Introduction

The issues

What is to be explained is the size and structure of the public-enterprise sector in mixed economies, in particular those in less-developed countries (LDCs). The numerous reasons for establishing or retaining public enterprises can be consolidated into four groups:

1. Ideological predilection

2. Acquisition or consolidation of political or economic power

3. Historical heritage and inertia

4. Pragmatic response to economic problems

Although we will be concerned primarily with the fourth (economic) group of factors, we begin by briefly considering the competing-complementary explanations. Causation is multiple, and it is necessary to be explicit about what is being left out as we focus on economic determinants.

Ideological predilection

What does it mean to say that ideology has influenced the choice of public enterprise? We take it to mean that the decision rests not upon an unbiased examination of means in relation to ends in a particular case but upon a prior belief that certain forms of organization are generally preferable to others.

This does not imply that all choices influenced by ideology are irrational. In some cases the decision would be the same if based on an unbiased examination of the relation of means to ends. More important, ideology can influence ends as well as means. A belief in the merits of a “socialist pattern of society” can lend extra value to expansion of employment or redistribution of income, favoring investment decisions promoting those ends.

The issues

Many less-developed countries (LDCs) are shifting the emphasis of their industrialization strategies from import substitution to promotion of manufactured exports. To implement the new strategy the government has a variety of tools at its disposal. Some of these (including the exchange rate and tax and credit subsidies) are designed primarily to guide the behavior of private enterprises; others (including direct commands and bonus schemes) are designed primarily to alter the behavior of existing public enterprises. In addition, a government could create new public enterprises. Although the set of tools aimed at private enterprise has been extensively analyzed, the role of public enterprise in manufactured exports has been almost totally neglected. This chapter therefore asks what the role of the public-enterprise sector ought to be in promoting manufactured exports and how policy instruments might be manipulated to achieve this potential.

To help answer these questions we extend the list of determinants of comparative advantage to include marketing and institutional factors. The Heckscher-Ohlin theorem explains comparative advantage in terms of relative resource endowment and predicts labor-intensive manufactured exports from LDCs. This theory has been shown to have broad predictive ability, particularly when modified to recognize the human-capital component of skill-intensive manufactured exports and the natural-resource component of other manufactured exports. Other factors that have been shown useful in explaining variance for particular products and countries include such commodity and national attributes as: scale economies (both static and dynamic), whether a good is for final consumption or intermediate use, technological lag, product differentiation, price elasticity of demand, preference similarity, physical distance, and entrepreneurs’ willingness to take risk.

Are public enterprises a useful unit of observation?

Public enterprise is a hybrid organization whose understanding requires a multidisciplinary perspective. As an “enterprise” it sells its output. It therefore performs functions (e.g., production, finance, and marketing) that are the concern of management specialists and is subject to the pressures of various markets, which are studied by economists. On the other hand, as a “public” organization, it is owned and/or controlled by the government or its agent. It is therefore subject to direct and indirect pressures from bureaucrats, politicians, and the public at large – groups that are studied by experts in public administration, political science, law and sociology. The chapters in this volume are accordingly a diversified group in terms of disciplinary approach.

The public enterprises studied are themselves a heterogeneous group, varying both within and across countries. As hybrids, public enterprises share characteristics of traditional government units and private business enterprises, with some being closer to one pole than to the other. Some, such as British Petroleum, are essentially autonomous and behave very much as large private enterprises operating in similar markets and with similar separation of ownership from control. At the other extreme are institutions, such as some development banks, that act largely as vehicles for implementing government policy by transmitting subsidized credit to individuals for purposes determined by bureaucratic and political processes. The public enterprises of the broad middle ground between these two extremes are of primary concern in the discussions presented here.

The Boston Area Public Enterprise Group (BAPEG) is a multidisciplinary group of scholars dedicated to understanding the public enterprises operating in the world's mixed economies. The first BAPEG conference focused on public enterprises in industrialized nations and resulted in the publication of State-Owned Enterprises in the Western Economies, edited by Yair Aharoni and Raymond Vernon. The second BAPEG Conference in April 1980 concentrated on public enterprises in less-developed countries with mixed economies. Some 70 papers were prepared for the conference, of which 29 were selected for discussion. The selections in this volume were chosen from the larger group to illustrate the range of issues addressed by the assembly.

The conference was attended by 68 scholars, government officials, and public-enterprise executives from 19 countries in South Asia, Africa, Latin America, Eastern and Western Europe, and North America. We would like to thank all the participants, whose lively comments contributed to the revised selections that appear here. We would also like to thank the Rockefeller Foundation, Ford Foundation, U.S. State Department, and Fund for Multinational Management Education, whose financial support made the conference possible. We are similarly indebted to Leita Kaldi of the Harvard Institute for International Development and to Susan Weise of the Boston University Public Enterprise Program, who served as energetic and capable administrative coordinators.