Role of economic factors in determining the size and structure of the public-enterprise sector in less-developed countries with mixed economies

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IntroductionThe issuesWhat 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:Ideological predilectionAcquisition or consolidation of political or economic powerHistorical heritage and inertiaPragmatic response to economic problemsAlthough 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 predilectionWhat 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.Work on this chapter was partially supported by a Ford Foundation grant to the Boston University Public Enterprise Program. We are indebted to Peter Evans, Richard D. Mallon, Jan Tinbergen, and John Sheahan for their comments on an earlier draft.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.

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