The costs of corporatization: Analysing the effects of forms of governance
| Published date | 01 June 2022 |
| Author | Germà Bel,Marc Esteve,Juan Carlos Garrido,José Luis Zafra‐Gómez |
| Date | 01 June 2022 |
| DOI | http://doi.org/10.1111/padm.12713 |
SYMPOSIUM ARTICLE
The costs of corporatization: Analysing the effects
of forms of governance
Germà Bel
1
| Marc Esteve
2,3
| Juan Carlos Garrido
4
|
José Luis Zafra-Gómez
4
1
Department of Econometrics, Statistics and
Applied Economics, University of Barcelona,
Spain
2
Department of Political Sciences, University
College London, UK
3
ESADE Business School, Ramon Llull
University, Barcelona, Spain
4
Department of Financial Economics and
Accounting, University of Granada, Spain
Correspondence
Marc Esteve, Department of Political
Sciences, University College London, The
Rubin Building, 29/31 Tavistock Square,
London WC1H 9QU, UK.
Email: marc.esteve@ucl.ac.uk
Funding information
This study was carried out with the following
grants: Spanish Ministry of Science and
Innovation (PID2019-104319RB-I00,
CSO2016-80823-P, and ECO2016-76578-R)
and Agaur 2017-SGR-1556.
Abstract
Public corporations have been constantly in the spot-
light, with some commentators arguing that they can
help governments provide better public services, and
others insisting that their governance is simply too com-
plex. Despite this ongoing debate, few studies have
researched public corporation performance. The present
study offers empirical evidence of the effects of various
forms of corporatization on public service costs. In par-
ticular, it examines public service costs incurred under
four different forms of governance: public agencies, pub-
lic corporations, mixed public corporations with minority
public ownership, and mixed public corporations with
majority public ownership. The analysis considers eight
types of public services in 874 Spanish municipalities
between 2014 and 2017. The empirical results show that
services provided by public corporations are no less
costly than those provided by public agencies. In fact,
the services offered by mixed corporations with govern-
ment majorities tend to cost more than those provided
by public agencies.
1|INTRODUCTION
As local governmen ts search for better ways to implement pu blic services, the corporatizatio n of public services
has received incre asing attention (Vo orn et al. 2018). Publ ic corporations are t hought to deliver pub lic services
efficiently, either by developing more managerial flexibility (given that they operate under general or corporate
law), establishing their own working conditions, or by operating outside traditional political bureaucratic
structures.
Received: 27 June 2020 Revised: 25 October 2020 Accepted: 9 December 2020
DOI: 10.1111/padm.12713
232 © 2020 John Wiley & Sons Ltd Public Admin. 2022;100:232–249.wileyonlinelibrary.com/journal/padm
Since the 1990s, a number of studies have investigated why policy-makers turn to public corporations (Da Cruz
and Marques 2011; Albalate et al. 2014; Lindlbauer et al. 2016; Tavares 2017; Andrews et al. 2020). Academics have
also characterized the service delivery performance of local bureaucracies (see Voorn et al. 2017). It is therefore sur-
prising that so few studies have asked how local authorities can improve the performance of public corporations.
Corporatization is the process by which functions carried out within a government bureaucracy are transformed
into entities that are wholly or partly owned by the government, but allowed to operate in a commercial environment
(Grossi and Reichard 2008; Skelcher 2017). It is important to note that public corporations take various organiza-
tional forms, some of which collaborate with the private sector to offer public services (Lidström 2017). Studies of
public corporations have compared the costs of in-house public service production and private sector service deliv-
ery (Voorn et al. 2020). However, no multivariate empirical research has considered the effect on costs of the range
of organizational forms used to create public corporations. To address this research gap, the present study explores
the effects of different forms of corporatization on public service costs, focusing specifically on forms of governance
that local authorities use to develop public corporations. These include public agencies as a baseline group, as they
are external to organizations but operate under public law. Hence, this study examines the costs of public services
implemented using four different forms of governance: public agencies, public corporations, mixed public corpora-
tions with minority public ownership, and mixed public corporations with majority public ownership. This article thus
responds to recent calls for an enquiry into public corporation governance (Ferry et al. 2018; Voorn et al. 2018).
Do public corporations incur lower costs than public agencies when implementing public services? What effect
does the choice to combine a public corporation with the private sector have on service costs? These questions are
addressed by analysing a broad sample of Spanish municipalities, with a special focus on eight service areas: solid-
waste collection, waste treatment, sewage, street cleaning, waste-related environmental protection, water distribu-
tion, libraries and social services. The database compiled for this study includes information about 873 Spanish
municipalities in 2014–17, corresponding to 40.4 per cent of the population of the country. The first of the following
sections reviews the existing empirical evidence on public corporation performance, differentiating between public
corporations that operate under administrative or business law, and between public corporations and mixed firms
with private sector participation. Second, the study outlines statistical models and cost measurements, together with
several control variables. It then introduces the findings and discusses their statistically significant effects before
delving into their relevance within the current state of research. Finally, this study draws theoretical and policy con-
clusions from evidence gathered using empirical methods.
2|CORPORATIZATION
2.1 |In and out: from administrative to commercial law
According to Tavares and Camões (2010), the typical municipal bureau, which provided most public services, used to
operate under administrative law; it was tax-financed, subject to competitive budget allocations, and entirely depen-
dent on the preferences of local elected officials. By contrast, public corporations are often described as stand-alone
organizations that ‘rely on revenues derived from user fees, are governed by an appointed executive board, and have
independent corporate status’(Tavares and Camões 2007, p. 535). Public corporations differ from private organiza-
tions, not only through their public sector involvement, but also because they exist exclusively to serve the public
(Barnett 1924). Several terms are used to identify such organizations; they are often referred to as public authorities,
commissions, boards, special-purpose public bodies and corporations (Gerwig 1961). Whichever term is used, public
corporations are generally single-purpose organizations that operate under private law and tend to distance them-
selves from the influence of elected officials (Voorn et al. 2017).
What then is the difference between public services delivered by organizations operating under administrative
law and services offered by organizations operating under commercial or private law? This can be challenging to
BEL ET AL.233
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