The Role of Public Enterprises in the National Economy

Abstract

Public enterprises are state-owned production units that market their output and are thus directly involved in the market process, unlike the state provision of roads, defense, and law and order which are provided, not marketed. Their existence raises the fundamental question of why they are in the public sector, and more generally, where the boundaries between the public and private sector should be drawn. Until recently few development agencies raised such questions—it was taken for granted that the state had a central role to play in accelerating development in developing countries, even when there were concerns about the efficiency of the public sector. The debt crisis prompted international agencies to look more carefully at public sector deficits, and they expressed concern at the extent to which public enterprises contributed to those deficits and increased public and foreign debt because of poor profitability…