Public Enterprise and Income Distribution

V. V. Ramanadham

• Publisher: Taylor & Francis
• Year: 2019
• Print ISBN: 9780367187125
• eBook ISBN: 9780429582769
• Edition: 1
• Topic: Business
• Subtopic: Business generale
• Index: Business

How amenable is public enterprise to the implementation of national distributional policies? This is the question explored here by Professor Ramanadham. Originally published in 1988, he examines the various channels through which distributional effects take place through their operations, and draws attention to the implicit conflicts of interest among consumers, workers, and tax payers. He focuses on the problems associated with the use of public enterprises as instruments of distributional goals and examines the question of whether direct budgetary measures on the part of government would be preferable. There are detailed analyses of the distributional implications of wage incomes, prices, and surpluses in the public enterprise sector. Finally, the author comments from the distributional angle on the results of privatization.

Here is a detailed study of the way in which public enterprise may be employed as an instrument of redistribution of income and wealth, also of the extent to which this is feasible.

Chapter one

The Nature of the Problem

The plan of the study

The purpose of this study is to present an analytical review of the ways in which public enterprise may offer itself as an instrument in implementing national policies of income distribution. It does not contain a full-fledged discussion of the whole problem of income distribution. It proceeds on the assumption that the operations of public enterprises can play a part in the totality of measures applied in that field.

No attempt is made at an empirical review of the problem. The focus is on examining the theoretical potentialities of the different channels of impact by public enterprises on income distribution, the extent of their practicability, and the nature of limitations that qualify the use of a given channel.

The use of illustrative material, drawn from the developing countries as well as from the United Kingdom, is only intended to add realism to the discussion at certain points. Appendices 2.1 and 3.1 also have a similar purpose, by and large, and may be of additional interest from the technical angle of attempting an empirical review.

In the course of the discussion comments will be made, wherever appropriate contextually, on how a given public enterprise strategy compares with available alternatives of public policy in achieving an intended result.

While the discussion proceeds essentially in terms of personal incomes, references will be made to the impact of certain public enterprise operations on regional and sectoral incomes and some comments will be added on its relationship with the personal aspects of income distribution.

Reference will be made, at the appropriate places, to the administrative aspects of the public concerns that certain distributional channels of operations of public enterprises are likely to raise.

The discussions on wage incomes, pricing, and surpluses are confined to those aspects that are most directly linked with the distributional aspects of public enterprise operations.

The study does not go into such basic questions concerning income distribution as the following: whether and under what conditions distributional aims are preferable to growth aims; whether distributional justice and growth are simultaneously achievable and in what relative proportions; how far the adverse effects, if any, of distributional measures on savings and growth are to be accepted; and what kind of redistribution is the best for a society to aim at. Our hypothesis is that distributional measures in favour of the lower-income brackets of the population are desirable and our aim is to review how meaningful public enterprise can be as a vehicle in this regard.

While the major theme of the study relates to incomes, references will also be made at appropriate points to the distributional aspects of wealth.

The distributional impacts of a public enterprise will be reviewed under three headings, in the main: employee incomes; pricing; and surpluses. However, brief references will be made to allied aspects such as input policies.

Two levels of public enterprise may be distinguished for the purpose of the study. The first is that of an individual enterprise. The focus is on its distributional instrumentality; and the discussion is of no less relevance to a country with a relatively small public enterprise sector than to one which is relatively public enterprise-oriented. The other level is that of public enterprise as a whole. From its institutional nature, as well as from its relative size in the economy and sectoral composition, certain impacts could flow in the area of income and wealth distribution. These will also be pursued in the study.

It will be useful to indicate at the outset the questions that frequently arise, almost under every distributional channel considered in the study. First, who benefits from a given policy of a public enterprise which has distributional implications, and how do they stand in the context of the distributional policies of the nation? Second, who yields the benefit under a given policy of a public enterprise which has distributional implications, and how do they stand in the context of the distributional policies of the nation? Third, what are the immediate effects of a given channel of distributional impacts of public enterprise, and what are the subsequent rounds of effects? Can the latter be identified and how far can one go in doing so? Fourth, do alternative methods of achieving given distributional ends exist and are they preferable to the instrumentality of a public enterprise channel?

One final prefatory word on the plan of the study. We shall commence with an introductory backdrop delineating the importance of distributional aims in the development strategies of several countries, and the relative significance attributed to public enterprise as a means of development. The main analysis then follows, ranging over the distributional potentialities of a public enterprise through its policies regarding employee incomes, pricing and surplus. Next we shall discuss the impacts of public enterprise as an institution and its aggregate size on income and wealth distribution. This will be followed by an analysis of what effects privatization, which is widely in vogue, may have on income distribution. Finally there will be a brief conclusion relevant to public policy in the area of public enterprise and income distribution.

Introductory background

The purpose of this section is simply to present certain features of the development strategies of a large number of countries, which have relevance for the theme of distributional policies through the medium of public enterprise.

The distributional objectives

The first is that many developing countries have gradually¹ incorporated among the objectives of their development plans the attainment of a more equitable distribution of income (and wealth) than obtains today, as growth takes place.² Typically illustrative of this approach is the statement in the Fourth Plan of Pakistan that ‘the nation may well have to accept a less ambitious growth target for the Fourth Plan in order to combine it with other social and economic objectives’ such as ‘reducing regional disparity and distributing incomes more equitably’.³

However, the formulation of the distributional objective is, on the whole, far from precise. Nigeria’s recent observation that it ‘has never had an articulate and deliberate incomes policy’⁴ applies to many other countries as well.

The distributional emphasis in development strategies has been so common in developing countries that it would be of some interest to look at a wide range of excerpts from their plan documents with a view to understanding the nature of the emphasis.

Sri Lanka: While the immediate social objective of the Plan is to provide employment, it also aims to bridge the present disparities in incomes and living standards by raising the incomes and living conditions of the low-income households.⁵ India: One of the basic objectives of the plan is to raise the consumption levels of the lowest 30 per cent of our population.⁶

A progressive reduction in the incidence of poverty and unemployment; strengthening the redistributive bias of public policies and services in favour of the poor, contributing to a reduction in inequalities of income and wealth; a progressive reduction in regional inequalities in the pace of development and in the diffusion of technological benefits.⁷

Iran: A secondary objective … to bring about a more even distribution of income among regions and social classes.⁸

To provide sufficient and appropriate encouragement for investment in regions with low rates of growth.⁹

Direct government investment in infrastructural facilities in rural areas.¹⁰

To place more emphasis on low-income grou...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Original Title Page
• Original Copyright Page
• Dedication
• Contents
• List of Figures
• List of Tables
• Preface
• 1. The Nature of the Problem
• 2. Employee Incomes
• 3. Pricing
• 4. Deficits and Surpluses
• 5. The Aggregate Effects
• 6. Privatization and Income Distribution
• 7. Conclusion
• Notes
• Index