Corporatization

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Corporatization is the process of transforming state assets, government agencies, or municipal organizations into corporations.[1] It refers to a restructuring of government and public organizations into joint-stock, publicly listed companies in order to introduce corporate and business management techniques to their administration.[1] The result of corporatization is the creation of state-owned corporations where the government retains a majority ownership of the corporation's stock.[2][3]

In contrast, the term may also refer to the construction of state corporatism, where state-owned corporations are created and delegated public social tasks resembling corporate nationalism as an alternative to privatization.[citation needed] Corporatization can also refer to non-corporate entities like universities or hospitals becoming corporations, or taking up management structures or other features and behaviors employed by corporations.[citation needed]

History[edit]

The move towards neoliberal economic reform in the 1980s led to privatization of public functions in many countries.[citation needed] Corporatization was seen as a half-way house on the road to privatization.[3] These state-owned enterprises are organized in the same manner as private corporations, with the difference that the company's shares remain in the ownership of the state and are not traded on the stock market.[2]

Reasons and effects[edit]

Corporatization can be used to improve efficiency of public service delivery (with mixed successes) or as a step towards (partial) privatization.

Improving efficiency[edit]

A key purpose of corporatization is externalization.[3] The effect of corporatization has been to convert state departments into public companies and interpose commercial boards of directors between the shareholding ministers and the management of the enterprises.[citation needed] Such externalization creates legal and managerial autonomy from politicians, which could potentially increase efficiency, because it safeguards the firm from political exploitation.[4] However, corporatization can also fail to bring efficiency (or cause inefficiency), because by placing the corporation at a distance from its owner (the government), the ability to monitor its management is reduced.[4]

Step towards privatization[edit]

Although corporatization is to be distinguished from privatization (the former involves publicly owned corporations, the latter privately owned ones), once a service has been corporatised it is often relatively easy to privatise or part-privatise it, for example by selling some or all of the company's shares via the stock market.[2] In some cases (e.g. the Netherlands in regard to water supply) there are laws to prevent this.[citation needed]

Prevalence[edit]

Corporatization of state enterprises and collectively owned enterprises was a major component of the economic restructuring program of the People's Republic of China.[5] China's contemporary socialist market economy is based on a corporatized state sector where state companies are owned by the central government but managed in a semi-autonomous fashion.[5] Corporatization has also been used in New Zealand[citation needed] and most states of Australia[citation needed] in the reform of their electricity markets, as well as in many[vague] other countries and industries (e.g. Dutch water supply companies[citation needed]).

Major areas[edit]

National level[edit]

On a national scale, major areas of services which have been corporatized in the past include:[citation needed]

  • National railroads, the initial impetus to corporatization of functions that had belonged to national and local governing bodies began in the sphere of national railroad construction in the mid-19th century.
  • Corporatized highways, for example toll roads.
  • Corporatized electricity
  • Telecommunications

Local level[edit]

On a local scale, major areas of services which have been corporatized include:[4]

  • Corporatized water, for example, the Dutch water supply companies are publicly owned corporations (mostly by municipalities, but also by regional governments). For involvement of private corporations in water supply, see water industry and water privatization.
  • Bus services
  • Refuse collection

See also Municipal corporation.

See also[edit]

Examples:

References[edit]

  1. ^ a b Investopedia. "Corporatization". Retrieved 2 February 2013. 
  2. ^ a b c Marra, Alessandro (2007). "Internal regulation by mixed enterprises: the case of the Italian water sector" (PDF). Annals of Public and Cooperative Economics. 
  3. ^ a b c Grossi, Giuseppe, and Christoph Reichard (2008). "Municipal corporatization in Germany and Italy". Public Management Review. 
  4. ^ a b c Voorn, Bart, Marieke L. Van Genugten, and Sandra Van Thiel (2017). "The efficiency and effectiveness of municipally owned corporations: A systematic review". Local Government Studies. 
  5. ^ a b World Bank. "Reform of China's State-owned Enterprises A Progress Report of Oxford Analytica". Archived from the original on 2011-06-04. Retrieved 1 February 2013.