The Politics of State-Owned Enterprise Reform in South Korea, Laos, and Vietnam

The reform of state-owned enterprises (SOEs) has been a leading element of public sector reform since the 1980s. Starting with the radical actions of Margaret Thatcher’s government in the United Kingdom, privatization was disseminated across the world. By 2004, over $1 trillion of SOEs had been privatized. The privatization stampede represented the ascendancy of neoclassical economics and the view that governments should get out of business and leave the invisible hand of the market to either generate efficiency in often poorly performing enterprises or simply close them down (World Bank 1995, 1996, 1997). This neoliberal policy orientation dovetailed with the Washington Consensus and the spread of New Public Management, both of which sought leaner, more fiscally disciplined government that focused on core functions (Turner, Hulme, and McCourt 2015).

Privatization was slow to gain traction in Asia, where the idea of state ownership was firmly entrenched (Cheung 2002; Deutsch 1988; Gomez 1997; Gupta 2008), but driven by the need to fix government budgets and the unrelenting promotion of privatization by the international financial institutions, Asian governments began to accept SOE reform. Despite opposition from workers, management, nationalists, and those who profited from rent seeking, privatization took off, albeit at different speeds and levels of enthusiasm in different countries.

As privatization became more commonplace across Asia, more variation appeared in the forms it took. Large numbers of SOEs were sold off to the private sector, but governments sometimes preferred to retain significant shareholding. Alternatively, they instigated corporatization, partially reregulated markets, or experimented with public-private partnerships (PPPs) that came in increasingly diverse forms (Turner, Hulme, and McCourt 2015).

What became apparent across Asia was that privatization was invariably a political battleground where an array of stakeholders fought to promote their particular interests. Battles differed according to local conditions. Decisions were not made based on strictly rational business criteria—they came about through political processes that reflected the institutional arrangements of a country and the relative strengths and strategies of the protagonists.

The politics of SOE reform is the subject of the three cases presented in this section. They show the need to engage in political economy analysis in order to fully understand the decision-making process in SOE reform and the outcomes that emerge.

The first case involves the privatization of Korea Electric Power Corporation (KEPCO), the giant SOE that had a national monopoly on electricity generation and supply. Attempts to privatize KEPCO commenced in the 1990s and are still ongoing. Over the intervening years, four presidents have pushed the privatization bandwagon and made incremental progress; but their plans have frequently been stalled by tenacious opposition, notably from the electricity labor union. Seung-Ho Kwon and Joseph Kim trace the long history of KEPCO’s privatization and highlight the political battles that have taken place in which the proponents justify their actions in terms of efficiency gains while the opposition utilizes the notion of public value to question official intentions.

The other two cases are concerned with privatization in one-party states—Vietnam and Laos—that have moved from central planning of the economy to experimentation with market mechanisms. In both cases we see the mounting political pressures for economic reform that derived from poor economic performance under central planning. In Vietnam’s case, Nguyen Manh Hai and Michael O’Donnell track the overall progress of SOE reform from its inception in 1990 under the Doi Moi (renovation) transformation of the economy to the present. We find incremental reforms that start cautiously and fail to achieve the government’s aims are then replaced by better considered actions that begin to show some positive impacts on the SOE sector.

However, a reluctance to divest from “strategic” sectors of the economy has meant that inefficiency remains an ingrained characteristic of many SOEs, such as Vinashin. Set up as a shipbuilding SOE, Vinashin was transformed into a multibusiness conglomerate that was riddled with corruption and bad business practices. By contrast, the telecommunications SOE, Viettel, is presented as an example of...