Reducing protection of state-owned enterprises

Economic efficiency can be promoted in many areas by exposing state-owned enterprises to domestic and foreign competition. Generally several forms of protection would have to be removed, including budgetary subsidies, regulated domestic markets and tariffs or import quotas that protect SOEs from foreign competition and make their inefficiencies less transparent. The private sector tends to adapt more quickly when trade distortions are removed unless budgetary and banking support for state-owned enterprises are removed at the same time.

Public bus companies in India perform better in cities where they are fully exposed to competition without subsidy than in cities where subsidies and inappropriate incentives have fostered inefficiency.

Regulated domestic agricultural markets are especially inefficient because of the geographical dispersion of operations under a variety of market conditions and rapidly changing circumstances. Replacing state-owned monopolies with private trading networks to import, export and distribute crops and fertilizers also improves distribution of income. When the capital-intensive systems of transport generally employed by state-owned enterprises are replaced by the decentralized modes used by private sector marketing, higher productivity is generated while at the same time favouring unskilled workers and small entrepreneurs. Eliminating state marketing monopolies in China led to greatly increased agricultural efficiency and much greater output from private farmers and collectives.