0.11 States and markets - soes  (Page 9/9)

To be more precise, would one expect a government owned electric power producer to emit less CO ₂ or to pollute rivers less than a private firm?

A common reaction would be yes, of course. Firms owned by government should “naturally” be expected to be more careful about environmental damages. But experiences all over the world suggest otherwise. Rather, state-owned enterprises generally tend to be less responsive and less sensitive to the need for a cleaner, sustainable environment.

First, an early example was the TVA in the U.S. From about 1945 until at least 1990 that the biggest polluting firm in the U.S. was TVA . SOE ^s in the former Eastern Bloc nations were responsible for some of the worst river and air pollution ever seen? The Vistula River in Poland is one example. In the 1980s Czechoslovakia countryside, the water table was so polluted by SOE ^s that no one could drink the water.

Consider, China, where SOE ^s have long predominated. In January 2013 the air in Beijing hit a level of toxicity 40 times the level the World Health Organization (WHO) deems safe. Of the twenty most polluted cities in the world, sixteen are in China. Almost every river flowing through urban areas is highly polluted, unfit for almost any purpose. Between 8% and 20% of Chinese arable land now shows heavy metal contamination. In China this has led to rapidly worsening environmental problems. So large as to “pose a growing threat to economic development.” This was a quote, in February 20 2012 from Mr. Hu Siyi, Vice Minister of Water Resources in China.

The bias toward capital intensive growth has also been one factor responsible for unintended environmental damages. These damages have been considerable in several larger emerging nations. These damages include those to human health from air and water pollution to excessive depletion of natural resource endowments: Table 11-1 presents estimates of such damages for three emerging nations and three developed ones.

China leads the list, with damages at 9% of Gross National Income. India follows close behind, at 8.5%. Brazil is in the middle at 5%.


Dozens of other examples could be cited from Indonesia to Bolivia to Vietnam to Ecuador, to Zambia to Romania.

Oil spills have not been confined to firms such as British Petroleum. They have been quite common in oil SOE ^s in Ecuador, Mexico, Bolivia and Venezuela. Rarely are these costs subject to cleanup.

Not all , SOE ^s tend to be less sensitive to the need to avoid environmental damage from operators. For one example, in recent years the huge Saudi SOE ^s in oil, ARAMCO has sought to prevent spills into the environment and to emphasize cleaner environment operation generally.

The interesting question however is not whether but why SOE ^s have been able to ignore environmental costs they have caused.

Reason #1 sovereign immunity

Reason #2 central planning

The objective was output maximization. The firm must produce its state prescribed quota of sardines, shoes, bombs, or else . And if that meant highly polluted air and water, so be it.

Now consider the relevance of the “China model” with heavy reliance on SOE ^s . Even many influential Chinese now think the “model” is outdated. In a report by IBED and the government of China released ( WSJ , Feb. 23. p. 1) says “China must scale back its vast SOE sector, and make them operate more like commercial firms.”