About the Report

BUREAUCRATS ARE STILL IN BUSINESS.  Despite more than a decade of privatization, state-owned enterprises account for nearly as large a share of developing countries' economies today as twenty years ago.  These enterprises are often inefficient, and the resulting losses to the economy hinder growth, making it harder for people to escape poverty.  This book draws on extensive data and detailed case studies to show how divestiture and other reforms can improve economic performance, why politics often impedes reform, and how reforming countries have overcome these obstacles.

Why have so few countries reformed?  Bureaucrats in Business explains that few countries have the three conditions necessary for success:  first, that their leaders perceive reform as politically desirable (that is, they perceive that their supporters favor reform); second, that reform is politically feasible (that is, the leaders are able to overcome opposition); and third, that reform is credible (that is, the leader's promises to protect investor's property right and compensate fired employees are believable).

To demonstrate why some countries succeed in reform and some do not, the book compares policies for state-owned enterprises in twelve countries.  Successful countries have made the most of divestiture, competition, hard budgets, and financial sector reforms.  And all twelve countries have tried to change the relationship between the government and state-owned firms through the use of contracts.

The book documents the importance of three types of contracts for reform: performance contracts (between the government and public managers), management contracts (between the government and the private managers of a government firm), and regulatory contracts (between a government and the owners of a privatized, regulated monopoly).  Using a wealth of company experience, it analyzes how performance contracts, widely promoted by development institutions, including the World Bank, have not improved company performance, how management contracts have worked better (but only in particular situations); and how regulatory contracts have usually worked well, provided that the government is able to design and implement effective regulations.

Finally, the book presents detailed recommendations for the reform of state-owned enterprises.  Rigorous in approach, lucid in presentation, Bureaucrats in Business will appeal to specialists and non-specialists alike.