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China Meets the Zombies

Beijing can be big and bold when it meets reality. Remember when Zhu Rongji, China’s former economic tsar, gave 30 million workers pink slips, privatized hundreds of state-owned enterprises (SOEs) and swept many others into the dust bin?

Beijing has met reality, again. In consequence, some SOEs and zombies that are dragging China’s economy down are being purged. Indeed, Reuters reports that “China aims to lay off 5-6 million state workers over the next two to three years…”

If Beijing is to avoid meeting zombies in the future, it must embrace another reality: economic principles.

These principles, which stand on a mountain of empirical evidence, show that, when compared to similar private enterprises, SOEs’ actions are more unpredictable and their performance is inferior. Sales per employee are lower for SOEs. Adjusted profits per employee are lower.

Per dollar of sales, operating expenses, plus wages are higher. Sales per dollar investment are lower. Profits per dollar of total assets are lower. Profits per dollar of sales are lower. Sales per employee grow at a slower rate. And, with the exception of some state-owned oil companies, who often have considerable monopoly power, most traditional SOEs generate accounting losses.

China might be taking another step in the right direction. But, until Beijing dumps its model of State Capitalism, it will continue to be mired in a swamp of zombies and endemic corruption.
 
Past Blogs

Egypt’s Dire Dollar Shortage

March 02, 2016

Ever since General Sisi ousted the Muslim Brotherhood, the Egyptian economy has remained in shambles. Businessmen are fed up. They are ignoring government gag orders, and are making their voices heard. And why not? They are losing sales, missing deadlines, and scrapping expansion plans because of limited access to U.S. dollars.

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Time for a New Calendar, One with a Leap Week

February 29, 2016

How about an extra week every six years, starting in 2020? That’s what you would enjoy if we adopted the Hanke-Henry Permanent Calendar (HHPC). Faced with the Gregorian calendar’s plethora of problems, my colleague Dick Henry, a professor of astrophysics at The Johns Hopkins University, and I devised the HHPC.

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Nigeria’s Little Problem: Lying Statistics

February 26, 2016

Nigeria’s currency (the naira) has been officially pegged in a range of 197-199 NGN/USD for nearly a year. But, that’s a phony government rate. As shown in the accompanying chart, the black market (read: free market) rate has exploded since October, and currently stands at 350 NGN/USD.

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Capital Controls: Hayek versus the IMF

February 16, 2016

With each financial crisis, politicians of all stripes go into overdrive. They busy themselves by ducking any examination of the policy blunders that created the crisis in the first place. A favorite tactic is to fan anti-market flames. Markets get a bum wrap, and a cascade of new laws and regulations ensue.

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Venezuela’s Bogus Inflation Statistics

February 16, 2016

n Thursday, Venezuela’s central bank released a long-overdue -- and little-trusted -- report claiming that the country’s inflation rate in 2015 was 180.9%. Unfortunately, for the global community, as high as this figure sounds, it is way below the true inflation rate.

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