State Trading and Domestic Distortions in a Mixed World Economy

The Economist reported in early 1979 (20 January, p. 50) that the EC Commission was getting ready ‘for an attack on the devious ways in which member governments distort competition by pumping money into state-owned industries’. The Commission’s draft directive was reported to be focussed on ‘public enterprises operating in competition with other countries’ state companies (e.g., ship-building) or with private companies (e.g., the motor industry)’. The problem requiring attention is that governments increasingly direct publicly controlled companies to sell below ‘full’ cost (or to purchase domestic products at a premium), and that the resulting losses are absorbed, more or less directly, by the public purse. It should be noted that in this paper the concept of public control will be interpreted widely. The crucial aspect is the state’s influence on the terms of sale or purchase rather than the government’s ownership of the means of production. Trading at state-directed terms has become a major irritation that seriously affects commercial relations among mixed economies not only within the European Common Market but elsewhere as well.1