Reforming state-owned enterprises

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).

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.