strategy

Reforming state-owned enterprises

Synonyms:

Managing public-interest companies
Providing sufficient enterprise in parastatals
Increasing efficiency of state-controlled enterprises
Restructuring public utilities
Corporatization of infrastructure

Description:

Restructuring public authorities, utilities and services, usually by whole or partial transfer to the private sector; usually combined with enabling private sector provision of public services (energy, water, public transport, etc).

Context:

State-owned enterprises may include industrial and commercial firms, mines, utilities and transport companies, as well as financial intermediaries. The number of such enterprises has risen in many countries. They are distinguished from the rest of government because their revenue comes from the sale of goods and services and because they are self-accounting and have a separate legal identity. Conflicting objectives, insufficient autonomy, inadequate measures for judging performance, lack of incentives linked to performance, and bureaucratic rather than commercial management styles, have all prompted attempts at reform in both command and market style economies. Financial weaknesses in such enterprises, resulting from the failure of reform measures, are transmitted to other public and private firms. Increased efficiency in such enterprises typically requires internal improvements including better financial management, more careful inventory control and a balanced production line, although these do not resolve the wider problems of the relationship with government.

Some state enterprises in developing countries have been able to operate as successful commercial ventures without burdening public finances. In most countries, however, they have drained budgetary resources, contributed to overall public sector deficits, weakened fiscal management and made negative contributions to value added. The degree of state ownership does not itself determine the performance of an enterprise. However a large portfolio of such enterprises can severely burden public and administrative and financial resources. Many governments in industrial, as well as developing countries, have halted and even reversed their earlier policies of extending public ownership.

Claim:

State-owned enterprises have tended to serve limited interests, have been inefficient and have often operated at a loss and thereby constituted a drain on resources available for development. Whether such enterprises are retained in the public sector or privatized, they should be forced to become more competitive by increasing their exposure to market forces. In the case of a divestiture programme, it is generally undesirable to continue providing protection and subsidies to the newly private enterprise, especially where the programme is part of a broader adjustment in trade and fiscal regimes.

Broader:

Increasing efficiency
Restructuring companies
Privatizing the public sector
Giving entrepreneurial assistance
Strengthening public finance policies
Managing public services

Narrower:

Privatizing public utilities
Contracting out of public services
Limiting subsidies to state-owned enterprises
Improving efficiency of government monopolies
Encouraging private provision of infrastructure
Controlling borrowing by state-owned enterprises
Privatizing management of state-owned enterprises
Rationalizing pricing policies of state-owned enterprises
Improving allocation of spending by state-owned enterprises

Constrains:

Delivering necessary public utilities
Improving public utilities in urban areas

Constrained by:

Abstaining from enterprise in parastatals

Facilitates:

State capitalism
Choosing public investments
Improving level of national investment
Fostering creative corporate competition

Facilitated by:

Researching public sector reform
Establishing state-controlled enterprises
Eliminating arrears among government agencies
Reducing protection of state-owned enterprises
Improving financial reporting in the public sector