34、State-owned Enterprises Can Catch Up with and Surpass the World Multinationals

Complete Separation of Management Right and Ownership

April 2004

Now, the operation form of enterprises in China is various, such as individual enterprise, private enterprise, collective enterprise, state-owned enterprise, joint venture enterprise, wholly foreign-owned enterprise, and joint-stock enterprise, etc. But what enterprises they are, Chinese or foreign, enterprises to the bad or world top 500 enterprises, there is one thing in common—to make money. All aim to make money, increase the enterprise’s capital, and maintain the value of the capital. Enterprise means ‘hope’, that is, starting a business aims to make the enterprise better, more promising, and richer tomorrow. To sum up, all are for making money.

It is known that the survival is for the fittest for the enterprise in the market economy that only the strong can survive and the weak is necessarily eliminated, which is a ruthless and exact fact. Only recognising this point can the enterprise survive.

Facing the cruel and marble fact, how can the enterprise become strong to remain invincible, grow constantly, and resist all kinds of waves? These are the problems that the enterprise should consider.

All successful businesses have two things in common:

1. The money that the enterprise makes can really be packed into the investor’s wallet and handed in to the owner of the enterprise.

This sentence is easy to understand. As the investor and the enterprise’s actual owner, the purpose of investment is to make money for self, not for others. Only investors really obtain generous return. The founder of enterprise has the responsibility to make the enterprise survive. If the investors and founders think greater return will obtain if they continue to invest, they often invest larger projects with the returns, enlarge production, or expand the operation scope. Conversely, if the investors and founders of the enterprise cannot obtain the return and even suffer loss, they will weigh the pros and cons and adopt corresponding countermeasures. For example:

(a) If they think they can gain the return temporarily and make a profit instead of suffering a loss after they change the management strategies and adjust the enterprise, they will carry out internal adjustment within the enterprise.

(b) If they think they can endure the temporary defeat of the enterprise and the enterprise shows benign development and will produce generous returns in the future, they will maintain the status quo.

(c) If they think bad management of the enterprise is caused by insufficient investment, such as advertising investment and equipment renewal and the status quo will be changed after continuing to invest, they will often continue to invest.

(d) If the owners of the enterprise think the enterprise cannot make profit and market and the external environment have changed, they will often sell the enterprise assets, withdraw the investment as much as possible, and close the enterprise in order to reduce the loss.

2. The enterprise is managed by the person who is the fittest.

As the analysis in another article, after the enterprise expands gradually and the staff overpass a certain scope, the owner of the enterprise is not able to directly manage more people so that they can share corporate responsibility and authority with others.

In a popular way, the boss of the enterprise will not directly participate in the actual labour and let the people help them make money, and they just count the money after the enterprise is developed to a certain scale.

This sounds a bit of something for nothing, but you cannot understand in such a way at any cases. The behaviour that the boss takes out their own money to invest is also considered a labour and a kind of advanced mental work. Boss and investor are labourers, just for which, China’s constitution is modified again and again.

Investment behaviour, on the one hand, can make the boss create thousands of wealth, but on the other hand, can also make the boss suffer the loss beyond retrieval. The money that the boss makes under the bullets in the market and unprofitable risks is legitimate income and is protected by the law. Hence, even though the boss does not participate in the operation and management of the enterprise directly, it is understandable that their income is also legal.

Next, we will introduce the relationship between the benign development of enterprise and actual managers after the enterprise’s management right and ownership are separated. After the separation, the owner of the enterprise has the right to appoint anyone to help him or replace him to manage the enterprise. This person is the actual operator and manager of the enterprise as well as the owner of the enterprise’s management right.

Rationally speaking, not considering other factors such as emotion, politics, and trust, etc., only from economic benefit, what kind of person can replace the owner of the enterprise to manage the enterprise? To be simple, the person who can bring the maximum return and profit can replace the boss to make more money. The person who cannot do well must step aside as the result of relentless market economy, especially ruthless international market economy. In order to survive and become the first, it should make such a choice.

So what kind of people can create huge economic benefit? What kind of people has the best ability to make money? The persons are those who have experienced theory and practice. Regardless of race, colour of skin, language, everyone is equal in the market economy and the fact can speak.

Now, we will analyse the state-owned enterprises from two points above.

Who is the owner of state-owned enterprises? All Chinese people are the owner, and the Chinese Communist Party on behalf of the national people performs the ownership of state-owned enterprises.

Who is the manager of state-owned enterprises? It is our party. The leaders of state-owned enterprises, especially large state-owned enterprises, are led by the party and even appointed directly. We do not hear that the boss of private enterprises and even the American boss serves as the head of large state-owned enterprises.

So, it can be said that state-owned enterprise takes the form of integration of management right and ownership, which is similar to the operation and management mode of small private enterprise with about 20 staff.

It is certain that the existing mode has its inevitable reason.

1. Communist Party of China, on behalf of the people to perform ownership and management right, has the right to manage all the state-owned enterprises in any form.

2. To control the ownership and management right of state-owned enterprises in such form also reflects people's power. Directly using administrative means to regulate state-owned enterprises is the product of planned economy.

State-owned enterprises are owned by the state and all the people and the ownership should be mastered by the people, which are the iron fact and unshakable forever, so the central government must protect and control the ownership of all state-owned assets with every means and absolutely can't let go.

On the other hand, management right refers to the leaders’ production labour to operate the enterprise. For the factory, it means buying raw materials, organising production and processing, selling the products and recovering the payments for the goods, which are operative behaviours and the reflection of management right. Management right embodies in general manager’s duty to help the county and enterprise to make money, worker’s behaviours and consumption of state-owned assets, such as extra bonuses, subsidies, practicality, buying car, house, inviting person to have a meal and holiday for tourism, etc., and the boss and chairman’s duty and spending money.

Therefore, after management right is completely separated from ownership, management right means the worker’s behaviour. However high the position and power are, you are the worker if without ownership and you must act according to the boss’s face and rules and regulations. Otherwise, there will be many people to trouble you, which is the mode we need.

However, our party represents the interests of the working people. Most party members are born workers and peasants, rather than bourgeois, so working hard is out strong point. Compared with the big capitalists of those multinationals, operation and management are our weaknesses. Hence, it has some difficult for the party to operate and manage the enterprises directly. While for those large multinationals, after the ownership is separated from the management right, those big capitalists can make own capital increase gradually and manage the enterprise well without directly involved in the operation and management of the enterprise, from which we can draw lessons.

So in order to make the state-owned enterprises give the vitality into full play, the author suggests the following adjustments:

1. The ownership of state-owned enterprise is completely separated from management right, the financial institution is specially set up by the central government to treat the financial cashier personnel as state civil servants received unified management by the central government without receiving the management of leaders the enterprise, and they should report the operation status of the enterprise to the higher authorities of the central government to prevent all state-owned assets from damage. The central government shall have the right to transfer the capital of the enterprise at any time and correct the enterprise leaders’ wrong economic instructions so as to firmly hold the ownership of the enterprise.

2. The management right of state-owned enterprise is open, as the author points out that the management right is the reflection of a worker who works for the county and enterprise to make money, but can be replaced at any time. Their work is weighed by the performance.

The leadership doing well or bad can be reflected in the financial statement. To say it simply, who operates and manages the enterprise makes money and working for the people is not important, because this is just a form of representation.

The most fundamental factor to determine the nature of enterprise is the money handed in to whom. If the money is handed in to the big capitalist, the enterprise serves for the big capitalists. But if the money is handed in to the people’s government, the enterprise serves for socialism. This is the most fundamental decisive factor and the most valuable thing.

Compared with previous modes, the following are benefits in having such a way:

1. The person can devote their talent for the enterprise and people intently.

The leaderships of enterprise will be affected in three factors in the existing mode:

(a) The leadership should be responsible for the superior. This is obvious because they are selected by the superior leadership.

(b) The financial management is within his duty. If he makes mistakes as the result of inducement of money, the leadership should resist the temptation of money.

(c) It is the leadership’s duty to take the responsibility of enterprise.

There is an old saying that ‘a man may not spin and reel at the same time’, but our leadership does three things at one time, so they will feel the heavy pressure and difficulty. While after the management right is separated from ownership, the leadership is only responsible for the enterprise. Certainly, the behaviour should be legal. The only standard to weigh the quality of work is how much money that the enterprise makes and the benefits for the enterprise, nation, and people. If doing well, he is the hero and will obtain the reputation, status, and money. If he is doing bad and making mistakes, he will step aside and be replaced.

However, the enterprise’s finance does not belong to him, so he has no opportunity to illegally seize the money.

The leadership of higher level can transmit administrative order when he violates the rules. But he is not appointed by the superior but from social open recruitment or election, so he devotedly dedicated their talent to the enterprise and people.

2. The central government directly controls the enterprise’s finance to strictly supervise the leadership’s economic behaviours so that the corruption behaviour can be prevented and the status and image of party is maintained in the eyes of people.

3. The surplus fund is directly transferred to do more things for the nation and people.

4. People’s democratic dictatorship can be consolidated and strengthened after the central government really controls national economy.

If the state-owned enterprises can carry out the adjustments above, they can catch up with and even surpass the level of large foreign multinationals in the organisational structure and have the power to compete with them in the international market. Besides, the superiority of socialist system can fully be displayed and the advantages of various population groups can be mobilised to make them serve for economic construction of socialism.

The root cause for the insufficient vitality of state-owned enterprises is the mutual diversion and interference of management right and ownership, which are hard linked together. Therefore, the fundamental way to solve the state-owned business enterprise’s insufficient vitality is the complete separation of management right and ownership to realise benign development.