As far as this old folk can remember, when China was under a "pure socialist" economic management, many SOE failed badly and the state had to underwrite debts and closed down non-performing "public companies". Many years on, some SOE are better than others. However, it is difficult to establish if these are business mistakes or the result of corruption. Ernest to achieve targets, many SOE must have exceeded their brief and power. Managers argue that it's all for national interest but Chinese people have serious doubts.
The “pure socialist" economic management you mention is Soviet communism, which is more about politics than economics. It does not respect the market forces. Moreover, at the time, China has no access to modern management expertise and practices and modern technologies.
The socialist market economy is an invention of the Deng Administration, although it has its roots in the Japanese and the East Asian tiger economic “miracles”. Since it is a market economy, it is subjected to market forces, unlike Soviet communism.
The socialist market economy has two sectors, the state and private sectors or the socialist and the capitalist sectors. It has also proven that socialism and capitalism are not mutually exclusive.
The capitalist sector operates fully as a capitalist market economy like any capitalist market economy in the world. Maximization of profits within the law and without serious harm to society is both legitimate and desirable. This promotes entrepreneurship, venture capitalism, innovations and other risk taking ventures resulting in the creations of jobs and wealth. It involves the rest of society apart from the state sector.
The socialist sector is operated and funded by the state. Within the country
, its function is not maximization of profits, but national development. It invests in necessary strategic or needed areas, often from scratch and shunned by the private sector as too risky, commercially not viable, too long-termed or simply costing too much money. Examples are investments in high-speed rails, highways, airports, development banks, mass housing, mining, energy, auto, etc. Such investments create enormous number of opportunities for private sector to grow and thrive. When the economy starts to boom, foreign investments pour in. When this economic development is sustained for long enough, there is what is known as an economic “miracle”. However, there are pre-requisites before a country could embrace such a path of economic development.
Big problems start to fester when the SOEs turn capitalist and overwhelm the successful private businesses. Capitalist SOEs behave just like any capitalist with profit maximization their main concerns. This often results in rapid increase in cost of living for the people as the capitalist SOEs abandon their role of mitigating capitalist excesses.
As an illustration, let us consider the pork business. Let us say, in the beginning, there are only private pig farmers, and there are many of them. When prices are good, the farmers tend to rear more pigs hoping to make more profits (maximization of profits). This would inevitably lead to excess supply sometime in the future. When prices plunge, the farmers would rear less pigs and cause future shortage of the supply of pork in market and high prices.
To avoid consumer anger when pork prices are high and the sufferings of farmers when they go bankrupt or suffer heavy losses when prices plunge quickly, the government introduces a SOE to stabilize the pork market. The SOE would cut back the number of pigs it is rearing to off-set the increase in the number of pigs the private sector farmers are rearing when prices are high and increase the number pigs it is rearing when the farmers cut back the number of pigs they are rearing when prices are low. This kind of operations would bring price stability to the pork market. Moreover, since the SOE is not maximizing profits from the pork market, it could share its research and development advances with the farmers and help them modernized their pork production and management. So a socialist SOE’s performance should not be measured against profit performance, but on its performance in the contribution to the national economy.
Of course, capitalists do not like the socialist SOEs because the socialist SOEs prevent them from maximizing profits by price and market manipulations leaving them with tough options like increasing productivity with better management and technologies.
So capitalist market economists would come out with numerous reports highlighting the socialist SOE’s “capital inefficiency” with comparison to the profit performance of capitalist businesses which primarily aim is profit maximization. The crucial fact that the socialist SOE purpose is national development and not maximization of profits is ignored or even suppressed.
On the other hand, when SOEs, whether socialist or capitalist, make money, the capitalist market economists would condemn them as state monopolies indulging in unfair competition. These capitalist market economists speak both ways with the two corners of their mouths.
Another way of transforming a socialist market economy into a capitalist one is by a process called “privatization”. This is achieved by transferring ownership of successful state enterprises into “private hands”. In reality, it is a transfer of the ownership of these enterprises from the people to capitalists, often in corroboration with powerful foreign capitalists. To make the matter worse for the people, the capitalists would then use these privatized former SOEs to maximize profits from the people and then the capitalist market economists would point to the massive booty looted from the people as evidence of the undisputed “capital efficiency” of private businesses. The dominant or even monopolistic attributes of these enormous privatized former SOEs are conveniently overlooked. The preferred sectors that the capitalists would covet are those in essential services and production such as transportation, finance, energy, food, housing and others. These are good sectors to maximize profits with dominant or monopolistic companies.
Of course, SOEs, both socialist and capitalist, to a lesser or greater extent, have issues regarding corruption, nepotism, mismanagement, management incompetency and others, but these are separate matters that should be researched and improved on or mitigated. They should not be excuses to hand over the SOEs to the capitalists for maximizing profits from the taxpayers.
Socialist SOEs in the socialist market economy are able to create real and productive jobs for the people by investing in areas that would enhance the economic capacity of the country or to prevent economic loss. Employment, after all, is the mother of all human rights, for people without a decent income would have many of their other human rights rendered academic or inoperative.