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Chapter Summary

McDonald, D.A. (2014) “Ambiguity and Multiple Meanings of Corporatization,” pp 1- 30 in Corporatization and Public Services in the Global South, ed by D. McDonald, New York, NY: Zed Books. 

In the introductory chapter to his forthcoming book, McDonald presents corporatization as a form of public enterprise that emerges within a global neoliberal context but which espouses market principles in varying degrees, thus creating multiple materializations of the concept of corporatization.  The author begins by stating that reversals in the privatization of services are taking place worldwide due to public sector dissatisfaction with private sector sparse achievements in areas such as quality of service, investments and cost savings.   An alternative public service delivery practice that has gained the favor of governments is corporatization, defined by the author as “the creation of public entities that are fully owned and operated by the state but have a degree of autonomy from government.” (McDonald 2013, 1) Corporatization’s distinguishing characteristics include having a corporate administrative structure and a distinct legal status; that said, the ideologies that inform the practice (from market orientation to contemporary socialism), the historical contexts of the places in which they emerge (from post-colonial to post-neoliberal), and the structures that come about as a result vary from place to place.

The driver behind the creation of these ‘agencies’ or ‘parastatals’ is to improve transparency and accountability in public service provision while reducing political interference through greater agency autonomy.  However, McDonald points out that this ‘progressive’ form of service delivery by public agencies can be a disguise given that in some cases the real intent behind agencification is to make public utilities more attractive for future privatization by introducing market principles such as cost-reflective pricing into their daily operations.

Given the heterogeneity of corporatized utilities, McDonald helps readers identify unifying factors by highlighting the features common to the places and contexts where the trend has taken root.  An analytical concept used to do so is New Public Management (NPM) with its emphasis on market efficiency and recent incorporation of notions of “commercialization that grants a stronger role for the state” while maintaining “commitment to commoditization and faith in the market” (McDonald 2013, 8).  Reviewing Pollit’s work (2002, 474 in McDonald 2013, 9), McDonald underlines NPM features present in corporatization such as results-based managerial practices, performance measurements based on market standards, and the streamlining of organizations.  These features are part of larger trends in agencification that affect to varying degrees the equity and sustainability of corporatized service providers:

  • Commoditization: Monetary incentives tied to senior managers’ performance encourage a short-term focus on revenue that can affect the public interest through discriminatory service provision.  This emphasis on market orientation leads consumers to see services as commodities traded in the market like any other good and to disassociate these services from their publicness.
  • Myopia: Marketization has discouraged workers and departments from collaborating with one another because it is seen as inefficient.  The result is government agents planning in isolation and loss of synergies from collaboration.  Furthermore, corporatized entities’ revenue autonomy can affect previous cross-subsidization of non-revenue generating public services. 
  • Productivism: Neoliberal corporatization’s emphasis on revenue maximization can lead to service expansion taking place in short-term revenue generating markets such as wealthy neighborhoods instead of less-attractive markets in greater need for expanded or improved services.

While commercialization raises concerns about equity, the author argues that empirical evidence suggests that a focus on equity, accountability and sustainability permeates many corporatized service providers.  The neoliberal influence from international institutions and multinationals is therefore a force that local agents attempt to resist and adapt to within their context.  To address these concerns McDonald points to the promises of progressive corporatization.  He dissects progressive cases of natural monopoly corporatization in countries in Africa, Asia, and Latin America and compares those findings using not only the usual financial and statistical performance criteria found in most of the literature, but also normative criteria, hence allowing for contextual differentiation.  Broadly the criteria used to evaluate corporatization is equity, participation in decision making, efficiency, quality of service, accountability, transparency, quality of the workplace, sustainability, solidarity, public ethos, and transferability.

To showcase these progressive cases the author analyses electricity utilities in Costa Rica, Tunisia, and Malaysia whose corporatization emerged under very different circumstances (import-substitution regional trends, post-independence nationalization, and post-war economic and political dynamics respectively).  Another sector examined is water with cases from Uruguay, the Philippines, and Burkina Faso used to explore local interpretations of corporatization, which have resisted NPM to some extent.  Referring back to the importance of context, McDonald points out that a larger number of case studies were found in Latin America than in Asia or Africa and this is attributed to the former region’s expansion of autonomous service providers within developmentalist states, which have more recently been followed by post-neoliberal policymaking.   

In short, corporatization has emerged not to drive out private sector investment or management but to re-introduce states as owners and providers of core services.  McDonald points that this raises the question of what is understood by ‘public’ and what is the role of the state in service delivery.