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THE PUBLIC SECTOR AND THE SOCIAL ECONOMY IN THE ANNALS (1975–2007): TOWARDS A NEW PARADIGM 1

2008; Wiley; Volume: 79; Issue: 3-4 Linguagem: Inglês

10.1111/j.1467-8292.2008.00374_2.x

0770-8548

Fabienne Fecher, Benoît Lévesque,

Social and Economic Solidarity

When the Annals of Collective Economy became the Annals of Public and Cooperative Economics in 1974, it incorporated the term ‘social economy’ into its French title (Annales de l'économie publique, sociale et coopérative), even though the social economy had not yet gained recognition in any country, not even France. Although the public enterprise and public services sectors emerged as the principal sector conveying the general interest, the social economy did not yet constitute a recognized ‘third sector’, despite that fact that mutual societies, cooperatives and associations had existed for over a hundred years. Three decades later, the issue of general interest – and that of the State as its principal architect – would be raised in other ways. This long period was marked by crisis and change in various Nation-States, and in geopolitics throughout the world, with the emergence of regional blocs, including the European Union, and more recently with the economic rise of China and India. Thus, to a significant extent, States were re-engineered, both in terms of the division of skills through globalization and decentralization and in their core function, especially their methods for intervening and regulating the economy and society (Lévesque 2003). Many public enterprises had to open up to competition, as did several large cooperatives and mutual societies, while numerous cooperatives and associations emerged – principally in social services, local development, job creation and labour market integration, and fair trade. In addition, there was a growing trend toward privatization, demutualization and even decooperativization. While the State is still one of the principal participants in defining general interest, it is no longer the only one, since other ‘solidarity perimeters’ have now established themselves (Monnier and Thiry 1997). Thus, economic and political entities, have become more complex, more interdependent and more hesitant in confronting global challenges such as global warming, security and, more broadly, sustainable development. With the above factors in mind, we analysed the content of the Annals of Public and Cooperative Economics, for the period 1975–2007, in the light of activities that fall within the domain of general interest. To this end, we compiled a list of 728 articles published in the 132 issues that were published in this period (see Table 1). As part of the research, we targeted primarily the following fields: public enterprises and public services; mixed enterprises and regulated private enterprises; and the third sector, though from the standpoint of the social economy and non-profit organizations (NPOs). We then identified the principal research issues and widely-used theoretical frameworks. We will cite authors whose articles seemed significant in terms of these research objectives, though we were not able to conduct an exhaustive examination of them. In addition, the editorial policy of the Annals is the responsibility of independent scientific boards. Consequently, the content of the various articles in the present journal does not necessarily reflect the viewpoints of CIRIEC, the scholarly association sponsoring the journal. The specific area of interest of CIRIEC and the Annals is not simply the public economy, the social economy and the cooperative economy, but also their mutual relationships as established through their respective contribution to the general interest. These relationships, which are systematic and based on the institutional arrangements of each country, give rise to questions that are common to these sectors, thus creating transversal analyses that are considered from the standpoint of general interest. Lastly, the researchers hail from a wide variety of theoretical backgrounds, which is advantageous when dealing with a field as broad and complex as the one at hand. The present article is divided into two main parts. The first deals with public enterprises and public services, while the second deals with the third sector, which is discussed from the vantage point of the social economy (cooperatives, mutual societies, manager associations) and NPOs (mainly non-profit associations and foundations). As Table 1 indicates, for the three decades as a whole 57.6% of the articles dealt with the public sector and 42.4% with the third sector. While the public sector clearly dominated during the first decade, with 75.4% of the articles, the third sector dominated in the last decade, with 55.9% of the articles. For these two major sectors, we will select the following dimensions: the context, the definition of organizations, the main theoretical approaches employed by the researchers and the major research themes. By proceeding in this way, will we be in a position to delineate the major changes and outline the principal questions raised within the two major groups. To conclude, we will try to identify their points of convergence, in terms of general interest and transversal questions, to see if the hypothesis of a new paradigm advanced in this journal in 1997 has been confirmed (Monnier and Thiry 1997). To ensure it coheres with the section devoted to the third sector, we have decided to limit this first section to public enterprises and public services. Thus, we have excluded from our analysis articles dealing with several public sector issues such as public finance, public administration and even certain public policies. Since 1975, the roles, structures and missions of the public sector, and especially those of public enterprises, have changed significantly. Until the 1970s, a Keynesian policy environment of macroeconomic intervention dominated, and public enterprises played a strategic role as instruments in implementing the objectives of these policies. In addition, public sector growth was able to redress the market failures and protect national interests. The stagflation of 1974–1975 cast doubt on the relevance of Keynesian policies (Aharoni 1976 and Androsch 1977). The concept of State's failures grew under the influence of alternative theoretical currents, such as monetarism and public choice. By the early 1980s, the paradigm was changing from State interventionism to supply-side, neo-classical policy. The period then saw the development of liberalization policies, deregulation of areas shielded from competition and much privatization. Classic public enterprises were transformed into mixed enterprises (Bédard, Tereraho and Bernier 1998, Bognetti and Robotti 2007) or regulated private enterprises (Cox 1999). Following the privatizations, it was considered appropriate to introduce public service missions. Thus, private or privatized enterprises could be legally compelled to provide general interest or universal services. Also, new forms of public-private partnerships were developed (O'Toole 1984, Anheier and Ben-Ner 1997), especially through delegation of public services. In Europe, the Single Market policy accentuated this trend. From reading articles in an international journal such as the Annals over thirty years, it appears that only a broad definition of the classic public enterprise can be retained. Drawing on a definition suggested by Thiry (2002), we will not select the activity criterion, be it a purely commercial activity or an activity with public service obligations; similarly, in formulating our definition we will not select as a criterion legal status in the strict sense, be it a classic business corporation, a cooperative or an enterprise with a special status. The criterion usually selected is that of majority control by governments, whether the latter intervene individually or jointly, directly or indirectly, and regardless of whether control is wielded by those holding most of the share capital or most of the votes at the annual general meeting, or even by those in a majority position in the administrative body. While this definition of a public enterprise may seem broad, it does not encompass all companies with public participation. Minority participations held by governments are common, whether they involve partial privatization or new investments intended for consolidation or growth. Furthermore, certain otherwise totally private enterprises have been subject to government regulation or a ‘golden share’, which may involve government pre-approval for certain strategic decisions, such as transferring a significant proportion of the share capital or selling certain assets or subsidiaries. Thus, in addition to public enterprises, there is a mixed (public-private) sector, which has grown so much that the public enterprise sector has become highly heterogeneous. The articles compiled reveal a clear difference between, on the one hand, enterprises that function in competitive sectors where the public service mission is absent and, on the other hand, those where it is present. Regardless of the approach of these articles, all of them reveal that over the last three decades the sector has undergone major transformations. In the case of public enterprises that have a totally industrial or commercial vocation, public sector investment is often linked to market failure. The latter is not manifested in the way economists define failure2 but, rather, in terms of the private initiative and capital involved. This is what prompted European States to revive the steel industry in the years between 1970 and 1980 (Quaden 1980). The presence of public funds together with private funds reduces the risks assumed by private partners, and publicly owned capital facilitates support for industrial and commercial activities. When they work together in this way, the public partner – even when it is a majority shareholder – often has only a secondary role. The industrial operator is often the private partner, while the public partner must be content with a monitoring role, though it may at times have a say in strategic decisions. Of course, the difficulty with this resides in the effectiveness of the monitoring and the demarcation between what comes under management (the sphere of the private operator) and what comes under strategy (the sphere where there is input from all partners, both private and public). Questions may also arise concerning the role of the board of directors, its composition and power, and various governance issues; these issues involve both public and private enterprises. In this totally industrial and commercial sphere, public authorities more often than not pursue a modest industrial policy geared towards economic development and social and territorial cohesion. In Europe, a variety of mechanisms control government financial investment in industrial and commercial enterprises. In particular, they forbid governments from treating their own enterprises more favourably than private enterprises or enterprises belonging to other levels of government. Thus, from the moment public authorities invest in enterprise capital – in situations where a private investor operating in normal market economy conditions would not – there is State aid; while not all State aid is routinely criticized, conditions for financial support are severe and restrictive (Monnier 1995). Many of the articles are devoted to public enterprises active in the following sectors: energy, water, mail service, telecommunications and transport, that is, what the Anglo-Saxon world often refers to as public utilities. They also discuss recent trends in these enterprises, and this will be examined in detail in Section 1.3 Historically, these enterprises have been characterized by one or several market failures: (i) the fact that they provide a commodity or service of the public or collective type (non-exclusion and non-rivalry); (ii) extensive informational asymmetries; (iii) significant returns to scale or economies of scope, in extreme cases involving a so-called natural monopoly, significant externalities (positive or negative) and/or club effects and (iv) considerations of security, the long term and future generations, etc. (Glachant 1995). In Europe, the methods for structuring these sectors were greatly modified; they were impelled especially by the Commission concerned by increased integration of domestic markets. However, other factors too played a role here: the increase in world trade, technological shocks, consumers' desire to meet their needs more effectively and pressure from private enterprises, some of which were keen to gain access to activities that were results-oriented and characterized by moderate risk, others looking to obtain good-quality, low-priced basic inputs to raise their competitiveness. Both types of enterprises merit examination. In the European Union alone,3 following a steep rise in the 1970s and early 1980s, the relative role played by the public enterprise sector reached a peak around 1982, followed by an almost constant decline.4 While the decline in its relative role over the last twenty years may be attributed essentially to various privatization programmes, the increase observed between 1973 and 1982 was due as much to doctrinal decisions (such as the French government's nationalizations under Mauroy in 1981 and 1982) as to pragmatic considerations such as rescue plans for sectors in difficulty (such as the steel industry). Table 2 presents trends in the main themes involving public enterprises and public services, as discussed over the last three decades in the Annals. Analysis of the 266 articles dealing with these issues reveals a shift in research on the macro-economic objectives of public enterprises (32.8% in 1975–1985 and 0% in the other periods) towards an examination of the objective of technical efficiency and cost efficiency (4.7% in 1975–1985 and 28.1% in 1986–1996). Studies on privatization processes increased in the second period 1986–1996, with 32.1% of the articles, and remained very significant during the last period (22.2%). The set of problems related to regulation appeared during the 1986–1996 period and had 9.7% of the articles; their number increased greatly in the last period, accounting for 35.4% of the articles. Note, too, that many of the articles dealt with other issues related to public enterprises. They will not be analysed in detail, but are grouped together in Table 2 under ‘Miscellaneous’. Topics in the latter category include financing, setting of prices, cost structure, location, marketing and the training of public- and mixed-enterprise managers. The latter category of articles, which also contains descriptive analyses by sector and country, decreased over time from 57.8% in 1975–1985 to 14.1% during the latter period. An inventory of all the journal's articles dealing broadly with the public sector over the last three decades reveals they numbered 375. The 109 articles not classified in Table 2 and that are not specifically examined in the present article range from topics connected to planning, public finance (criteria required by the Maastricht Treaty, regressive taxes, etc.) and welfare systems (in the areas of health and retirement) to various public policies conducted in the fields of employment, price stability, research and development, housing and even support for the social economy. Other topics, including the rate of return on public investment, wage determination or the role of public administration often figure in more than one article. The five topics selected, namely, effectiveness, the liberalization and privatization processes, the new forms of regulation, the general interest missions and the problem of delegating public services have been analysed below in detail. The emergence and development of these research topics are linked not only to new currents of economic thought (Section 1.4) but also – at the supranational level – to the policies of European authorities. Among the recurring themes in the journal, we find definitions and measures of effectiveness. The effectiveness and performance of an enterprise is defined as the degree to which the objectives assigned to it by its owners can be reached. The objectives of the private enterprise owners come down in large measure to a single objective, profit maximization. The objectives of public enterprises are more numerous and may be presented as follows (Thiry 1993). The allocation objective has been studies in numerous publications. It refers to efficiency in resource allocation. This objective encompasses different aspects (Tulkens 1986): technical efficiency, which consists in the ability of the enterprise to create its output with a minimum of resources (Deprins and Simar 1989); cost efficiency, which refers to the ability to create the output at the least cost (Filippini et al. 1992); allocative efficiency, which involves determining the production volume and the output price, and which in principle requires that the price equal the marginal cost of production (Marchand and Tulkens 1979). Then there are redistributive objectives. The public enterprise may decide to provide its services or charge certain prices for the purposes of redistribution among individuals, or even among regions, particularly via price perequation systems. For a long time, public enterprises also assisted governments in their macroeconomic policies (combating inflation and unemployment) (Pestieau 1984), in their pursuit of economic growth and in making their balance of payments viable. Governments can also entrust their enterprises with economic development and industrial policy missions. The trend since the late 1970s reflects a diminished role for direct policies, such as public funding and public procurement (Jeanrenaud 1984), and even sector policies. Today, this role has been revived by the European Union, through research support programmes and structural funds. Public enterprises are also involved in environmental protection and land-use planning policies, in the protection of people's savings and in maintaining control over strategic decisions in certain sectors functioning at the national or regional level. It can also provide workers with better working conditions, or even increased participation in managing an enterprise. In their capacity as socially aware enterprises and vehicles for social cohesion, we once again note their objective of facilitating occupational integration. As explained above, since 1975 the framework for public enterprises has changed a great deal. The frequently used term ‘deregulation’ does not adequately describe what came about. It would be more accurate to say that there was an adjustment: new forms of regulation replaced those that had existed until the 1980s. By contrast, the term ‘liberalization’ seems more appropriate: opportunities for entry were improved and barriers to entry were reduced considerably. Above all, monopolies were either abolished or reduced to a minimum, that is, limited to the core infrastructures of networks forming natural monopolies5 or to what was temporarily acceptable to ensure the financing of non-profitable sections of industries. In this way, competition was greatly stimulated and the number of operators increased. Liberalization processes were often accompanied by privatization, which constitutes another major theme of the journal. Thiemeyer (1986) provided more than 15 different explanations for privatization. Thiry (1994) defines privatization as the total or partial transfer of an enterprise to the private sector; the transfer can either be remunerated or be free of charge (Markou and Waddams 1999, Reeves and Palcic 2004). For Thiry, the French term, dénationalisation, is inadequate since it does not apply to local or regional public sectors, which, for their part, may also be subject to privatization. The term désétatisation leads to a confusion between modification of property rights and reduction in State regulation. In addition, the author demonstrates that privatization cannot be reduced to changes in the status, structure or management regime of public enterprises. These changes may occur prior to privatization, though they may also constitute an alternative to it, aiming to increase management independence and effectiveness without resorting to private interests or operators. Numerous articles have examined the reasons for privatization. Thiry (1994) differentiates amongst these reasons: ideological and doctrinal; economic efficiency and effectiveness; the financial requirements of public enterprises that cannot be met due to a lack of State funding; and development needs, especially in international cooperation among operators. The Community rules on public enterprises, established within the framework that created the Single European Market (SEM), accelerated the trend toward privatization. In central and eastern Europe, the introduction of a decentralized market economy led to much privatization (Estrin 1991, Ben-Ner 1993, Jones and Mygind 2000). Several articles and thematic issues of the Annals also discussed the problem of privatization in developing countries (Heald 1992, Cook and Minogue 2002, Sciandra 2005). Liberalization and privatization, especially in sectors involving public service missions, have come to require stronger regulation and a greater role for the regulatory State (Cox 1999, Bance 1999). Many of the articles examined this trend. The new modes of regulation (Varone and Genoud 2001, Kassim and Waddams Price 2005) initiated in these sectors have the following characteristics: They separate production activities from regulatory missions. Even when the State keeps its responsibilities in the area of production (relating to its holdings in the enterprises involved), it must separate its role as a producer-shareholder from that of regulator; consequently, the regulatory bodies (competition agencies and sector regulators) must have a degree of independence from the State; They separate economic activities controlled by monopolies from those operating within a competitive framework (at least in book-keeping, but most often organically as well). They ban cross-subsidization, a practice giving certain enterprises (in competitive markets) a competitive advantage, and allowing monopolistic activities to dominate in the area of costs and profitability (Heald 1997); They provide market actors with transparent and non-discriminatory access to essential facilities, that is, to basic networks, which remain, more often than not, in a monopolistic position; There is transparency in financial relationships between governments and their enterprises to ensure that there is no government assistance hampering the free play of competition; They clarify general interest missions and public service obligations and require transparency in their implementation. All of these changes place governments and their enterprises in a situation differing totally from that of the 1980s. Gone is the era in which it was enough for the State to entrust an enterprise or a State or municipal services company with an activity subject to the general rules for public services (continuity, equality, adaptability and security), or to impose constraints that were flexible when it came to financing an activity performed according to the general interest. Governments have begun to take greater responsibility in matters of public service obligations (Fournier 1996). It should be pointed out that there has never been perfect harmony between public enterprises and economic activities subject to public service obligations. As noted above, some enterprises with public participation provide no public services; conversely, some public services were performed by private enterprises even before the privatization waves of the 1980s and 1990s. The articles in the journal reveal that, more than ever before, governments are taking charge of public service missions. They are also defining and financing them, and monitoring their implementation. Given this trend, the European Commission has introduced the concept of ‘services of general interest’. The field encompassing missions of ‘general interest’ and public service is broader than that of universal service missions or obligations (Cremer, Gasmi, Grimaud and Lafont 2001), a minimal concept developed by the Commission and particularly relevant in telecommunications. Universal service is defined as a minimal group of services of a specific quality to which all users and consumers have access at an affordable price. Universal services do not go as far as general interest or public service missions; they do not concern all the network sectors, such as the gas or public-transport sectors. The universal services concept is progressive and has the potential for new applications in the bank, insurance and other sectors. Depending on the specific characteristics of the sector involved, general interest or public service missions and obligations can have several objectives. These include, amongst others: Overall economic efficiency, that is, correcting market failures: taking externalities into account, correcting the inefficiencies that stem from natural or other monopolies, guaranteeing security of supply, long-term planning, etc.; Environmental protection, land-use planning, meeting specific national needs in terms of defence, and protecting cultural specificity; Redistribution amongst individuals or regions aiming at notably implementing and maintaining networks and (economic) activity throughout the country; preferential tariffs for certain categories of consumers (the disabled, the elderly, large families, etc.); the obligation to provide minimal service, or even the so-called price perequation system, which generally involves the mechanism of cross-subsidization between the profitable and unprofitable parts of the same activity. Perequation can be social (no differentiation on the basis of consumer income) or geographic (no differentiation on the basis of location). The operator in charge may also have public service obligations, and governments must establish a form of coverage for the supplementary cost this entails. It may involve cross-subsidization, annual subsidies from public authorities, preferential tax treatment or payroll tax relief, negative bids in which the operator in charge of the service is the one who applies for the lowest subsidy, a sector-based financing system (for example, via public service funds or a universal service to which all operators in the sector contribute, whether or not they take on public service obligations). Lastly, another current research topic that has appeared in many of the journal's articles is that of delegating public services (Cox 2003, Staropoli and Yvrande 2006). Contracting methods employed within the framework of public service delegation include competitive tendering and direct allocation of a contract without call to tender (intuitu personae) being extended to a public enterprise or a third party. One way competitive tendering can be carried out is through awarding the contract to the highest bidder, or through a beauty contest in which the principal criterion is not the price but the quality of the service provided. In Europe, this is viewed as an instrument to facilitate the application to public services of Community law regarding opening up to competition. As noted previously, market failures constitute one explanation for the regulatory role of the State. Government regulation of ‘public utilities’ can be explained in particular by the economies of scale and scope enjoyed by natural monopolies, and by the resulting consumer protection. However, State intervention has also revealed failures that in part justify privatization and the liberalization of markets. Numerous theoretical developments provide a framework for these problems. While certain nuances apply, we can state that the Annals have analysed these problems primarily from the standpoint of neo-classical and neo-institutional theories. Legal science and political science have provided an analytical framework for the numerous descriptive articles. This accounts for not only their distinctive national characteristics but also for the influence of European policy on the processes of liberalization and privatization in certain sectors. In the period under study, few heterodox approaches were used in the articles dealing with the public sector. This contrasted with the treatment received by articles on the third sector. Thus, transaction cost theory is discussed in numerous articles (Obermann 2007). While the theory at first analysed private enterprise, it was later applied to the public sector (Williamson 1999). The theory of transaction costs linked to contractual and coordination relationships attempts to determine if certain transactions can be carried out more efficiently in specific institutional environments, namely, market, hybrid or organizational relationships (vertical integration, in-house production). For example, it allows us to determine which organizational form is the most effective, especially in providing public services. Basing its argument on the fact that contracts are, by nature, incomplete (Fares and Saussier 2001) allows it to analyse various forms of public service delegation. Also widely employed is principal-agent theory, which is associated with asymmetric information and figures prominently in many of the articles as an analytical framework for relationships within a complex network involving the State, the regulator, enterprises, and various stakeholders and managers. Specifically, these models allow us to identify hidden information and thus define the control mechanisms and incentives that enable us to match the actions of agents with the preferences of the principal. The theory serves to demonstrate that the principal-agent relationship (in this case, stockholders-directors) can be more efficient in the private sector than in the public sector, where