Corporatization is the process of transforming and restructuring state assets, government agencies, public organizations, or municipal organizations into corporations.[1] It involves the adoption and application of business management practices and the separation of ownership from management through the creation of a joint-stock or shareholding structure for the organization.[2] The result of corporatization is the creation of state-owned corporations (or corporations at other government levels, such as municipally owned corporations) where the government retains a majority ownership of the corporation's stock.[3] Corporatization is undertaken to improve efficiency of an organization, to commercialize its operations, to introduce corporate and business management techniques to public functions, or as a precursor to partial or full privatization.
History
The move towards neoliberal economic reform and New Public Management public service reform in the 1980s led to privatization of public functions in many countries.[4] Corporatization was seen as a half-way house on the road to privatization. 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.[3] Corporatization is today often seen as an end in itself in order to introduce autonomy in organizations, hoping that this brings efficiency gains.[5]
The People's Republic of China implemented a large scale restructuring of state enterprises starting in the reform and opening up that started in 1978, where state enterprises were granted greater autonomy in their operations from economy-wide state planning. This culminated in a massive wave of corporatization between 1992 and 2002 with the adoption of a market economy and the opening of the Shenzhen and Shanghai stock exchanges. Corporatization involved restructuring state enterprises to operate as commercial and market entities while retaining state ownership or majority state ownership.[6]
Reasons and effects
Corporatization can be used to improve efficiency of public service delivery (with mixed successes), as a step towards (partial) privatization, or to alleviate fiscal stress.
(Potentially) improving efficiency
A key purpose of corporatization is externalization.[8] The effect of corporatization has been to convert state departments (or municipal services) into public companies and interpose commercial boards of directors between the shareholding ministers / city council and the management of the enterprises.[3] Such externalization creates legal and managerial autonomy from politicians, which could potentially increase efficiency, as it safeguards the firm from political exploitation. However, corporatization can also fail to bring efficiency (or cause inefficiency), because this autonomy reduces the government's ability to monitor its management. Whether corporatization is beneficial may depend on the nature of the service that is corporatized, where autonomy may be less beneficial for more politicized and complex services.[5]
Step towards privatization or hybridization
Prevalence
Corporatization of state enterprises and collectively owned enterprises was a major component of the economic restructuring program of formerly communist nations, most notably the People's Republic of China. 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.[11] Corporatization has also been used in New Zealand and most states of Australia in the reform of their electricity markets, as well as in many other countries and industries (e.g. Dutch water supply companies).
Major areas
National level
On a national scale, major areas of services which have been corporatized in the past include:
- 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
On a local scale, major areas of services which have been corporatized include:[5][12]
See also
Examples:
- Corporatism
- Corporation
- Corporatocracy
- Corporate capitalism
- Liberalization
- Marketization
- Municipal corporation
- Municipally owned corporation
- Nationalization
- Neoliberalism
- Outsourcing
- Public ownership
- Publicly traded company
Further reading
- Citroni, G., Lippi, A., & Profeti, S. (2013). Remapping the state: inter-municipal cooperation through corporatization and public-private governance structures. Local Government Studies, 39(2), 208–234.
- Ferry, L., Andrews, R., Skelcher, C., & Wegorowski, P. New development: Corporatization of local authorities in England in the wake of austerity 2010–2016. Public Money & Management, 38(6), 477–480.
- Grossi, G., & Reichard, C. (2008). Municipal corporatization in Germany and Italy. Public Management Review, 10(5), 597–617.
- Tavares, A., & Camoes, P.J. (2007). Local service delivery choices in Portugal: A political transaction costs network. Local Government Studies, 33(4), 535–553.
- Voorn, B., Van Genugten, M.L., & Van Thiel, S. (2017). The efficiency and effectiveness of municipally owned corporations: a systematic review
References
- Voorn, Bart. Debate: Corporatization as more than a recent crisis-driven development Public Money & Management, 2018^
- Investopedia. Corporatization retrieved 2 February 2013^
- Marra, Alessandro. Internal regulation by mixed enterprises: the case of the Italian water sector Annals of Public and Cooperative Economics, 2007^