AM Lecture 2

Distortions and outcomes of central planning

Under central planning, production materials, capital, mobile labour (it was assigned, not sought), and technology don't exist.

In addition, SOEs were supported by soft budget constraints, such as the allocation of additional credits and the allowance of tax arrears. Of course, in competitive markets, this wouldn't be allowed.

SOEs had little influence on inputs (costs) and outputs (returns), meaning that often products were sold at a loss, as managers had little to no idea of how much things cost and were unaware of the value of goods. They had no concept of "value creation".

This resulted in a number of outcomes:

• The misallocation of resources, no matter how complex or well set up the firm
• No price mechanism
• A lack of supply and demand signals
• A shortage economy
• Managers were basically government employees, without managerial responsibility and without the "usual" traits of managers
• Managers were only slightly differentiated from other levels in pay terms
• Managers only did what the State required, so they did not develop or innovate

It would be very difficult to change management systems in SOEs, as mindsets and cultures would have to change as well.

Two stage reform period

The Sichuan experiment

Western governance reforms

Effects of "Corporatization"

The Learning Organisation

Change motivation

Chinese culture

Chinese management and tradition

Sinoelectronics - Case study

Other studies and remarks on Chinese management

Conclusions