Introduction

The issues

What is to be explained is the size and structure of the public-enterprise sector in mixed economies, in particular those in less-developed countries (LDCs). The numerous reasons for establishing or retaining public enterprises can be consolidated into four groups:

1. Ideological predilection

2. Acquisition or consolidation of political or economic power

3. Historical heritage and inertia

4. Pragmatic response to economic problems

Although we will be concerned primarily with the fourth (economic) group of factors, we begin by briefly considering the competing-complementary explanations. Causation is multiple, and it is necessary to be explicit about what is being left out as we focus on economic determinants.

Ideological predilection

What does it mean to say that ideology has influenced the choice of public enterprise? We take it to mean that the decision rests not upon an unbiased examination of means in relation to ends in a particular case but upon a prior belief that certain forms of organization are generally preferable to others.

This does not imply that all choices influenced by ideology are irrational. In some cases the decision would be the same if based on an unbiased examination of the relation of means to ends. More important, ideology can influence ends as well as means. A belief in the merits of a “socialist pattern of society” can lend extra value to expansion of employment or redistribution of income, favoring investment decisions promoting those ends.