From state to market revisited: more empirical evidence on the efficiency of public (and privately-owned) enterprises

For several decades public enterprises have been criticised for their poor economic performance. Many economists take it as “conventional wisdom” that publicly owned enterprises are inefficient by their very nature. This seemed to be proved by what is probably the most cited survey worldwide, that was written by Megginson and Netter (2001). They claim: “Research now supports the proposition that privately owned firms are more efficient and more profitable than otherwise-comparable state-owned firms” (p. 380). The objective of this paper is to question the proposition that public enterprises are necessarily less efficient as their private counterparts. In doing so, we argue that profits are not a reasonable performance measure for public enterprises. However, our main focus is to present a much more comprehensive review of the empirical evidence than was provided by Megginson and Netter. The evidence indicates that these authors’ conclusions were biased in favour of privatization despite the evidence indicating that the true picture is much more differentiated.