Gravity's Rainbow

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Doing state-owned enterprises right


Enterprises in industries that are natural monopolies, industries that involve large investment and high risk and enterprises that provide essential services should be kept as SOEs [state-owned enterprises], unless the government has very high tax-raising and/or regulatory capabilities. … Privatizing politically important enterprises on the basis of dispersed share sales is unlikely to resolve the under lying problems of poor SOE performance, because the newly privatized firm will have more or less the same problems as when it was under state ownership. …

SOE performance can often be improved without privatization. … Very often, public enterprises are charged with serving too many goals … There is nothing wrong with state-owned enterprises serving multiple goals, but what the goals are and the relative priority among them need to made clear

The monitoring system can also be improved. In many countries, SOEs are monitored by multiple agencies, which means either that they are not meaningfully supervised by any particular agency or that there is a supervisory over-kill that disrupts daily management …

… More competition is not always better, but competition is often the best way to improve enterprise performance. Public enterprises that are not natural monopolies can easily be made to compete with private-sector firms. … [W]here feasible, competition can be increased by setting up another SOE. … Of course, SOEs are often in industries where there is a natural monopoly, where increasing competition within the industry is either impossible or would be socially unproductive. But, even in these sectors, some degree of competition may be injected by boosting some “neighboring” industries (airlines vs. railways).

Source: Bad samaritans : the myth of free trade and the secret history of capitalism (Book, 2009) []

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