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Innovation in State-Owned Enterprises: Reconsidering the Conventional Wisdom

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  • Filippo Belloc

Abstract

A very well-established economic literature maintains that state-owned enterprises (SOEs) are inefficient as compared to privately owned ones (POEs). In this paper, I argue that SOEs' inefficiency is not due to state ownership per se, but is rather caused conditions other than ownership, to which SOEs often — though not necessarily always — relate. In particular, I focus on dynamic efficiency — specifically, the production of technological innovation — of SOEs in manufacturing industries, where SOEs should contend with POEs in a competitive environment. I suggest that targeted measures, which are aimed at increasing managers' commitment to long-term investment strategies and at reducing corruption and political interference — albeit complex and difficult to implement — can be much more (positively) impactful on long-run technical progress than the simple privatization of companies. This leaves room for exploration and implementation of policies that might reconcile state ownership and market competition in industrial sectors.

Suggested Citation

  • Filippo Belloc, 2014. "Innovation in State-Owned Enterprises: Reconsidering the Conventional Wisdom," Journal of Economic Issues, Taylor & Francis Journals, vol. 48(3), pages 821-848.
    • Handle: RePEc:mes:jeciss:v:48:y:2014:i:3:p:821-848
    DOI: 10.2753/JEI0021-3624480311
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    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • P12 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Enterprises

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