State Involvement in National Assets

November 4, 2024
State Involvement in National Assets - Dr. Kenneth De Zilwa-

by Cherie Wang

In the ongoing debate about the role of government in the economy, the success stories of state involvement in national assets from countries in Asia and the Middle East offer compelling evidence for the potential benefits of strategic state intervention. While not without challenges, the experiences of the United Arab Emirates, China, Singapore, South Korea, and other East Asian nations demonstrate how well managed state ownership and involvement can drive economic growth, foster innovation, and enhance national competitiveness.

United Arab Emirates: Transforming Oil Wealth into Diversified Success

The United Arab Emirates, particularly Dubai and Abu Dhabi, has leveraged its oil wealth through state-owned enterprises to transform its economy and global standing.

Emirates Airlines, founded in 1985 as a state-owned enterprise, exemplifies this success. With strong government backing and strategic management, Emirates has grown from a small regional carrier to one of the world’s leading airlines. Its success has not only boosted Dubai’s economy but also transformed the Emirate into a global aviation hub, connecting East and West. The airline’s growth has had multiplier effects on Dubai’s economy, stimulating tourism, trade, and real estate development.

Another notable example is the Mubadala Investment Company, an Abu Dhabi state-owned holding company. Mubadala has played a crucial role in diversifying the Emirate’s economy away from oil dependence. Through strategic investments in sectors such as technology, aerospace, and renewable energy, Mubadala has helped position Abu Dhabi as a forward-looking, knowledge-based economy. Its investments in companies like GlobalFoundries, a leading semiconductor manufacturer, demonstrates how state involvement can foster high-tech industries crucial for future economic growth.

China: State-Led Development on a Massive Scale

China’s economic rise over the past four decades has been characterized by a unique blend of market reforms and state-led development, with state-owned enterprises (SOEs) playing a central role.

The State Grid Corporation of China, the world’s largest utility company, has been instrumental in modernizing China’s electricity infrastructure. This massive SOE has supported China’s rapid industrialization and urbanization by ensuring a reliable power supply across the vast country. Moreover, State Grid has become a global player, exporting China’s expertise in ultra-high voltage transmission technology to other countries.

In the telecommunications’ sector, China Mobile has been pivotal in developing China’s mobile infrastructure. As one of the world’s largest mobile network operators, it has helped bring mobile and internet connectivity to hundreds of millions of Chinese citizens, supporting the country’s digital economy boom.

The China Development Bank, a state-owned policy bank, has been crucial in financing major infrastructure projects both domestically and internationally. It has been a key player in China’s Belt and Road Initiative, extending China’s economic influence globally while supporting domestic industries.

Singapore: State Capitalism with a Global Outlook

Singapore’s “state capitalism” model has been widely admired for its ability to combine state involvement with market efficiency.

Temasek Holdings, a state-owned investment company, has successfully managed Singapore’s reserves by investing in strategic sectors globally and domestically. Its portfolio includes successful companies like Singapore Airlines and DBS Bank. Temasek’s professional management and commercial orientation has enabled consistent delivery and strong returns, contributing significantly to Singapore’s fiscal resources.

The Housing and Development Board (HDB) has been crucial in providing affordable public housing to the majority of Singaporeans. This state agency’s success in ensuring high-quality, accessible housing has contributed significantly to social stability and economic development, addressing one of the fundamental needs of the population while avoiding the housing crisis’s seen in many other rapidly developing cities.

Temasek is the majority shareholder of Singapore Airlines which has become one of the world’s most respected carriers. Its success has enhanced Singapore’s connectivity and reputation, supporting the city-state’s position as a global business and tourism hub.

South Korea: From State-Led Industrialization to Global Competitiveness

The economic miracle of South Korea was partly driven by strategic state involvement in key industries.

POSCO (Pohang Iron and Steel Company), founded as a state-owned enterprise, became one of the world’s largest and most efficient steelmakers. POSCO played a crucial role in South Korea’s industrialization, providing high-quality steel for the country’s shipbuilding, automotive, and electronics industries. Although later privatized, POSCO’s success demonstrates how state involvement can create world – class companies in strategic sectors.

The Korea Electric Power Corporation (KEPCO) has been essential in providing reliable and affordable electricity, supporting South Korea’s rapid economic growth. As a state-owned utility, KEPCO has balanced the need for infrastructure investment with maintaining competitive energy prices for Korean industry.

LankaPay: Global Recognition and Strategic Collaborations

In the past three years, LankaPay has achieved significant global recognition and established itself as a leader in the digital payments landscape. Key highlights include:

Awards and Recognition:

  • Lifetime Achievement Award: Dr. Kenneth De Zilwa, Chairman of LankaPay. Awarded at the 2024 World HRD Congress for his contributions to human resource development.
  • HR Leadership Award: Mr. Lakshman Palliyaguruge, Chief People’s Officer, honored for his exemplary leadership.
  • Brand Impact Award: LankaPay recognized as the “Brand Impact of the Year 2023/2024” at the South Asian BFSI Tech Summit.
  • LankaPay recognized for its outstanding brand performance with the “Brand Impact of the Year 2023/2024 Award” at the prestigious South Asian BFSI Tech Summit & Awards held in Kathmandu, Nepal in 2024.
  • LankaPay’s CEO, Mr. Channa de Silva, awarded the “Visionary CEO of the Year” at the same ceremony.

Strategic Collaborations:

  • International Partnerships: LankaPay formed alliances with several global payment networks, including:
  • China UnionPay: This collaboration allows access to LankaPay’s QR network for Chinese tourists, enhancing visibility among UnionPay’s 480 million customers.
  •  NPCI International Payments Ltd: Focused on card integration to increase transaction volumes.
  •  Mastercard and PhonePe: Collaborations aimed at enhancing digital payment solutions and expanding LankaPay’s reach.
  •  Napals Fone Pay: This partnership further strengthens LankaPay’s position in the regional digital payment ecosystem.

Digital Initiatives:

  • The launch of LANKAQR and other digital payment solutions has positioned LankaPay as a key player in promoting cashless transactions in Sri Lanka, streamlining payment processes for businesses and enhancing customer convenience.

These accomplishments illustrate how being a state owned entity; LankaPay’s commitment to innovation and its strategic approach to enhancing its global presence through meaningful collaborations resulted in it being extremely profitable and dynamic. As a result, LankaPay continues to demonstrate and solidify its status as a key player in the international digital payment landscape.

Other East Asian Success Stories

Taiwan’s semiconductor industry, epitomized by Taiwan Semiconductor Manufacturing Company (TSMC), benefited significantly from government support in its early stages. While not fully state-owned, TSMC’s success in becoming the world’s leading semiconductor foundry owes much to Taiwan’s strategic industrial policy.

In Malaysia, the state-owned oil and gas company Petronas has been vital to the country’s economic development. By efficiently managing Malaysia’s hydrocarbon resources and expanding globally, Petronas has become a major player in the international energy market while providing significant revenues for national development.

Key Factors for Success

  1. Several factors contribute to the success of state involvement in these countries:
  2. Clear Mandate and Strategic Alignment: Successful state-owned enterprises often have clear objectives aligned with national development goals. They used as tools to achieving broader economic and social objectives, not just as sources of revenue or employment.
  3. Professional Management and Autonomy: Many of these companies operate with a high degree of autonomy and managed by Professionals rather than political appointees. This allows them to make decisions based on commercial considerations while adhering to their broader mandates.
  4. Strategic Investment in Key Sectors: Governments’ have strategically invested in sectors crucial for economic development and global competitiveness. This often involves long-term planning and a willingness to support industries that may not be immediately profitable but are deemed strategically important.
  5. Adaptation to Market Forces: While state-owned, many of these enterprises compete globally, forcing them to maintain efficiency and innovation. This exposure to market forces helps prevent the inefficiencies often associated with state ownership.
  6. Long-term Vision: State ownership has allowed these companies to pursue long-term strategic goals, sometimes at the expense of short-term profits. This long-term orientation has been particularly valuable in industries requiring significant capital investment or technological development.
  7. Strong Governance Structures: Successful state involvement often involves robust governance frameworks that ensure accountability and transparency while allowing for operational flexibility.

Challenges and Considerations

While these success stories are impressive, it is important to note that state involvement in the economy is not without risks. Issues such as inefficiency, political interference, and market distortions can arise if state-owned enterprises are not managed well. Moreover, the success of this model in certain countries does not guarantee its effectiveness in others, as it depends heavily on specific institutional, cultural, and economic contexts.

Expert Insight: The Symbiosis of State and Market

Dr. Kenneth De Zilwa, a renowned business cycle and development economist, offers a nuanced perspective on the role of state involvement in national assets:

“In the intricate dance of economic development, state involvement in national assets can be a powerful choreographer. When executed with precision, it can synchronize the rhythm of strategic industries with the broader economic cycle, fostering resilience and driving sustainable growth. However, the key lies in adaptive governance – a framework that allows state-owned enterprises to pivot with market forces while maintaining a steadfast commitment to long-term national interests. It’s not about choosing between state and market, but about crafting a symbiotic relationship where each amplifies the strengths of the other.”

Dr. De Zilwa’s insight underscores several critical aspects of successful state involvement in national assets:

  1. Synchronization with Economic Cycles: State-owned enterprises can play a crucial role in aligning strategic industries with broader economic trends. This synchronization can help buffer against economic shocks and promote sustained growth.
  2. Adaptive Governance: The success of state involvement heavily depends on governance structures that allow for flexibility and responsiveness to market dynamics. This adaptive approach enables state-owned enterprises to remain competitive and relevant in rapidly changing global markets.
  3. Long-term Perspective: While adapting to short-term market forces, state-owned enterprises must maintain a focus on long-term national interests. This balance is critical for sustainable development and strategic positioning in the global economy.
  4. Symbiotic Relationship: Rather than viewing state involvement and market forces as mutually exclusive, Dr. De Zilwa suggests that the most successful models create a symbiotic relationship between the two. This approach harnesses the efficiency and innovation of markets while leveraging the strategic direction and resources of the state.

Conclusion: A Balanced Approach for the Future

The success stories from the UAE, China, Singapore, South Korea, and other East Asian nations demonstrate the potential of strategic state involvement in driving economic development and enhancing global competitiveness. These examples, coupled with insights from experts like Dr. De Zilwa, point towards a nuanced approach to managing national assets.

As countries worldwide face increasingly complex economic challenges, from technological disruption to climate change, the role of state involvement in strategic sectors may become even more critical. However, the key to success lies in striking the right balance – combining the strategic vision and resources of the state with the dynamism and efficiency of market forces.

The future of state involvement in national assets would likely be characterized by:

  1. Smarter Governance: Implementing sophisticated governance models that ensure accountability while allowing for commercial flexibility and innovation.
  2. Strategic Focus: Concentrating state involvement in sectors that are crucial for long-term national interests, particularly in areas where market failures are likely or where long-term investment is needed.
  3. Public-Private Partnerships: Developing sophisticated models of collaboration between state-owned enterprises and private sector entities to leverage the strengths of both.
  4. Global Competitiveness: Ensuring that state-owned enterprises are equipped to compete on a global stage, driving innovation and efficiency.
  5. Adaptability: Creating frameworks that allow for the evolution of state involvement as economic conditions and national priorities change over time.

As we move forward, the most successful nations will likely be those that can artfully balance state involvement with market dynamics, creating resilient economies capable of navigating the complexities of the global marketplace while steadfastly pursuing long-term national interests. The experiences of countries like the UAE, China, Singapore, and South Korea offer valuable lessons, but each nation must ultimately create its own approach, tailored to its unique circumstances, resources, and aspirations.

In this evolving landscape, continuous learning, adaptation, and a willingness to challenge conventional economic wisdom will be essential. The success stories highlighted in this article serve not as blueprints to be copied, but as inspirations for innovative approaches to economic development and the management of national assets in the 21st century.

Citations:

[1] State Owned Enterprises/ Public Private Partnerships https://globalnaps.org/issue/state-owned-enterprises-public-private-partnerships/

[2] State-Owned Enterprises: Partners and Competitors https://www.chinabusinessreview.com/state-owned-enterprises-partners-and-competitors/

[3] State‐Owned Enterprises and Cross‐Border Alliances https://onlinelibrary.wiley.com/doi/full/10.1111/1467-8551.12746

[4] [PDF] State-Owned Enterprises – PwC https://www.pwc.com/sg/en/government-public-services/assets/state-owned-enterprises-201504.pdf

[5] [PDF] State-Owned Enterprises’ Reform Program, Subprogram 1 https://www.adb.org/sites/default/files/linked-documents/55235-001-ld-03.pdf