Revitalizing the State: 5. slimming the state for effectiveness

Abstract

Beginning with the eighties there has been a growing perception, in developed and developing countries alike, that the modern state has extended itself beyond its governance capacity. In many countries the state is perceived as soft and ill-governed. One response to the ill-governed state has been slimming, in the form of privatization and deregulation. In the paper four forms of slimming are examined: privatization of state-owned enterprises (SOEs), privatization of public services, privatization of the state s governance functions, and deregulation. Several cases of privatization f SOEs, both in the developed and the developing economies, point to complex compulsions, politics, motives, and consequences of such privatization. While empirical studies do not indicate that privatization strikingly improves the performance of privatized SOEs, there are other pragmatic reasons for a programme of selective privatization of non-strategic SOEs. The many modes of privatization and some considerations in its management are discussed. Privatization of public services seems to have considerable potential for cutting costs and improving the quality of services to citizens. There are many options in privatizing public services, and the problems associated with privatization of public services can be addressed effectively. Although in its infancy, selective privatization of the state s governance functions holds much promise for harnessing of society s management capabilities for effectively furthering the public interest. Certification, licensing, and justice are promising areas for selective privatization. Democratically functioning associations of organizations can play an especially important role in this sort of privatization. While neither regulation nor deregulation are panaceas, appropriate deregulation in statist societies or in over-regulated sectors can reduce corruption and black marketing, and bring down the operating and transactions cost of business. If some regulation is necessary, the institution-light alternative may be generally preferable to the institution-intensive alternative. Several effective ways of getting rid off excessive regulations are presented. It is concluded that slimming is likely to be effective when it is pursued for pragmatic rather than doctrinaire reasons, and that selective privatization is a powerful way of bringing private sector initiative and efficiency in the public domain and public purpose in the private domain.