Supplying Goods Through Nonmarket Mechanisms 24 1
Are public firms less efficient than private firms? Several surveys of crosssectional
empirical studies that compare private and public performance find some
"edge" for the private sector, but several others find no consistent difference^.'^^
These studies do generally sueest superior private sector performance in competitive
sectors, such as oil and gas production and steelmaking. For example. Anthony
Boardman and Aidan Vining compared the performances of the largest non-U.S.
public, private, and mixed firms operating in competitive environments. After controlling
for important variables such as industry and country, they found that public
and mixed firms appeared to be less efficient than the private firms.14'
The cross-sectional evidence, however, is more mixed in sectors such as electricity
and water where there is little competition (at least historically) and usually
extensive (rate-of-return) reg~lation.H'~e~re , X-inefficiency among private firms resulting
from limited competition and rate-of-return regulation is not surprising. Performance
differences appear to be small, suggesting that the degree of competition in
a given market is a better predictor of efficient performance than ownership per se.
In the 1990s, however, a new type of evidence has become available on comparative
performance: "Before and after" (that is, time-series) evidence on the privatization
of public firms. This evidence strongly suggests large efficiency gains, in both
X-efficiency and allocative eficiency. This evidence is consistent over industrialized
countries, developing countries, and former Eastern Bloc ~0untries.l~~
Certainly many countries have, at least until recently, utilized government corporations
in an extremely broad range of sectors where there is little evidence of underlying
market failure. In France, for example, machine tools, automobiles, and
watches are all produced by state firms. Until 1987, the French government even
controlled one of the largest advertising agencies in the country! In Sweden, there is
even a government corporation that makes beer.