| Public enterprises are the vanguard of the economy in socialist countries. Since the collapse of communism in Eastern Europe and the Soviet Union, many post-communist governments have changed their economic model, however, including privatizing their state owned enterprises (SOEs). What is the rationale behind privatization? Is it for economic reasons alone or political reasons? This study investigates the economic performance of state owned enterprises (SOEs) to determine why privatization has become the policy of choice for many countries around the world. From the General Statistics Office of Vietnam, I obtained a comprehensive dataset of enterprises operating in Vietnam for nine years from 2000 to 2008, including information on profit rates, employment, capital resources, and revenue. I use this dataset to measure economic performance by sector. There are many ways to measure the economic performance of a firm. In this study, I used Data Envelopment Analysis (DEA), which is an observations-based nonparametric method, to calculate comparative efficiencies among SOEs, private enterprises, and enterprises funded by foreign direct investment (FDI).;The SOE sector performed poorly on all measurements. Evidence from seven models combining different of inputs and outputs shows this sector is at the bottom of the efficiency rankings. It performs the worst in the model that has profit as the only output, far below FDI and Private sectors. The SOE sector gained efficiency when number of employees was added to the models. However, the gain was not big enough to disarray the rankings. The private sector does the best in creating jobs; it outperforms other sectors in this category. However, the FDI sector is efficient in turning profit to meet business objectives: it clearly outperforms the SOE and private sectors in making money.;Ordinary least squares (OLS) regression analysis shows substantial efficiency gains when moving from SOE to the private and FDI sectors. The weaknesses of SOEs in turning inputs into profits requires Vietnamese government policymakers to adjust state-owned enterprises' objectives in order for them to survive in today's competitive world. The economic performance of Vietnamese state owned enterprises is poorer than that of private and FDI enterprises. The poor performance of state-owned enterprises clearly hinders economic growth, raising the question of whether they should remain the vanguard of the economy. |
