Deconstructing Public Enterprise

  • Judith Clifton
  • Francisco Comín
  • Daniel Díaz Fuentes
Chapter

Abstract

The original reasons for setting up public enterprises or nationalising private companies have tended to be forgotten or distorted over time.1 There are several explanations for this. From the point of view of business practice, directors and managers of some public enterprises and agencies tend to adopt an inward-looking perspective. This is based on the conviction that their businesses have ‘unique characteristics’ in the supply of all kinds of goods or services for the public interest, from national defence and security to transportation and communications.2 In underlining their difference, they prefer not be analysed as common profit-maximising private enterprises subject to the rule of competitive markets and would rather be perceived as ‘special cases’ at the national or sectoral level. On occasions, this strategy of differentiation has worked, and they are regulated by industry-specific frameworks and receive other special Governmental treatment.3 However, this inward-looking perception has not helped the development of a common vision of public enterprises.

Keywords

Private Company Private Enterprise Public Enterprise Public Ownership Railway System 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

Notes

  1. 1.
    Comín and Díaz Fuentes (2003), Millward (2000) and Toninelli (2000).Google Scholar
  2. 2.
    For example, the British Broadcasting Corporation (BBC) continues to perceive itself as a special case among broadcasters, and uses this vision in order to negotiate a particular position vis-¨¤-vis Government policy.Google Scholar
  3. 3.
    It is interesting to compare the strategy of the BBC in the UK with that of RTVE in Spain. One of the linchpins of the BBC¡¯s strategy was to demarcate its difference, even with the passing of the UK Government¡¯s Draft Communications Bill (2002) the BBC has earned special regulatory privileges. In contrast the Spanish broadcaster was part of INI and lost its unique characteristics, becoming another commercial enterprise.Google Scholar
  4. 4.
    For example, experts such as Aharoni feel compelled to dispel the ¡®myth¡¯ of a Socialist nationalisation in the UK before analysing the real explanations for the programme. Aharoni (2000).Google Scholar
  5. 5.
    Comín and Díaz Fuentes, (2003).Google Scholar
  6. 6.
    Yarrow (1999: 157–68).Google Scholar
  7. 7.
    Toninelli (2000).Google Scholar
  8. 8.
    Comín and Díaz Fuentes (2003).Google Scholar
  9. 9.
    Maddison (2002).Google Scholar
  10. 10.
    A positive externality is a benefit not accounted for in the price of good or service. In this case, the producers cannot appropriate all the benefits of the activities that have been undertaken, thus, the incentive is to under-invest in the activity unless the State subsidises or protects the activity. Crafts (2000: 36–7).Google Scholar
  11. 11.
    Singer (1995: 17–25) and Haq (1995: 26–33).Google Scholar
  12. 12.
    Grillo (1997).Google Scholar
  13. 13.
    The so-called Washington Consensus was a consequence of the Latin American debt crisis in the 1980. It assumed that sound economic performance required economic stability, trade liberalization, deregulation, privatisation and getting prices right. Once the State was scaled back, the market would produce efficient allocations and growth. However, the Washington Consensus ignored or under-emphasized competition policy, transparency, financial regulation, policies for technological transfer, democratic and sustainable development and possibilities for corruption. The emphasis on privatisation was to reduce fiscal deficits and macroeconomics stabilization. The assumption was that if one could create property rights then the profit maximizing behaviour of the owners would increase economic efficiency. Thus, privatising quickly and fixing the problems afterwards seemed a reasonable gamble. See Stiglitz (2002).Google Scholar
  14. 14.
    This de-politicisation can be understood in terms of Foucault¡¯s use of the term ¡®political technology¡¯ whereby an essentially political dilemma is removed from the realm of politics and reconstituted in more neutral, ¡®scientific¡¯ and economic language.Google Scholar
  15. 15.
    Sutton (1999). In the UK, Prime Minister Thatcher famously stated in defence of her politics, ¡®There is no alternative¡¯.Google Scholar
  16. 16.
    Tracey (2000). In debates on this topic, post-war concerns such as the mass media¡¯s role in maintaining or creating a democratic culture, providing what people ¡®needed¡¯ rather than delivering what they ¡®wanted¡¯, maintaining local and national culture, and preserving morality were replaced by new issues such as individual consumer rights and choices, where both could be expressed and satisfied through a credit card.Google Scholar
  17. 17.
    Grillo (1997).Google Scholar
  18. 18.
    The CEEP (Centre Europ¨¦en de l¡¯Enterprise Publique) stands for the European Centre of Public Enterprises in English. This recently has been changed to the long-winded title of the European Centre of Enterprises with Public Participation and of Enterprises of General Economic Interest.Google Scholar
  19. 19.
    The other two being the European Trade Union Confederation (ETUC) and the Union of Industries of the European Community (UNICE).Google Scholar
  20. 20.
    Hayek (1944), von Mises (1969a, 1969b, 1977) and Littlechild (1978).Google Scholar
  21. 21.
    See for example see Devlin (1993) for the case of Africa, Latin America and Asia.Google Scholar
  22. 22.
    Posner (1987: 595).Google Scholar
  23. 23.
    For instance, see the influential work of Shirley (1999).Google Scholar
  24. 24.
    Such as Privatisation International, or The Economist.Google Scholar
  25. 25.
    This has been pointed out by Yergin and Stanislaw (1998). The terms selected by a Government is often revealing: in the case of Mexico, the term desincorporaci¨®n, rather than privatizaci¨®n ordenacionalizaci¨®n was selected. Privatizaci¨®n was probably rejected due to the Spanish ¡®privar¡¯ meaning to lack or be deprived while denacionalizaci¨®n would have unacceptable connotations to the Mexican public. Instead, ¡®desincorporaci¨®n¡¯ was chosen because President Salinas (1994–2000), who was responsible for large privatisations, wanted to emphasis this was part of Mexico¡¯s project to modernise by dismantling many of its rigid, corporatist traditions (such as the relationship between the state and organised labour). This did not, however, mean serious political change in terms of challenging the ruling party, the PRI. He claimed he wanted Gorbachev¡¯s Pereistroika without the Glasnost ¨C economic modernisation without political reform. Interestingly, the PRI Government fell from power in 2000 after over eighty years in power. See Clifton (2000).Google Scholar
  26. 26.
    Contracting out is a common Government practice of hiring a firm to perform specific tasks rather than produce it itself. This practice and other incentive based mechanisms stimulate competition between enterprises for contracts which might run the activity more efficiently.Google Scholar
  27. 27.
    Too often, the Washington Consensus has silenced important issues under the mantra of privatisation. However, the sequencing of regulation and competition matters, not only because many of the benefits of privatisation can only be achieved in competitive markets, but also because powerful interest groups can be created that suppress competition or resist regulations to reduce monopoly power. In fact, privatising monopolies creates huge rents. It has proved difficult to administer privatisation without encouraging corruption and other problems. Entrepreneurs will have the incentive to try to secure privatised (monopolies) rather than invest in creating their own firms. In contrast, competition policy often undermines rent and creates incentives for wealth creation. See Stiglitz (1998).Google Scholar
  28. 28.
    Hayek (1935), Mises (1935), Lange and Taylor (1964), Tinbergen (1967) and Attali, (1979).Google Scholar
  29. 29.
    Tinbergen (1967) and Attali (1979).Google Scholar
  30. 30.
    UMIST (2000).Google Scholar
  31. 31.
    Stigler assumed that public servants and politicians, like business managers and consumers, were self-interested, would maximise their political support and resort to bribes. He also assumed that ¡®Every industry or occupation that has enough power to utilize the state will seek to control entry¡¯. Stigler (1971).Google Scholar
  32. 32.
    World Bank (1995).Google Scholar
  33. 33.
    Finsinger (1983) and Millward (1983 and 2000).Google Scholar
  34. 34.
    Aharoni (2000: 59).Google Scholar
  35. 35.
    World Bank (1995).Google Scholar
  36. 36.
    Yarrow (1999: 158).Google Scholar
  37. 37.
    Yarrow (1999).Google Scholar
  38. 38.
    Aharoni (1986: 72).Google Scholar
  39. 39.
    Toninelli (2000).Google Scholar
  40. 40.
    Comín and Díaz Fuentes (2001).Google Scholar
  41. 41.
    Toninelli (2000).Google Scholar
  42. 42.
    Friedmann and Garner (1970), Whitaker cited in Tupper and Doern, (1981: 11).Google Scholar
  43. 43.
    See Aharoni (1986: 96–98).Google Scholar
  44. 44.
    See Pliatzky (1982) and Aharoni (1986: 99–100).Google Scholar
  45. 45.
    Flichy (1995).Google Scholar
  46. 46.
    Technical arguments about scarcity of the airwaves making them a natural monopoly and economies of scale were also influential reasons for the organisation of broadcasting into state monopolies across Europe. See Humphreys (1996).Google Scholar
  47. 47.
    See Taylor (1997).Google Scholar
  48. 48.
    Washington Post 31 July 2002:3.Google Scholar
  49. 49.
    Adam Smith discussed this in Chapter 4, 3.14 ¡®Disgression concerning banks of deposit, particularly concerning that of Amsterdam¡¯. See ed. Glahe (1993).Google Scholar
  50. 50.
    See Feiertag and Martin Aceña, (1999).Google Scholar
  51. 51.
    Perroux, (1945: 485–98).Google Scholar
  52. 52.
    See Niiva (1994); Tapio (1997b); Kalliomaki (1999) and Willner (1998) for Finland, and Chubb (1970) and Keogh (1994) for Ireland.Google Scholar
  53. 53.
    See Trebat (1983).Google Scholar
  54. 54.
    Bös (1991:50).Google Scholar
  55. 55.
    Adam Smith in ed. Glahe (1993).Google Scholar
  56. 56.
    As Baumol (1980) has shown, Kaldor was the first to explain these arguments and describe the main situation in which they applied. Firstly, when uncertainty is high, private business uses high rates of discount on expected future profit, as has occurred in the new technology sector. Secondly, when markets are not working efficiently, because, for instance, there are externalities, private business only considers profits that can be found privately, but the existence of other social benefits makes private investment less than the socially optimum.Google Scholar
  57. 57.
    The Economist 18 July 2002.Google Scholar
  58. 58.
    Baumol et al (1982).Google Scholar
  59. 59.
    Aharoni (1986: 107).Google Scholar
  60. 60.
    For example, in 1983, public subsidies accounted for 80 per cent of the operating costs of the Italian railway system, while the corresponding figure for Denmark and the Netherlands was 50 per cent; for France, Austria and the Federal Republic of Germany, this amounted to 40 per cent; for Norway, Ireland, and the UK, 35 per cent; and for Belgium, 25 per cent. The Economist 24 August 1985: 33 cited in Aharoni (1986).Google Scholar
  61. 61.
    Thomson (1938: 874)Google Scholar
  62. 62.
    Aldcroft (1968a and 1968 b).Google Scholar
  63. 63.
    In this period all Western European systems have common features in the trends towards consolidation, public ownership, commitment to long-run planning, investment appraisal and forecasting. McGowan (1993).Google Scholar
  64. 64.
    See Aharoni (1986: 101).Google Scholar
  65. 65.
    In 1953 the steel industry was privatised by the Conservative Party, but was then nationalised by the Labour Party (1964–1967).Google Scholar
  66. 66.
    See Aharoni (1986: 105) and Ashworth (1991).Google Scholar
  67. 67.
    Hutton, a leader New Labour ideologue, tries to shift attention away from renationalisation to focus on the public interest. The Observer 8 September 2002.Google Scholar
  68. 68.
    Short (1984).Google Scholar
  69. 69.
    Comín and Díaz Fuentes (2003).Google Scholar
  70. 70.
    Aharoni (1986: 101–5).Google Scholar
  71. 71.
    Vernon (1974).Google Scholar
  72. 72.
    Carlsson (1984).Google Scholar
  73. 73.
    An example of pragmatism of this argument is that, in 1984, 70 per cent of the world¡¯s oil production was controlled by public enterprises. See Aharoni (1986: 103–4).Google Scholar
  74. 74.
    Reithian refers to using broadcasting to educate and enlighten public taste. See supplement to Oxford English Dictionary (1982).Google Scholar
  75. 75.
    Curran and Seaton (1997: 112).Google Scholar
  76. 76.
    Curran and Seaton (1997: 119).Google Scholar
  77. 77.
    Aharoni (1986).Google Scholar
  78. 78.
    According to the graphic desription by Votaw (1964).Google Scholar
  79. 79.
    Fridenson (1987).Google Scholar
  80. 80.
    Clifton (2000).Google Scholar
  81. 81.
    Gerschenkron (1962).Google Scholar
  82. 82.
    Cypher and Dietz (1997).Google Scholar
  83. 83.
    Wade (1990) shows that half of Taiwan¡¯s industrial production was done by State companies in the 1950s, and that productivity was higher than in the private sector in chemicals, mining, metals, fertilizers, food products and other sectors where they initially worked at a loss (steel plastics, cement). Once they had overcome initial barriers to investment public enterprises were privatised to pass profits to the private sector.Google Scholar
  84. 84.
    World Bank (1993) and Wade (1994).Google Scholar
  85. 85.
    ¡®During the industrialization push in all now-rich nations public intervention s were rife— US courts restricted individual¡¯s control over property— Following the Meiji Restoration, the Japanese State set itself entrepreneurial, financier, and manager in several manufacturing lines¡¯. Shapiro and Taylor (1990: 866).Google Scholar
  86. 86.
    Barrett (1999: 147).Google Scholar
  87. 87.
    Chubb (1970: 274).Google Scholar
  88. 88.
    Namely, Veitsiluoto and Enso-Gutzeit.Google Scholar
  89. 89.
    Outokumpu and, later, Rautaruukki. See Tapio (1997a and 1997b).Google Scholar
  90. 90.
    Parris, Pestieau and Saynor. (1987:20–1).Google Scholar
  91. 91.
    For example, the French Government vetoed the proposal by General Electric to buy 20 per cent of Bull¡¯s capital. See Vernon (1974).Google Scholar
  92. 92.
    Hochmuth (1979).Google Scholar
  93. 93.
    Aharoni (1986).Google Scholar
  94. 94.
    See Aharoni (1986: 113–5). Also see Robson (1962) and Keyser and Windle (1978). In contrast to the nationalisation in Europe, in the United States, the Government helped enterprises or banks in crisis through subsidies, guarantees, and loans made through special laws and organisms created to that end.Google Scholar
  95. 95.
    Sawyer and O¡¯Donnell (1999: 19–22).Google Scholar
  96. 96.
    Parker (1998).Google Scholar
  97. 97.
    Aharoni (2000: 52–3).Google Scholar
  98. 98.
    Yarrow (1999).Google Scholar
  99. 99.
    Aharoni, (2000: 68).Google Scholar
  100. 100.
    Millward (2000).Google Scholar

Copyright information

© Springer Science+Business Media Dordrecht 2003

Authors and Affiliations

  • Judith Clifton
    • 1
    • 2
  • Francisco Comín
    • 3
  • Daniel Díaz Fuentes
    • 4
  1. 1.Universidad de OviedoSpain
  2. 2.Open University and University of LeedsUK
  3. 3.Universidad de Alcalá de HenaresSpain
  4. 4.Universidad de CantabriaSpain

Personalised recommendations