Corporatization is the process of transforming and restructuring state assets, government agencies, public organizations, or

municipal 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 g ...

organizations into corporations. It involves the adoption and application of business management practices and the separation of ownership from management through the creation of a joint-stock or shareholding structure for the organization. The result of corporatization is the creation of state-owned corporations (or corporations at other government levels, such as

municipally owned corporation A municipally owned corporation is a corporation owned by a municipality. They are typically "organisations with independent corporate status, managed by an executive board appointed primarily by local government officials, and with majority public ...

s) where the government retains a majority ownership of the corporation's stock. Corporatization is undertaken to improve efficiency of an organization, to commercialize its operations, to introduce corporate and business management techniques to public functions, or as a precursor to partial or full

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 ...

History

The move towards

neoliberal Neoliberalism (also neo-liberalism) is a term used to signify the late 20th century political reappearance of 19th-century ideas associated with free-market capitalism after it fell into decline following the Second World War. A prominent fa ...

economic reform and

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 ...

public service reform in the 1980s led to privatization of public functions in many countries. Corporatization was seen as a half-way house on the road to privatization. These

state-owned enterprise A state-owned enterprise (SOE) is a 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 for the government ...

s are organized in the same manner as private corporations, with the difference that the company's shares remain in the ownership of the state and are not traded on the stock market. Corporatization is today often seen as an end in itself in order to introduce autonomy in organizations, hoping that this brings efficiency gains. The

People's Republic of China China, officially the People's Republic of China (PRC), is a country in East Asia. It is the world's most populous country, with a population exceeding 1.4 billion, slightly ahead of India. China spans the equivalent of five time zones and ...

implemented a large scale restructuring of state enterprises starting in the economic reforms initiated in 1978, where state enterprises were granted greater autonomy in their operations from economy-wide state planning. This culminated in a massive wave of corporatization between 1992 to 2002 with the adoption of a

market economy A market economy is an economic system in which the decisions regarding investment, production and distribution to the consumers are guided by the price signals created by the forces of supply and demand, where all suppliers and consumers are ...

and the opening of the Shenzhen and Shanghai stock exchanges. Corporatization involved restructuring state enterprises to operate as commercial and market entities while retaining state ownership or majority state ownership. Some argue that the trend towards corporatization has sped up due to the financial crisis, although there is evidence that there has been a trend towards corporatization since at least the start of the century.

Reasons and effects

Corporatization can be used to improve efficiency of public service delivery (with mixed successes), as a step towards (partial) privatization, or to alleviate fiscal stress.

(Potentially) improving efficiency

A key purpose of corporatization is externalization. The effect of corporatization has been to convert state departments (or municipal services) into public companies and interpose commercial boards of

directors Director may refer to: Literature * ''Director'' (magazine), a British magazine * ''The Director'' (novel), a 1971 novel by Henry Denker * ''The Director'' (play), a 2000 play by Nancy Hasty Music * Director (band), an Irish rock band * ''Di ...

between the shareholding ministers / city council and the management of the enterprises. Such externalization creates legal and managerial autonomy from politicians, which could potentially increase efficiency, as it safeguards the firm from political exploitation. However, corporatization can also fail to bring efficiency (or cause inefficiency), because this autonomy 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.

Step towards privatization or hybridization

Although corporatization is to be distinguished from privatization (the former involves publicly owned corporations, the latter privately owned ones), once a service has been corporatised it is often relatively easy to privatise or part-privatise it, for example by selling some or all of the company's shares via the stock market. In some cases (e.g. the Netherlands in regard to water supply) there are laws to prevent this. Corporatization also can be a step towards the creation of hybrid forms of organization, such as institutional public-private partnerships or inter-municipal service organizations.

Alleviate fiscal stress

Corporatization is also a means to alleviate fiscal stress, as corporations can become standalone organizations that do not count towards municipalities' budgets.

Prevalence

Corporatization of state enterprises and collectively owned enterprises was a major component of the

economic restructuring Economic restructuring is used to indicate changes in the constituent parts of an economy in a very general sense. In the western world, it is usually used to refer to the phenomenon of urban areas shifting from a manufacturing to a service sect ...

program of formerly communist nations, most notably the People's Republic of China. China's contemporary

socialist market economy The socialist market economy (SME) is the economic system and model of economic development employed in the People's Republic of China. The system is a market economy with the predominance of public ownership and state-owned enterprises. The ...

is based on a corporatized state sector where state companies are owned by the central government but managed in a semi-autonomous fashion. Corporatization has also been used in

New Zealand New Zealand ( mi, Aotearoa ) is an island country in the southwestern Pacific Ocean. It consists of two main landmasses—the North Island () and the South Island ()—and over 700 smaller islands. It is the sixth-largest island country ...

and most states of Australia in the reform of their

electricity market In a broad sense, an electricity market is a system that facilitates the exchange of electricity-related goods and services. During more than a century of evolution of the electric power industry, the economics of the electricity markets had un ...

s, as well as in many other countries and industries (e.g. Dutch water supply companies).

Major areas

National level

On a national scale, major areas of services which have been corporatized in the past include: * National railroads, the initial impetus to corporatization of functions that had belonged to national and local governing bodies began in the sphere of national

railroad Rail transport (also known as train transport) is a means of transport that transfers passengers and goods on wheeled vehicles running on rails, which are incorporated in tracks. In contrast to road transport, where the vehicles run on a prep ...

construction in the mid-19th century. * Corporatized highways, for example

toll roads A toll road, also known as a turnpike or tollway, is a public or private road (almost always a controlled-access highway in the present day) for which a fee (or ''toll'') is assessed for passage. It is a form of road pricing typically implemented ...

. * Corporatized electricity * Telecommunications

Local level

On a local scale, major areas of services which have been corporatized include: * Corporatized water, for example, the Dutch water supply companies are publicly owned corporations (mostly by municipalities, but also by regional governments). For involvement of private corporations in water supply, see

water industry The water industry provides drinking water and wastewater services (including sewage treatment) to residential, commercial, and industrial sectors of the economy. Typically public utilities operate water supply networks. The water industry doe ...

and

water privatization Water privatization is short for private sector participations in the provision of water services and sanitation. Water privatization has a variable history in which its popularity and favorability has fluctuated in the market and politics. One ...

. * Bus services * Refuse collection *Housing development *State employment services *Theaters and cultural institutions

References

{{reflist * Transnational Institute
Services Yearbook 2005/6: Beyond the Market. The Future of Public Services''
* Ben Manski and John E. Peck
''Corporatization in the US: An Internal Clash of Civilizations''
* Maude Barlow and Tony Clarke, ''Blue Gold: The Fight to Stop the Corporate Theft of the World's Water'' 2002. * Sozzani, Joseph
''Privatization in the United States and Australia: A Comparative Analysis of the Modern Privatisation Movement in Corrections''
Economic policy Anti-corporate activism Privatization Corporations Capitalism