Credible Commitment and Success with Public Enterprise Reform

Abstract

This paper studies why some efforts at public enterprise reform fail and why others succeed. Economic reforms are intended to increase efficiency and, thus, help sustain long term growth. Yet, many governments have had difficulty sustaining the reforms they initiated and have reintroduced rigid controls over markets and enterprises. This is because either in the process of implementation, the government discovers that the costs of carrying the reform further are greater than the expected efficiency gains, or the public is skeptical that the new policies can be sustained and does not take the actions necessary for the gains to be realized. This paper develops a new-institutionalist framework and employs various measures of policy commitment and net gain from continued reform to analyze these issues. The paper suggests ways in which the potential success or failure of a reform can be assessed, with implications for the steps that reformers might take to increase the chances of success.

JEL Classification: L32, L33