From State to Market Revisited: A Reassessment of the Empirical Evidence on the Efficiency of Public (And Privately‐owned) Enterprises

For several decades public enterprises have been criticized for their poor economic performance. Many economists take it as ‘conventional wisdom’ that publicly owned enterprises are inefficient by their very nature. This seemed to be proved by what is probably the most cited survey worldwide, that written by Megginson and Netter (2001). They claim: ‘Research now supports the proposition that privately owned firms are more efficient and more profitable than otherwise‐comparable state‐owned firms’ (p. 380). We argue that profits are not a reasonable performance measure for public enterprises. However, our main focus is to present a much more comprehensive review of the empirical evidence, including more recent research than was provided by Megginson and Netter. The evidence indicates that these authors were biased in their selection of empirical studies and their conclusion as well. Firstly, the true picture is much more differentiated than Megginson and Netter suggest. Secondly, with regard to productivity and production cost, there is no support for the claim that private enterprises have better performance ceteris paribus than public enterprises.