Private Benefits Of Control: An Explanation To Regulation

Before economic transition,Chinese government regulated the economy by owning and controlling almost all the enterprises directly.Today,although China has been developing market economy for decades,state-owned enterprises still play a very important role in economy.State-owned enterprises control those key industries,such as energy,finance,transportation,communication.State-owned enterprises is the primary means for the government to regulate the economy.By controlling these key industries,the government keeps the whole economy under its regulation substantively.After the joint-equity reform,those state-owned sole proprietorship enterprises changed to state-controlled companies with minority shareholders,which are still the means for the government to regulate economy.This paper comes up with an explanation of private benefits of control to this specific form of regulation.This explanation supposes,for the government,not economic benefits but other targets are the main reasons to control enterprises.These other targets may include social welfare,national security,political institution, ideology etc.All these targets other than economic benefits are the government's private benefits of control.The government,as the controlling shareholder,would likely act the Non-Profit-Maximizing ways,and result in a financial loss which can be offset by it's private benefits of control,leaving the minority shareholders suffering the loss.Furthermore,being a parts-of-shares' owner,rather than being the sole owner,the government has a bigger incentive to regulate the economy.This explanation of private benefits of control to regulation is different to Capture Theory of Regulation and Public Interest Theory of Regulation,so this paper develops an empirical way to test the explanation with the media industry as the sample.The empirical evidence proves the explanation.