A discussion about the rapid industrialization of Meiji-era Japan brought up how many state-owned enterprises set up during this period were loss-making until they were sold to the private sector and restructured. However, nowadays, this is usually done in the opposite way: state-owned enterprises that make money get privatised, while privately-owned enterprises that make a loss but whose work absolutely needs getting done get taken care of by the State, or at least bailed out or subsidized.
Has anyone ever looked at whether this is in fact the general rule, or whether the trend is actually the opposite?
My interlocutor u/ReaperReader provides a first attempt at a response:
I'm not aware of any research that has looked at profitability of SOEs before privatisation as a driver of what firms get privatised, and I haven't found any academic articles on this in a brief search (which is not to say that there isn't any research on this). The closest is that Netter (2001), in a literature review of privatisation research, does note that governments do typically choose to privatise the more profitable SOEs via share issue privatisations (SIPs) (page 240). But that's about the method of privatisation.
An other general finding of the literature is that there's quite a bit of variation in how it happens, both between countries and over time in the same country, down to local political situations. So even if there is a tendency, Japan could easily have been an exception.
But this sort of cross-country comparative research is mainly confined to 1984 onwards (apart from some discussion of the early reforming countries such as Thatcher's UK and New Zealand), when the World Bank's database starts coverage.
Is there any research so far that has gone deeper into this topic?
My understanding is that the privatisation of state-owned enterprises in regimes transitioning away from a "Communist" framework would be fundamentally different in terms of its context, challenges, and rhetorical underpinnings, relative to that of the same in mixed-economy regimes where a Capitalist class exists, which is why they got their own separate question a few days ago.
However, if both types can be explained together under a coherent general overarching theory, I'd be happy to hear it.
This is a huge question and really has nothing to do with era, and everything to do with political climate. In Japan in particular, there was no "rhyme or reason" besides factionalism within the cabinet and bureaucracy as to when and what industries would be privatized. The general trend of state owned institutions being unprofitable then coming to profitability after privatization also was not true, as the largest company in Japan throughout the Meiji era after its foundation, Yawata Steel Works, was a state owned enterprise that shared a headquarters compound with the Ministry of Commerce and Agriculture and was profitagble throughout most of its history. Other profitable SOEs in Meiji Japan included the Yokohama Specie Bank, the main foreign exchange and investment arm of the government, and the Taiwan and Hokkaido Colonization Banks, which capitalized sugarcane and "Hokkaido Farming" methods respectively.
Japan did, rather uniquely for the time, adopt a strategy of state funded enterprises that were later privatized, but this was political coincidence. From the restoration until the Satsuma Rebellion of 1877-78, Japan adopted an "American" Central Banking model where more than a dozen regional banks were established and given freedom to credit and invest in whatever industries they desired. Come the rebellion, Japan, which at the time was using a fiat currency, experienced hyperinflation as the Meiji oligarchy printed money to fight the rebels. This led to the rise of Finance Minister Matsukata, who initiated an austerity program effecting all areas of the government except the military called the "Matsukata Deflation". Over three decades, Matsukata remained the economic czar of Japan and greatly increased the domestic value of the Yen, until finally, following victory in the Sino-Japanese War, he achieved long-term zero inflation with the introduction of the Gold Standard (the gold having been obtained using Chinese reparations payments).
Part of the deflation involved cutting off unprofitable SOEs, often selling them for pittance, and restrainng the banks. Japan moved from an "American" to a "British" banking model, cenralizing the local banks into a single Bank of Japan, with the Yokohama Specie Bank achieving some level of parallel prominence. Overall, the wave of privatization in Japan during the Meiji era was not some conscious decision about government balance sheets, but part of an overarching initiative to stabilize the currency.
In the 1930s, Japan experienced a second wave of nationalization as the "Reform Bureaucrat" faction led by Yoshida Shigeru and Kishi Nobusuke gradually gained influence in the Ministry of Commerce and Industry (the aforementioned Ministry of Commerce and Agriculture had split), and as army ideologues like Kanji Ishiwara and Tojo Hideki supported them. The reform bureaucrats idolized German cartelism, especially the form promoted under the Nazis, and the Soviet Five Year Plans, and brought numerous industries under de facto or de jure state control. After the Second World War, the allied occupation authority, SCAP/GHQ, forcibly decentralized the Japanese economy by breaking up all the zaibatsu (large family owned corporations) and state owned enterprises. Japanese bureuacrats were severely restricted on paper by American-imposed laws on how much they could intervene in the economy, but since most of the Reform Bureuacrats escaped the War Crimes Trials after the war (90% of the MCI's staff was still employed after the takeover, and even Kishi, who was set to be tried as a Class A war criminal, escaped unscathed), they developed an "informal nationalization" program whereby the government actually controlled major corporations and re-built them around their savings banks, while in practice leaving them to be private.
From this case we can see again that privatization/nationalization had nothing to do with balance sheets or government finances, and everything to do with political currents. The state of the Japanese economy after World War 2 poses another challenge, and that is in blurring the lines between state-controlled and private enterprises. While most Japanese corporations are private, they are dependent entirely on the government for financing through state control of the major banks, and are largely run by ex-bureaucrats through a system called "amakudari", or descent from heaven, whereby state financial leverage is used to secure private sector executive positions for retiring bureaucrats at the informal bureaucratic retirement age of 50. Officially, the keiretsu, Japan's major corporations, are private, but in practice they function like SOEs would in the West.
Provided time, one could go through all the major cycles of nationalization/SOE foundation and privatization in Europe and Asia, including the famous cases of Britain, France, and Germany in the postwar era, but the example of Japan alone is more than enough to prove the central point, that there is no "pattern" to privatization and nationalization. They depend on politics more than economic incentives.
Sources:
Shiina, Etsusaburo. Autobiography.
Johnson, Chalmers. MITI and the Japanese Boom.
Matsukata, Masayoshi. Report on the Adoption of the Gold Standard in Japan.
Ericson, Steven. The “Matsukata Deflation” Reconsidered: Financial Stabilization and Japanese Exports in a Global Depression, 1881–85.