The previous chapter sought to explain why legislators preferred public to private enterprise in certain, well-defined situations. Public enterprise is not, however, the only alternative. Legislators could have formed a government bureau to provide electricity, gas, rail and air transportation, or telephone and postal services. Although some countries have used bureaus to provide these services during some periods of their history, they are typically provided by state-owned enterprises (SOEs). A complete explanation for the distribution of SOEs must answer this question: If the government does want to own the producer of these goods and services, why does it choose the SOE form of organization rather than the bureau form?

DISTINGUISHING PUBLIC ENTERPRISE FROM BUREAUS

Aharoni suggests that SOEs have three distinguishing characteristics: “First… they must be owned by government. Second,… [they] must be engaged in the production of goods and services for sale… Third, sales revenues of SOEs should bear some relationship to cost” (1986, p. 6). By comparison, Niskanen defines bureaus as “nonprofit organizations which are financed, at least in part, by a periodic appropriation or grant” (1971, p. 15). Nonprofit organizations are defined as those in which neither managers nor owners can appropriate the difference between costs and revenues as personal income. A public bureau is one that is owned by government and is primarily tax-financed.