Corporatization is the process of transforming and restructuring state assets, government agencies, public organizations, or
municipal organizations into
corporations.
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.
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.
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
Neoliberalism (also neo-liberalism) is a term used to signify the late 20th century political reappearance of 19th-century ideas associated with free-market capitalism after it fell into decline following the Second World War. A prominent fa ...
economic reform and
New Public Management public service reform in the 1980s led to privatization of public functions in many countries.
Corporatization was seen as a half-way house on the road to privatization.
These
state-owned enterprise
A state-owned enterprise (SOE) is a Government, government entity which is established or nationalised by the ''national government'' or ''provincial government'' by an executive order or an act of legislation in order to earn Profit (econom ...
s 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
A stock market, equity market, or share market is the aggregation of buyers and sellers of stocks (also called shares), which represent ownership claims on businesses; these may include ''securities'' listed on a public stock exchange, as ...
.
Corporatization is today often seen as an end in itself in order to introduce autonomy in organizations, hoping that this brings efficiency gains.
The
People's Republic of China implemented a large scale restructuring of state enterprises starting in the
economic reforms initiated 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 to 2002 with the adoption of a
market economy
A market economy is an economic system in which the decisions regarding investment, production and distribution to the consumers are guided by the price signals created by the forces of supply and demand, where all suppliers and consumers ...
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.
Some argue that the trend towards corporatization has sped up due to the financial crisis,
although there is evidence that there has been a trend towards corporatization since at least the start of the century.
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.
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.
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.
Step towards privatization or hybridization
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.
In some cases (e.g. the Netherlands in regard to water supply) there are laws to prevent this. Corporatization also can be a step towards the creation of hybrid forms of organization, such as institutional
public-private partnerships or inter-municipal service organizations.
Alleviate fiscal stress
Corporatization is also a means to alleviate fiscal stress, as corporations can become standalone organizations that do not count towards municipalities' budgets.
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
The public sector, also called the state sector, is the part of the economy composed of both public services and public enterprises. Public sectors include the public goods and governmental services such as the military, law enforcement, infra ...
where state companies are owned by the central government but managed in a semi-autonomous fashion.
Corporatization has also been used in
New Zealand and most states of
Australia
Australia, officially the Commonwealth of Australia, is a Sovereign state, sovereign country comprising the mainland of the Australia (continent), Australian continent, the island of Tasmania, and numerous List of islands of Australia, sma ...
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
A toll road, also known as a turnpike or tollway, is a public or private road (almost always a controlled-access highway in the present day) for which a fee (or ''toll'') is assessed for passage. It is a form of road pricing typically implemented ...
.
* Corporatized electricity
* Telecommunications
Local level
On a local scale, major areas of services which have been corporatized include:
* 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
*Housing development
*State employment services
*Theaters and cultural institutions
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 Local Government Studies, 43(5), 820-841.
* Voorn, B., Van Thiel, S., & Van Genugten, M.L. (2018)
Corporatization as more than a recent crisis-driven development Public Money & Management, 38(7), 481-482.
See also
*
Corporatism
*
Corporation
*
Corporatocracy
*
Corporate capitalism
*
Liberalization
*
Marketization
*
Municipal corporation
*
Municipally owned corporation
*
Nationalization
Nationalization (nationalisation in British English) is the process of transforming privately-owned assets into public assets by bringing them under the public ownership of a national government or state. Nationalization usually refers to pri ...
*
Neoliberalism
*
Outsourcing
Outsourcing is an agreement in which one company hires another company to be responsible for a planned or existing activity which otherwise is or could be carried out internally, i.e. in-house, and sometimes involves transferring employees and ...
*
Public ownership
*
Publicly traded company
*
Privatization
*
Socialist market economy
*
State capitalism
*
State-owned enterprise
A state-owned enterprise (SOE) is a Government, government entity which is established or nationalised by the ''national government'' or ''provincial government'' by an executive order or an act of legislation in order to earn Profit (econom ...
Examples:
*
New Zealand Electricity Market
References
{{reflist
* Transnational Institute
Services Yearbook 2005/6: Beyond the Market. The Future of Public Services''*
Ben Manski and John E. Peck
''Corporatization in the US: An Internal Clash of Civilizations''* Maude Barlow and Tony Clarke, ''Blue Gold: The Fight to Stop the Corporate Theft of the World's Water'' 2002.
* Sozzani, Joseph
''Privatization in the United States and Australia: A Comparative Analysis of the Modern Privatisation Movement in Corrections''
Economic policy
Anti-corporate activism
Privatization
Corporations
Capitalism