By Renato Constantino
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Additional info for A History of the Philippines: From the Spanish Colonization to the Second World War
This is debatable and indeed must seem odd to many in India, given the high-profile migrations of top managers from the public to the private sector in recent years. Such migrations reflect a clear recognition on the part of the Indian private sector of the skills and abilities developed by managers during their long association with the public sector. The mobility available to top managers in the Indian public sector in the post-reform period is consistent with the observation of Fama (1980) that the labour market for management may enable managers to capitalise their performance quite independently of the form of ownership of the firm they happen to working for.
The instrument that was devised to meet the heightened expectation of performance in the late 1980s was the Memorandum of Understanding (MOU), a mechanism that had been tried in a few other countries, notably France, with mixed results. As mentioned earlier, the Arjun Sengupta committee on SOEs set up in 1984 in Indira Gandhi’s time had recommended the monitoring of SOEs through MOUs. The MOU concept was introduced in 1988. The Public Enterprises Survey, brought out each year by the Bureau of Public Enterprises, spelt out the rationale for MOUs in its 1988–9 issue: In order to improve the performance of the public sector, government took a policy initiative by introducing the concept of Memorandum of Understanding.
Moreover, even quality concerns could be addressed through competition and reputational effects. If, for instance, a health provider was compromising on quality, he might lose out to another provider. Thus, there is only a very narrow set of circumstances in which state ownership might be preferable: the loss of non-contractible quality is significant, innovation is relatively unimportant, competition is weak, and so are reputational effects. Public choice theory complements what the property rights approach has to say about relative inefficiency in the public sector by focusing on the behaviour of politicians and bureaucrats.
A History of the Philippines: From the Spanish Colonization to the Second World War by Renato Constantino