31
managers and the direct political intervention in the operations of such firms.
51
Various studies in China have also concluded that the incentive-based contracts for
managers in SOEs have often failed to reward profitability efforts – an indication of
serious principle-agent problems;
52
of course, similar problems can be found in
other countries. It is often also believed (realistically, I think) that managers of
privately owned firms are usually more concerned about boosting the work
efficiency of their employees than are managers of public-sector firms. In fact, this
observation is a general “folk theorem” as regards services to households, since
private service providers have a stronger interest than public-sector providers that
the customer are interested to come back.
53
For similar reasons, we would expect
that TVEs tend to be more effective when privately owned than when owned by
towns and villages. This may help explain why truly collective TVEs have lost
ground over time, as compared to private TVEs.
When judging the efficiency of China’s growth path, it should also be kept in mind
that GDP statistics represent a
gross
measure, since there is no deduction for capital
depreciation when old buildings, infrastructure and machines are scrapped. On the
contrary, work on such scrapping (for instance, demolition of houses) is included as
a positive contribution to GDP. While such measurement issues emerge in all
countries, they could be expected to be particularly important in China owing to the
gigantic demolition of old physical structures. The hard wear and tear on the natural
environment (soil, water and air) in China is another important example of capital
decumulation that is not recorded in GDP statistics (indeed, not for any country).
For instance, the depletion of water resources harms not only the quality of life of
Chinese citizens but also the country’s production capacity in the future.
51
Xu et al.(2005) conclude from an empirical study that the economic efficiency of SOEs is negatively
affected by more political control. Chang and Wong (2004) found that the profitability performance of
listed firms in China is negatively associated with the power over decision-making in firms by local
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