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Characteristics of the Course of Globalization and Its Inspiration to the Reform and Development of Chinese State-owned Enterprises

Dec 10,2007

Liu Shijin

In July 2007, the Third Advanced Training Course Studies on Chinese Enterprise Management was jointly sponsored by the Organization Department of the Central Committee of the Communist Party of China, the Development Research Center of the State Council and Cambridge University of the United Kingdom. During the course, professors from Cambridge University, Copenhagen Business School and other academic institutions, and leaders from several reputed multinationals gave lectures and held discussions on issues related to macroeconomic management, industrial development and corporate strategies against the background of globalization. Apart from representation of some key viewpoints set forth in the lectures and discussions, this paper will offer some ideas and suggestions on the reform and development of Chinese state-owned enterprises (SOEs).

I. New Trends and Characteristics of Globalization Process

1. Acceleration of globalization has become a general trend featured by diversities, complicacies and contradictions. To take advantage of the opportunity arising therefrom, rising countries should choose proper development model

Globalization has been accelerated in recent years. For different countries and communities, the outcome of its development and impacts on their prospects of future development would be different, complicated, and contradictory. This viewpoint has been embodied in the widely divergent conclusions about globalization presented by the lecturers. Martin Wolf, Deputy Chief Editor and Chief Economic Commentator of the London-based Financial Times, argued that the efforts to restore a free international economic order in recent years have spurred the course of globalization. These efforts have not only contributed to the success of Western countries in the Cold War, but also laid the basis of global prosperity. Globalization has speeded up economic growth in developing countries, reduced poverty, and narrowed the gap between the rich and the poor. According to statistics from the World Bank and in view of the 1993 criteria on purchasing power, the number of people with an average daily living expenditure below US$1.08 in the world was 1.451 billion in 1981, 1.219 billion in 1990, and 1.101 billion in 2001. In addition, the average value of the logarithmic coefficient of variability, a value used to indicate the inequality between people, dropped from 0.9 in 1990 to 0.8 in 1998. Some scholars, however, thought otherwise, arguing that if the impacts of development in China are excluded, the inequality of global income distribution has actually intensified.

Prof. Ha-Joon Chang from the Department of Politics and Economics of Cambridge University pointed out that in the past 20 years, developed countries and the international bodies under their control put great pressure on developing countries, forcing the latter to use free trade and other 'good' policies and install strict patent laws and other ‘good' systems to advance their economic development. As a matter of fact, all the developed countries in the present-day world have resorted to measures including tariff protection and subsidization for industry development. In their early days of development, they even did not have anything like democracy, central bank, patent law, full-time civil service staff, or other basic systems as we know today. Moreover, none of these ‘good' policies or systems has ever produced any anticipated development results in any developing countries. On the contrary, these policies have led to the economic and social collapse in some countries. Prof. Chang advocated a thorough change by developed countries and the international bodies under their control in the conditions they usually attach to their bilateral and multilateral financial aid to developing countries and rewriting of WTO rules so that developing countries can use tools such as tariffs and subsidies to advance development of their industries in a more positive way. System innovation should be encouraged, Prof. Chang added, but not in the way of enforcing a complete set of fixed system in all countries or trying it out in a hurry because system development usually involves a long and costly course.

It should be known that globalization is a general trend that creates favorable conditions to exploit international resources and markets and provides options of maneuver to introduce suitable forms of systems and policy tools. It is unwise either to reject or to follow it blindly. As far as China, a rising developing country, is concerned, the real ordeal is whether it can fully understand and conform to the trend and internal law of the ongoing globalization and follow different development models at different stages that suit its specific national conditions and promise more benefits than costs.

2. Apart from the traditional economic development models followed by Western countries, 'The Third Model' focusing on improvement of the competitiveness of human capital developed by Denmark and other North European countries deserve public attention

It is usually believed that Western countries have roughly adopted two types of models in their economic development, namely, the liberal market economy (LME) and the cooperative market economy (CME). In the former case, the role of market competition as a regulator of economic activities is emphasized, and economic leniency, low taxes, minimal government expenditures, and little spending on benefits, in particular, are advocated. The countries following this model include the United States, Britain, and Australia. In the latter case, extensive government interference in economy is emphasized, although the basic role of the market is not denied. In addition, specific mechanisms are created for the establishment of comparatively stable relations between capital and labor, between companies, and between companies and consumers. The countries following this model mainly include Japan, Germany, France, Spain, and Italy. Prof. Ove K. Pedersen, Director of the International Business and Politics Center of Copenhagen Business University, held that a third model integrating and overextending the characteristics of the above-mentioned two types of development modes was now taking shape in Denmark and other North European countries. In the labor market, for instance, Denmark ranks first in the world in terms of the ratio of membership in trade unions, with almost all its workers being members of trade unions. As a result, its workers enjoy protection from capital-labor agreements reached between different groups of interests, and access to unemployment insurance, medial insurance and other welfare policies covering its entire people. The overall level of unemployment protection available in Denmark in the early 1990s was the highest among other developed capitalist countries. All these are characteristics correlative to those of cooperative market economies. Meanwhile, the labor market policy Denmark has introduced is a typical feature of liberal market economies. The labor market in Denmark is the most flexible one inside the European Union, and its overall level of employment protection comes near that in Britain, Canada, New Zealand, Australia and some other countries following the LME model, although falls below that in Sweden and Germany, typical followers of the CME mode. In Denmark's private sector, the employee enjoys only limited employment protection, while the employer enjoys boundless rights to employ and dismiss workers, just as in typical liberal market economies. As a result, the Danes change their work frequently, keeping at one job for just 4.4 years on the average, somewhat similar to the case in the United States and Britain and only half of the duration in Germany (10.7 years) and Sweden (7.8 years). The flexibility of the Danish labor market is largely attributable to its effective job training system. In the 1990s, Denmark worked out and established in legal form a series of policies on its labor market for the purpose of helping its unemployed to receive training, to learn new skills, and to gain qualifications for re-employment. Since 1993, Denmark's outlay for implementation of its active labor market program against its GDP has been bigger than that of all OECD member countries except Sweden. With greater skills, its workers can move from one company or job to another with comparatively greater ease, adding new force to the flexibility of its labor market.


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