Public Management and Administration - Owen E.hughes

then spread to other countries, to the extent that, from the early 1980s to 1993,
more than 7000 enterprises had been privatized (Farazmand, 1996, p. 18).
Public enterprises always had particular management problems, including
accountability, regulation, social and industrial policies, investment policy, and
financial controls. Of all these, control and accountability are particular problems
for public enterprises, which are deliberately set up to be relatively independent
of direct political control. Setting control at a satisfactory level has
been a perennial problem both for governments and their enterprises. If control
is too tight, there is no advantage in having them set up as entities with a significant
degree of independence. If government control is too loose, an enterprise
may not be accountable to its owners, the public, raising a question as to
why it is in government hands at all. Indeed, one of the arguments for privatization
is that public enterprises cannot be effectively controlled and their
accountability is inherently inferior to that of private companies.
Public enterprises are a noteworthy part of the public sector. They may
shrink so far as to become nothing more than an interesting diversion in the history
of governmental institutions. They may, though much less likely, gain a
new lease of life. Perhaps all activities that can be carried out by the private sector,
should be. Even with widespread privatization, public enterprise is still an
important part of the public sector in many countries and many of the arguments
about reducing public enterprise also apply to the public sector in general.
Reasons for establishing public enterprise
Governments have established public enterprises for a variety of reasons. These
can include: inadequate private supply of goods and services; rescuing private
firms if their closure is against the public interest; improving competition;
reducing social costs such as environmental externalities; even to protect
national sovereignty in some way. Hood notes that the Japanese tobacco and
salt monopolies were established to pay for the war with Russia in 1905 and
that mail services were set up as government monopolies to facilitate spying on
correspondence (Hood, 1994, p. 37). Renault was nationalized by the French
government after World War II because of wartime collaboration by its then
owners. Some developing countries prefer having public enterprise to having
foreign ownership of important services. Farazmand argues recognizable public
enterprises existed as long ago as the Persian Empire, in the fourth and fifth
centuries BC and these were established partly for national prestige purposes
(1996, pp. 2–3). There are many other reasons; indeed, so many, that government
ownership is the only point in common.
Rees (1984, p. 2) argues that there are four reasons for the existence of
public enterprise:
● To ‘correct’ market failure.
● To alter the structure of pay-offs in an economy.
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