ABSTRACT
Historically, state ownership has been invoked for the supply of specific goods: public goods (defense), merit goods (health and education), or in order to achieve social equity goals, such as universal access to certain public services (utilities). Pleas for public ownership of an industrial sector came about as a by-product of the theory of imperfect markets (monopolies and oligopolies), a representation of market and firm behavior developed between economists and politicians in the 1920s and 1930s (Shakle 1967). According to this view, competition among producers is a wasteful process that restrains supply in order to maintain high prices, which leads to a monopolistic or an oligopolistic condition. State ownership is a way of overcoming this condition and of increasing supply. In the field of networking sectors, such as electricity or communications, a specific version of monopoly theory has been advanced (see, e.g., Berg 1988). An industry is said to be a natural monopoly if multiple firms providing a good or a service are less efficient (more costly to a nation and its economy) than would be the case if a single firm provided the self-same good or service. In the case of electricity, all companies provide the same product, the infrastructure required is immense, and the cost of adding one more customer is negligible. Adding one more customer may increase the company’s revenue and lowers the average cost of providing for the company’s customer base. As long as the average cost of serving customers is decreasing, the larger firm will serve the entire customer base more efficiently. This fact represents the supply side of public ownership advantage, but economic theory, in the same period, also suggested that public investments had strong demand effects in terms of positive externalities. With regard to producers, the heavy investments required in the electricity supply sector would increase the demand for the products of the electromechanical industry and, more generally, contribute to enlarging the industrial matrix of a country and improve its economic growth. With regard to end users, ensuring the availability of the service to everyone would increase the demand for new consumer goods. State ownership of these industries also reduces the cost of financing long-term investments by exploiting the appropriate financial tools (such as, at that time, bonds were considered to be) at government interest rates, which are almost always lower than the less secure tools issued by the private sector. Finally, public ownership can improve the pursuit of productivity gains by promoting better cooperation from workers. Employees may be more inclined to view their work positively if it is directed by a management appointed by a government that they have a say in electing, rather than a management representing a minority of shareholders.
