Friday, September 02, 2005

Supersize It

The State-owned Assets Supervision and Administration Commission (SASAC), the government body in China responsible for overeeing state-owned enterprises under central government control, recently annouces its plan to merge some of the firms under its supervision to create giant enterprises that can compete in the world market.

The sad thing about this piece of news is that after more than 20 years of miraculous economic growth, Chinese officials still don't get the message that planning does not work. How do we know large is necessarily better? How large is large? How do we know combing A firm and B firm will bring synergies but not merging firm B and firm D?

They simply just do not get it. Firm size is a result of market competition. No one knows when Sam Walton first started his business that Walmart will turn into a giant multinational business. And herelies the marvel of the market: NO ONE NEEDS TO KNOW. Competition in the market place will sort it all out!

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