarise the unsuccessful experience, withdraw the remaining money, and continue to invest other projects. If the investments fail one after another, it needs reflection. To sum up, efficient use of fund to make the capital flow quickly is the best resolution to resolve China’s employment and development.

Where there is need to develop, there are factories to set up. And where there is need to shake off poverty to get rich, there is reasonable investment. The regime should serve for the people and state-owned enterprises can achieve.

Chinese government is not the expert in capital operation, hence a lot of mistakes of low level are made. Capitalist countries, with hundreds of years’ experience in capital operation, run better than China. Due to some reasons, they have never thought to do it like this and why they do it like this. China’s development mode is seen, so you can know the concept of national capital and problems from another perspective.