All the alleged key causes of SOE [State-Owned Enterprise] inefficiency the principal-agent problem, the free-rider problem and the soft budget constraint are, while real, not unique to state-owned enterprises. Large private-sector firms with dispersed ownership also suffer from the principal-agent problem and the free-rider problem. So, in these two areas, forms of ownership do matter, but the critical divide is not between state and private ownership it is between concentrated and dispersed ownerships.
There is no hard and fast rule as to what makes a successful state-owned enterprise. Therefore, when it comes to SOE management, we need a pragmatic attitude in the spirit of the famous remark by China’s former leader Deng Xiao-ping: ‘it does not matter whether the cat is white or black as long as it catches mice.’ha-joon chang