Argentina is facing a new wave of privatisation of its public companies. The official discourse, although it raises valid points, is complicated by ideological drifts and financial needs for its economic plan. On the other hand, the justification for the state to own (majority or minority) and operate public companies is not clear-cut and should not be reduced to a binary view. When and under what conditions is state ownership of a company justified? When and under what conditions are subsidies justified?
Public enterprises in three dimensions
To answer the questions raised, three dimensions are identified surrounding the debate on state ownership in the business sector:
- Developmentalist (development objectives).
- Economist (market failures).
- Prosecutor (Treasury subsidies).
In the developmentalist dimension, the State takes an active role in relation to growth, productive transformation, economic sovereignty and national security. Public companies are seen as policy tools for achieving “development objectives” through government control over strategic sectors (e.g., natural resources or energy). They also play a role in catalysing investment and technological innovation in new markets when there are restrictions on pioneering.
In the economic dimension, a perspective prevails that is justified by “market failures,” which arise when the free play of supply and demand fails to achieve socially optimal results. Among the reasons that justify the ownership of public companies are natural monopolies, information asymmetries, the existence of public goods, and the exploitation of positive externalities and compensation for negative externalities.
Finally, a third dimension focuses on the fiscal performance of public enterprises. A simplified view of this perspective classifies enterprises as “good” or “bad” depending on whether or not they receive subsidies. This paper proposes to analyse subsidies from the perspective of efficiency and effectiveness in achieving non-commercial objectives. Analysis of the impact of subsidies on fiscal balance and possible macroeconomic implications is beyond the scope of this paper.
This paper proposes an analytical framework for evaluating the entrepreneurial role of the State based on the three dimensions outlined above, analysing the performance of public companies in relation to each of them and avoiding the predominance of any one in particular. In the last section, by way of example, the analytical framework is applied to the case of Aerolíneas Argentinas.
Reasons of public interest and the company's objectives
Often, the priorities of public enterprises are not clearly set out in public documents. Even when they are, they are often out of date. They may even be independent of the sectoral or national plans that contain them.
Although it may seem obvious, it is crucial to set clear objectives and review them regularly. The absence of these prevents the company from defining performance metrics and incentives (which makes it difficult to evaluate management success), allocating internal resources efficiently, and scaling its operational capabilities.
Furthermore, without precise objectives, the company may lose its “market discipline”, straying from efficient practices by failing to clearly differentiate when it should operate like its private competitors and when it should not. It also becomes difficult for employees to internalise both commercial efficiency and public service.
Commercial and non-commercial objectives
The commercial objectives of public companies are similar to those of private companies: economic profitability and operational efficiency to increase shareholder value, expand market presence, and grow and expand business activity.
However, public companies differ from private companies in that their non-commercial objectives prioritise the public interest over profit maximisation. Without neglecting efficiency and effectiveness, non-commercial objectives include:
- National security: securing strategic services or resources for the country.
- Provision of essential goods and services: ensuring access at subsidised prices.
- Promoting economic development: driving growth and investment in key sectors.
- Redistribution of monopoly rents: benefit end users in monopoly markets.
- Promotion of activities with positive externalities: encouraging actions that generate significant social or environmental benefits.
- Contribution to better market functioning: correcting flaws or deficiencies in the system.
Without commercial objectives, a public company is not a desirable instrument for implementing public policy.
Questions in three dimensions
Below are the key questions that should guide the evaluation of a public company, particularly in relation to each of the dimensions that structure our work.
Key questions regarding the dimensions of justification of the entrepreneurial state
| Dimension | Key questions |
| Developmentalist: public enterprises as instruments for promoting development | Are the objectives of the public company aligned with a long-term strategic public interest mission? |
| What type of functions does the company perform? To what extent does it contribute to the fulfilment of the mission with which it is aligned? | |
| Economist: public companies as instruments for correcting market failures | Is the sector in which you operate a natural monopoly, partially competitive, or competitive? |
| Tax specialist: public companies as beneficiaries of subsidies | Do you receive current or capital subsidies? Both? |
| If subsidies are recurring, do they contribute to the fulfilment of non-commercial objectives or do they finance the company’s operating results? | |
| If the subsidies are capital subsidies, are they linked to covering normal capital depreciation or to new investments aimed at improving productivity or increasing the scale of the enterprise? What are the options for financing capital investment? |
