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Chapter 1-Introduction

The document discusses the governance and management of public enterprises (PEs), highlighting their historical significance and growth, particularly in developing countries post-World War II. It outlines the evolution of PEs from colonial exploitation to their role in national development, while also addressing the challenges and failures faced by these enterprises in achieving their objectives. The text concludes with the ongoing trend of privatization and reform in response to economic stabilization efforts since the late 1980s.

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Getacho Defaru
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10 views

Chapter 1-Introduction

The document discusses the governance and management of public enterprises (PEs), highlighting their historical significance and growth, particularly in developing countries post-World War II. It outlines the evolution of PEs from colonial exploitation to their role in national development, while also addressing the challenges and failures faced by these enterprises in achieving their objectives. The text concludes with the ongoing trend of privatization and reform in response to economic stabilization efforts since the late 1980s.

Uploaded by

Getacho Defaru
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 16

Governance and Management

of Public Enterprises

PADM 4123

1
Chapter One
1. Introduction

• PEs refer to government’s involvement in the


production and provision of goods and
services.
• The origin of government ownership of such
institutions is as old as the history of state
and human civilization itself.
• Yet, their importance became more visible
from the 2nd half of the 20th century.

2
Introduction Cont’
The exponential growth of PEs was one of the
most significant phenomena of the Post Second
World War.

The trend of such growth has been more


evident in developing countries, because:
✓There was no organized private sector.
✓The task of bringing industrialization was
largely left to the gov’t.

3
Introduction Cont’

 The growth of PEs is related to the changing


philosophy and functions of the state; i.e. with
the paradigm shift of state functions from:

➢ Laissez faire to securing social welfare,


and
➢ The administration of ''law and order'' to
“rational dev’t administration”.

4
Introduction Cont’
 The most widely accepted notion during
the post war period was that natural
resources and capital heavy industries
should be possessed by the state.
 Hence, governments of developing
countries have created another form of the
public sector for managing their economies.
 These new agencies comprise what we call
the ‘public enterprise’ sector.

5
Introduction Cont’
 Thenumber and level of importance of PEs in the
economy vary from country to country.
 The variation was due to differences in:
➢ Ideological preferences,
➢ Historical factors, and
➢ Social and economic circumstances.
 They have been more abundant in socialist
countries.
 Despite differences, PEs do exist and make
crucial contributions in the most liberal and
private-oriented systems as well.
6
Introduction Cont’
What were the major assumptions for
creating PEs?
1. To serve as key operational tools to bring
technological innovation.
2. To encourage and strengthen the
participation of the private sector in
national development efforts.
3. To fill the gaps in areas where the private
sector is too weak or disinterested due to
low profit margins.

7
Introduction Cont’
 Since some areas are so critical, but could be
less attractive to private investors, gov’t has to
operate them even at loss for the benefit of
the public and for their long-term dev’t
prospects.
 As a result, PEs became desirable in almost all
transitional economies as a means of supporting
their development programs. 8
Introduction Cont’
 Parallel to the creation of new PEs, ambitious
national interest for rapid dev’t and self-
sufficiency led many developing nations to
nationalize foreign-owned production,
distribution, and service giving enterprises.
 This has been done even when the motive in
the long run has been to sell them out to
local investors. 9
Introduction Cont’d

 The pattern and importance of PEs in


developing countries can be discussed with
reference to three distinct periods.
(i) The Pre-Second World War and
colonization period,
(ii) The Post War and the independence
period until mid-1980s, and
(iii) The period after mid-1980s.

10
Introduction Cont’
(i) The Pre-Second World War and colonization
period:
During this period;
 PEs were not known or not directed towards
serving the interests of the public.
 Colonial administrations used micro and small-
scale enterprises simply to extract and evacuate
raw materials and natural resources that would
serve as inputs for huge factories in their home
countries.
 There was no concern for the well-being of the
indigenous people.
11
Introduction Cont’
(ii) The Post War and the independence period
until mid-1980s:
 This period witnessed the adoption of rational dev’t
administration programs by national governments.
 Governments of the newly independent
countries sought to intervene in major industries,
mining and other expansive and profitable
ventures.
 They incorporated the establishment, expansion, and
operation of PEs in their medium and long-term dev’t
plans by allocating relatively huge resources.

12
Introduction Cont’
(iii) The period after mid-1980s.
 This period was marked as the period of
"economic stabilization" or "economic
recovery" measures.
 This time, developed countries and
multilateral donors showed new roles to
support developing countries.
 Regardless of the vast growth of PEs, most
of them didn't succeed in achieving the
multidimensional objectives they were
expected to achieve.
13
Introduction Cont’

 Instead, the dev’t of many countries got


even worse than the pre-independence
situations.
 The realities after independence exhibited
high economic dependence, financial
indebtedness and exacerbation of mass
poverty.
 This in turn has given rise to political
instability, social unrest and civil wars in a
number of developing countries.
14
Introduction Cont’

 Donor countries and agencies associated


the dev’t failures and the mass poverty to
wrong policies employed by developing
countries.
 Hence, they proposed implementation of
economic stabilization and recovery
programs notably the “SAP".
15
Introduction Cont’
 Part of the SAP is the program known as
privatization and reforming of public
enterprises.
 As a result, many developing countries have
been taking the privatization and reform
measures on PEs since the second half of
the1980s.
 Then, developing countries continue in
vicious circle of underdevelopment to date.

16

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