Many decision makers are not accountable for their

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Many decision makers are not accountable for their performance, and little incentive is provided for improved decision making. o Despite the abundant labor supply and the employment mandate, access to capital at subsidized interest rates has often encouraged unnecessary capital intensiveness In very corrupt regimes, SOE’s have provided a “tunnel” through which public assets may be stolen. Options For Reforming SOE’s o Reorganization Decentralizing decision making to allow for more flexibility and providing better incentives for managers could increase production efficiency. o Privatization Privatization: Theory and Experience Privatization of state-owned enterprises in the production and financial sectors, hinges on the neoclassical hypothesis that private ownership brings greater efficiency and more rapid growth. Proponents also argue that it curbs the growth of government expenditures, raises cash to reduce public internal and external debt, and promotes individual initiative while rewarding entrepreneurship. Privatization has apparently been successful in promoting greater efficiency and higher output in many cases. But many privatized assets were concentrated in the hands of small groups of local and international elites. Privatization has also been resorted to as a quick fix for fiscal deficits, but when the easy candidates for privatization have been exhausted, governments in developing countries have often found that the fiscal problems have returned. It is not sufficient to claim that privatization can lead to higher profits, greater output, or even lower costs. Although the pace of privatization has slowed, few new state-owned enterprises are currently being created. 15.7 Public Administration: the Scarcest Resource Many observers would argue that the shortage of public (and private) administrative capability is the single scarcest public resource in the developing world. The problem is not just a lack of training or experience. o It also arises out of the political instability of numerous developing nations. When power is constantly changing hands, considerations of efficiency and public welfare are likely to be subordinated to political loyalty. In a highly traditional society, where kinship ties are strong and where concepts like statehood and public service have not yet taken firm root, there is little regard for a merit system. There is a chronic shortage of skilled competent managers capable of independent decision- making. The administrative component in economic development – not only in relation to the particular project under consideration but also in relation to the functioning of the entire public and private
economic system – should not be underestimated.

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