A municipally owned corporation is a

corporation A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and r ...

owned by a

municipality A municipality is usually a single administrative division having corporate status and powers of self-government or jurisdiction as granted by national and regional laws to which it is subordinate. The term ''municipality'' may also mean the go ...

. They are typically "organisations with independent corporate status, managed by an

executive board A board of directors (commonly referred simply as the board) is an executive committee that jointly supervises the activities of an organization, which can be either a for-profit or a nonprofit organization such as a business, nonprofit organiz ...

appointed primarily by

local government Local government is a generic term for the lowest tiers of public administration within a particular sovereign state. This particular usage of the word government refers specifically to a level of administration that is both geographically-loca ...

officials, and with majority public ownership." Some municipally owned corporations rely on revenue from

user fees A user fee is a fee, tax, or impost payment paid to a facility owner or operator by a facility user as a necessary condition for using the facility. People pay user fees for the use of many public services and facilities. At the federal level in ...

, distinguishing them from agencies and special districts funded through

taxation A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal person, legal entity) by a governmental organization in order to fund government spending and various public expenditures (regiona ...

. Municipally owned corporations may also differ from local bureaucracies in funding, transaction costs, financial scrutiny, labour rights, permission to operate outside their jurisdiction, and, under some circumstances, in rights to make profits and risk of bankruptcy. The causes and effects of municipally owned corporations are posited to be different from those of state-owned enterprises.

Corporatization 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 ...

may be more utilised locally rather than nationally allowing more hybrid or flexible forms of public service delivery such as public-private partnerships and

inter-municipal cooperation Inter-municipal cooperation (IMC) is a generic term for all joint provision of public services between municipalities, who are normally but not necessarily neighbours. Municipalities are elements of administration and have a history of several hund ...

. It also allows charging user fees. Effects can be different because of lower regulator expertise, lower contracting capacity for municipalities, and the higher presence of scale economies. Current research shows that municipally owned corporations are frequently more efficient than

bureaucracy The term bureaucracy () refers to a body of non-elected governing officials as well as to an administrative policy-making group. Historically, a bureaucracy was a government administration managed by departments staffed with non-elected offi ...

but have higher failure rates because of their legal and managerial

autonomy In developmental psychology and moral, political, and bioethical philosophy, autonomy, from , ''autonomos'', from αὐτο- ''auto-'' "self" and νόμος ''nomos'', "law", hence when combined understood to mean "one who gives oneself one's ...

. An additional problem is the fact that municipally owned corporations often have more than one municipal owner, and conflict between municipal owners can lead to reduced output for the municipally owned corporation due to various negative spillovers.

Background

Under

New Public Management New Public Management (NPM) is an approach to running public service organizations that is used in government and public service institutions and agencies, at both sub-national and national levels. The term was first introduced by academics in the ...

corporatization 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 ...

became prominent as a step towards (partial)

privatization Privatization (also privatisation in British English) can mean several different things, most commonly referring to moving something from the public sector into the private sector. It is also sometimes used as a synonym for deregulation when ...

. It soon became an end in itself, aiming to combine government control with efficient, businesslike service delivery that was considered lacking in bureaucratic service delivery. The

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 that resulted were to be organized akin to private corporations, with the difference that the company's shares remain state ownership 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 ...

. This also became a trend at the local level. Municipal corporation followed a process of

externalization In Freudian psychology, externalization is an unconscious defense mechanism by which an individual projects their own internal characteristics onto the outside world. It may refer to: * Externalization (migration), efforts by countries to prevent ...

that required new skills and orientations from the respective local governments, and followed common changes in the institutional landscape of

public services A public service is any Service (economics), service intended to address specific needs pertaining to the aggregate members of a community. Public services are available to people within a government jurisdiction as provided directly through pub ...

. There was a substantial growth in the number of municipally owned corporations in the 1990s and 2000s throughout Europe and the United States.

Reasons and effects

Municipal corporatization can be used to improve efficiency of public service delivery (with mixed successes) or as a step towards (partial) privatization or hybridization. Its reasons and effects are somewhat similar as those of

(Potentially) improving efficiency

A key purpose of corporatization is externalization. Such externalization gives the service delivery organization legal and managerial autonomy from politicians, which could potentially increase efficiency, because it safeguards the firm from political exploitation. However, it can also fail to bring efficiency (or cause inefficiency), because this autonomy also 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. At the local level there may also be higher transaction costs, because contracting capacity may be lower.

Step towards privatization or hybridization

Once a service has been corporatised, it is often relatively easy to (partially) privatise it by selling some or all of the company's shares via the stock market. Thus corporatisation can be a stop on the way towards (partial) privatization. Corporatization also can be a step towards the creation of

hybrid Hybrid may refer to: Science * Hybrid (biology), an offspring resulting from cross-breeding ** Hybrid grape, grape varieties produced by cross-breeding two ''Vitis'' species ** Hybridity, the property of a hybrid plant which is a union of two dif ...

forms of organization, such as institutional private-partnerships or inter-municipal service organizations, which are especially relevant at the local level because of opportunities to capture scale economies.

Alleviating fiscal stress

Municipal corporations tend to be established by local governments experiencing some degree of fiscal stress. Corporatization was a way to allow local governments to "hide their liabilities by allocating them partly to their companies" or "corporatized their utilities (…) to raise new sources of income from their companies."

Problems with multiple ownership

The frequent ownership of municipally owned corporations by multiple municipalities can cause problems, the so-called

multiple principal problem The multiple principal problem, also known as the common agency problem, the multiple accountabilities problem, or the problem of serving two masters, is an extension of the principal-agent problem that explains problems that can occur when one per ...

, that can lead these to be inefficient, inequitable, or unaccountable or have high failure rates. There can be free-riding or duplication in steering and monitoring procedures, resulting in high costs. If there is heterogeneity in interests between the multiple municipalities, there may be directive ambiguity or lobbying of the corporations by individual municipalities, leading to high inefficiency and low accountability. Delegating governance to one elected party may be a way to solve this problem.

Usage

Municipal corporatization is more prominent for some services than for others. It is typically prominent in: *Water management *Bus services *Refuse collection *Economy & Housing *Social Affairs & Employment *Education & Culture

References

{{reflist Capitalism Companies by type Corporations Government corporations Public administration Public economics Types of business entity Urban planning *