Performances of public enterprises, in both developed as well as less developed countries, have in general been disappointing. Many lose money and many are inefficient. However, profit measures do not by themselves provide an accurate picture of public enterprise performance. Not all public enterprises lose money. Some are profitable because they are managed well; others because they have monopoly positions or enjoy favourable government protective policies. The second case of efficiency is more complex and includes such issues as “whether the resources invested in a firm are being used well or optimally (productive efficiency) or whether the economy benefits as a result of the investments in the enterprises (allocative efficiency)”.

However, this article will not discuss the problems of measuring efficiency of public enterprises, important as they are. Neither will it discuss the often contentious comparisons between the efficiency ol private sector companies and public enterprises.’ Privatization and its implications for allocative efficiency have been discussed extensively elsewhere.’ The focus will instead be on commonly held measures necessary to improve public enterprise performance (productive efficiency) and on the constraints faced by many governments in implementing them.

The first section outlines those generally agreed upon determinants for efficient public enterprise performance, and the constraints. The second section links those determinants in a useful framework which illustrates the dynamics involved in environmental as well as enterprise level factors that affect the behaviour of public enterprises.