1. Chapter 11: Public and Private Enterprises: Finding the Right Mix
Beyond Economic Growth: An Introduction to Sustainable Development
By Tatyana P. Soubbotina

2. Overview of Chapter 11: Public and Private Enterprises: The Right Mix
Differences in government expenditures
Developed v. developing; trends over time
The dilemma of public-private ownership
State-owned v. private enterprise
Market failures
Is there a trend toward privatization?
Market liberalizations in formerly communist countries

3. Differences in government expenditures
Government expenditures increased in 20th century
Developed countries: Great Depression & competition w/ Socialist countries
Developing countries: government expenditures help to accelerate industrialism and post industrialism
Government expenditures are higher share of GDP in high-income countries (Fig. 11.1)
U.S. government expenditures are relatively low
Is this trend continuing? Or reversing?

4. The dilemma of public-private ownership
Government expenditures differ across countries
Developed countries spend more on transfer payments
Developing countries spend more on state-owned enterprises (Fig. 11.2)
Arguments for state-owned enterprises
Investments in modernization and technology
Low prices for basic goods and services (energy, housing, etc.)
Prevent mass unemployment
Opponents argue state-ownership is inefficient
Managers don’t have incentive to be profitable
Is it good to increase profits by charging high prices? By firing workers?

5. When is state intervention in the economy necessary?
Some markets may not exist in developing countries
Do state-owned enterprises prevent market development?
Markets may fail even in advanced economies
Underproduction of public goods (e.g., roads, defense)
Underproduction of positive externalities (health, education)
Overproduction of negative externalities (pollution)
Overpricing of natural monopolies (electricity, water)
Underproduction of social services (pensions)
Insufficient information
Governments not necessarily better (corruption)
Example: state-owned agricultural marketing corporations

6. Is there a trend toward privatization?
Privatization can increase efficiency and release money for other uses
Market liberalization (removing controls on prices, wages, production, etc.) can expand private sector
Mass privatizations (sales of state-owned enterprises) in formerly communist economies had mixed success
Many formerly communist countries dramatically increased the private sector share of output in the 1990s (Fig. 11.3)