The Complexity of SOE Governance and The Boundaries of Public and Private Sector: The Evolution of the Portuguese Case

Public enterprises are a key instrument in the implementation of public policies, State intervention, and market regulation. In the early era of industrialization, public enterprises were an expression of the power of the... [ view full abstract ]

Public enterprises are a key instrument in the implementation of public policies, State intervention, and market regulation. In the early era of industrialization, public enterprises were an expression of the power of the State and were mostly used for public utilities, such as transports, energy, and telecommunications.
The public enterprises were conceived as a functional response to market failures. The shortcomings of markets and capitalist system endorse the endeavor of the State to monitor and balance the social allocation of wealth. In its origins, public enterprises were organized as part of the ordinary public services but they rapidly evolved to the form of statutory State trading enterprises. Established by a governmental act and not subjected to any corporation law, this seems to be a more suitable form of organization (Wettenhall, 1963). Later, several countries advance to another form of organization: State-Owen Enterprises (SOE’s). It results from the corporatization of public enterprises, establishing a corporate governance structure at the arm’s length of the government as the main, or unique, shareholder.
The path and complexity of Portuguese SOE’s can be presented as a very particular case among the general patterns of OCDE countries. Unlike other fascist regimes that fostered the creation of a vast numbers of Public corporations, Portuguese State cherished private initiate and reserved it a key role in economic growth. It was the democratic revolution of 1974 that triggered a process of massive nationalizations.
The wave of privatization experienced in the 80-90´s was understood as an expression of the economic rationalism to obtain higher standards of efficiency and a response to government failure. Despite the fact that Portugal display one of the highest levels of privatizations, it was clearly the result of an internal movement reverse nationalizations rather any international influence.
Nowadays, the Portuguese State, mostly due to the pressure of the crisis of the sovereignty debts, is still under pressure continue the track of privatization. Nevertheless, a lot of important public services are still managed under the organizational form of SOE’s. Its governing structure balances between two modes of monitoring, control and autonomy.
Portugal has an administrative system is characterized as of Napoleonic tradition and this defines the set of rules and relationships that frame the behaviour of Public Administration towards the other elements of the society. Hence, a considerable part of the SOE’s is organized under a more traditional direct control of the State (direção-geral do tesouro e finanças). However, the Napoleonic system is not immune to the global public management reforms. The traditional option coexists with an indirect form of corporate governance. In the later form, the State exercises his ownership rights indirectly through a public agency (Parpública) that acts as a holding company.
This paper uses the institutionalism framework and the modes of corporate governance to build the argument that rules, values, behaviours and environment matters and have an impact on the performance of SOE’s. We seek to present the differences in financial and economic dimensions that result from the different structures of governance.