State and business enterprise in historical perspective

1
State and business enterprise in historical
perspective
2
Summary

• Introduction
• Motives for the existence of public enterprises
• Fields of activity of public enterprise
• The origins of SOEs (until the 1920s)
• The impact of Great Depression
• The decline of public enterprises temporary or
  permanent?

3
Introduction

• Three different functions of the state, in its
  relationship with economy
• facilitator
• arbitrator
• participant
• What are the State-Owned Enterprises (SOEs)?

4
Motives for the existence of public enterprises
(i)

• The role of chance (the case of Volkswagen)
• Political and ideological reasons
• Collectivist economies in former Communist
  countries
• Nationalization as a source of power shift
• Nationalization as an instrument for autarky
• Nationalization as an instrument against
  takeovers.

5
Motives for the existence of public enterprises
(ii)

• Social motives for nationalization to guarantee
  full employment, to offer better working
  conditions and to improve industrial relations.
• Economic reasons
• Market failure
• The promotion of economic growth and social
  transformation in underdeveloped countries or
  regions
• To rescue private businesses affected by deep
  economic and financial crises
• The distributory argument and the stabilizing
  effects of nationalization policies.

6
Fields of activity of public enterprise

• Wide range of activities.
• The economic activities where state-owned
  enterprises concentrated
• Public utilities, communications, and
  transportation
• Basic goods industries (coal, oil, atomic energy,
  steel)
• Banks and insurance
• Education and health.

7
Three main periods

• Few cases of direct intervention (until the
  beginning of 20th century).
• Market economy faced turbulence caused by World
  War I and the recession following the 1929 crisis
  (1914-1945).
• The apogee and then the decline of
  nationalization policies (1945-1980).

8
The origins of SOEs

• The case of urban utilities market failure and
  externalities led to municipalization.
• Two different patterns of state behaviour
• Continental pattern (more interventionist)
• American pattern was characterized by a limited
  involvement in production but a greater reliance
  on state regulation of the market.

9
The impact of Great Depression

• The doubt about the reliability of market
  mechanisms to promote welfare and economic growth
  the impact of Great Depression.
• It was recognized that stronger government
  intervention in the form of state control of
  crucial sectors of the economy could resolve the
  problems of market failures.
• Historical examples of nationalization and state
  intervention.

10
Reasons for nationalization after World War II

• Efforts to overcome the scarcity of raw
  materials, to rationalize productive structures
  and to ensure the functioning of absolutely
  necessary services.
• Development policies based on planning and mixed
  economies - the removal of sectoral imbalance
  catching-up with full employment the enlargement
  of the public sector as a way to strengthen the
  interest and welfare of the community.

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The decline temporary or permanent? (i)

• Table The Economic Weight of Public Enterprise
  (Ayerage of the shares of employment, gross
  investment, and value added).
• Decline since the late 1970s waves of
  privatization erosion of the public sector.
• Even Italy started privatization in the 1990s.

12
The decline temporary or permanent? (ii)

• Reasons for privatization
• Most of the reasons for earlier expansion of the
  public sector grew weaker as the aims of public
  enterprise were at least partly achieved.
• Increasing budgetary constraints
• Innovations in technology, management, and
  information made the heavy bureaucratic structure
  and inefficiency of public enterprise obsolete
  and uncompetitive.
• Unable to achieve the flexibility required.
• Increasingly exposed to political pressure and
  constraints.
• Government failure as frequent as market failure.