PA 511 Instructional Module No. 3

Republic of the Philippines
NUEVA VIZCAYA STATE UNIVERSITY

Bambang, Nueva Vizcaya
INSTRUCTIONAL MODULE
IM No.: IM-PA 511-1st Sem-2021-2022
College: College of Arts and Sciences

Campus : Bambang
DEGREE MPA COURSE NO. PA 511

PROGRAM
SPECIALIZATION Major COURSE TITLE The Philippine Public Enterprise System
YEAR LEVEL TIME FRAME 6hrs WK NO. 7-8 IM NO. 03
I. UNIT TITLE/CHAPTER TITLE: Proposed Reform Package
II. LESSON TITLE: Meta Policy – Creating a clear public enterprise policy for the state; Macro
policy-
addressing sector-wide concerns; Improving public corporate sector governance’ Privatization or
public enterprise reform?
III. LESSON OVERVIEW: Given the issues of the public enterprise sector what recommendations can
be given to the government in addressing the public corporate sector? The previous wave of reform
under the auspices of reinventing government that led to a massive decrease in the number of public
enterprises as government intervention in national economies was reduced and PEs were privatized.
However, there have been recent calls to consider such strategies and to review the role of PE in
developing national economies. Thus, this lesson will look into some proposed reform packages
which were studied and recommended by notably contributing authors and scholars. Initially, this
lesson would start with a proposed meta-policy for the Philippines which articulate a meta-policy
proposal based on the country’s historical experience with its public enterprise sector. The second
section would include the discussion of macro policy that addresses sector-wide concern which will
focus on the re-evaluation strategy of privatization in light of experience, its limitations and as well as
the alternative strategy of public enterprise reform.
IV. DESIRED LEARNING OUTCOMES: At the end of the chapter, the students are expected to:
1. Discuss the concept of meta policy as a tool in creating a clear public enterprise for the state
economy
2. Critique the macro policy in addressing sector-wide concern as a proposed reform to improve public
corporate governance
3. Argue on the strategy of privatization in light of experience, its limitations as well as the alternative
strategy of public enterprise reform
V. LESSON CONTENT
Proposed reform Package
As such, one must take a critical eye when attempting to address the various issues that may
plague different public enterprises in different countries.
 The first step must be to recognize the significance and potential of public enterprises as
instruments of public policy and of development, but also to rationalize their existence.
 Public enterprises must be able to contribute meaningfully to national interests and to the
cause of development.
 Public enterprises that cannot be justified should not be retained and those that can
should be reformed.
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IM No.: IM-PA 511-1st Sem-2021-2022
 With regard to the latter the objectives of reform and the type of reform to be undergone
must be carefully considered, not doing so may have negative consequences for both the
state and society in the long run.
 Another fundamental issue that must be addressed is that of public enterprises’ role and
objectives, both as a collective whole and individually.
 Ambiguity and uncertainly can lead to an undesirable proliferation of public

enterprises, as it has in the case of GOCCs in the Philippines. National governments
must clearly and unambiguously determine the role of the public sector in the national
economy. Such an over-arching state policy would have to be discussed and formulated at
the highest level of government, and would require much commitment and political will if it
is to be adhered to consistently (Gouri, Sankar, Reddy, & Shams, 1991).
 Clarifying public enterprise objectives and priorities is a pre-requisite to their

improved performance. Without a good idea of what their priorities should be and what
the appropriate criteria for efficiency are, PE managers cannot optimize their performance
towards the attainment of them.
 Another area that needs clarification is that of inter-governmental relations with regard to
PEs.
If public enterprises are supposed to be able to accrue the benefits of autonomy:
 There must be a distinction with regard to the limits of ministerial supervision and the
discretion of directors and managers in the setting of organizational policy and the running of
those organizations.
 There must be a decentralization of decision-making in the public enterprise sector in much
the same way as there has been decentralization in the development of local government in
the Philippines, though it must be done with care and consideration of individual
circumstances of each enterprise affected.
 Only when decision-making for public enterprises are less centralized will those organizations
be able to show the initiative that they were intended to foster.
These suggestions are only those which broadly cover the public enterprise sector. Specific
prescriptions for improvement and reforms must be formulated for different cases under different
circumstances, particularly with regard to their fiscal viability, quality of personnel and efficiency.
A. Meta Policy – Creating a Clear Public Enterprise Policy for the State
Any reform package that seeks to cover the entire public enterprise sector must first and
foremost have a plan for meta reform. As the term implies meta reform would involve the
determination and articulation of the state’s ideology regarding the public and private
domains above and beyond the policies of public enterprise management, oversight and
governance (Gouri, Sankar, Reddy, & Shams, 1991).
 What this involves is the laying down of the state’s rationale and policy with regard to what it
deems to be its proper place vis-à-vis the market, as well as the justification for state intervention.
 Without a clearly articulated ‘meta’ policy, the role of the state in the economy is uncertain and
interventions or retractions may be done at any time and may spin out of control.
 Public enterprise ‘creep’ as we can call it is something that should be avoided lest the
governments find themselves with a public enterprise sector that crowds out the private sector
and is too big to manage or finance.
 There is also the danger of over-privatization in countries that have been influenced by neoliberal
ideas. This was a particularly significant issue during the structural adjustment period where some
countries embraced the Washington Consensus prescriptions perhaps too eagerly.
 A clear understanding of the accepted role of the state in the market allows for the establishment
of a clearer picture of the scope and limitations of state intervention and the ground rules upon
which other public enterprise reforms may be built upon.
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Given the significance of such a policy it is important that it be discussed, debated and
formulated at the highest legislative level of government. However, given that a meta-policy would
form the basis of both the subsequent macro- and micro-reform policies and would determine the
extent to which either privatization or public enterprise reform is to take place, it is necessary that this
lesson would start with a proposed meta-policy for the Philippines. This section will articulate a meta-
policy proposal based on the country’s historical experience with its public enterprise sector:
Tabbada (1985) broke down the history of Philippine public enterprise into three major
periods. Each period coincided with a major crisis that prompted an expansion of the public enterprise
sector.
Three Major Periods of Philippine Public Enterprise:
1. The earliest of these occurred during the period of American Colonial rule.
 During this period the objective of the upstart Philippine legislature was to increase the control
of Filipinos over the domestic economy as well as to facilitate economic growth (Corpuz,
1994).
 Public enterprise sector expansion was characterized by national acquisitions of key industries
and the establishment of banks and corporations to provide capital necessary for development
as well as the means by which the government could spur channel and control investment.
 Examples of this include the establishment of the Philippine National Bank (PNB), the
Philippine Development Company (PDC), the National Iron Company, the National Cement
Company, the Coconut Products Company and the acquisition of the Manila Railroad
Company and the Philippine Railway Company.
2. The second period of public enterprise expansion occurred after the Second World War
 The main thrust of this period was to facilitate post-war reconstruction of the country.
 Among the public enterprises established during this period was the Rehabilitation Finance
Corporation, the Government Service Insurance System (GSIS), the Social Security System
(SSS), Philippine Airlines and Philippine National Lines. Much like the previous period, the
rationale for public enterprises was to facilitate industrialization (Tabbada, 1985).
 This was partnered with a policy of import-substitution before liberalization once again took
place under the Macapagal administration.
3. The third and last period in which the public enterprise sector expanded was during the
Marcos Regime during which GOCCs were notoriously used to funnel public resources into
the pockets of the Marcoses and their cronies.
 This was part of a dramatic increase in the size of government under authoritarian rule, with
the state taking a larger entrepreneurial role in the economy than ever before.
 During this time the Philippine National Oil Company (PNOC) was at the forefront of the
government’s efforts, with the PNB dominating the banking sector and the NDC once again
playing an active role in the economy (Tabbada, 1985). This however, was not a period of
state capitalism with the government displacing the private sector.
 On the contrary it seemed that the interventions of the state were aimed at furthering the
interests of private capital (Tabbada, 1985) in a political economic arrangement that is similar
to other states in Southeast Asia.
 This unprecedented period of expanded state intervention was followed by an unprecedented
retraction of the state that coincided with the worldwide popularity of neoliberal policy
prescriptions.
Each of these periods of high state intervention in the economy corresponded with periods of
crisis in which there was a relative weakness of the domestic capitalist class, prompting the
government to step in when the private sector could not carry the burden of investment needed for
growth (Tabbada, 1985). At present the country seems to be experiencing a sustained, if slowed
down retraction of state intervention in the national economy. This is a continuation of the policies of
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the previous Aquino and Ramos administrations which aggressively pursued privatization in
accordance with the contemporary thinking of the structural adjustment period. Indeed, Mallari (1994)
came to a similar conclusion in his examination of the political economy of Philippine public
enterprises, that despite the growth of the public enterprise sector over the decades, the state has
maintained a strong ideological bend towards free enterprise.
It is unclear if a future crisis would lead to a resurgence of state intervention in the economy
through the public enterprise sector. The recent global financial crisis and subsequent global
economic recession prompted pump-priming spending from the Arroyo administration, however there
has yet to be any indication of a similar expansion of the public sector like the ones experienced
during the previous century. For now, it seems that the government policy towards state enterprise
remains largely neoliberal in bent.
Given this policy and the body of historical precedence, there appears to be a long-held, if not
particularly plainly stated, policy consensus that roughly approximates Keynesian thinking with regard
to state intervention. It would seem that the Philippine state has traditionally held a largely market-
oriented ideology, intervening only when the private sector is deemed unable to facilitate continued
growth. The state’s effectiveness in doing so, however, seems to have been less than satisfactory
particularly in light of the massive debt crisis incurred by the country towards the end of the Marcos
regime and all through the post-EDSA administration, which was caused by years of loaning.
However, experience with neoliberal policy prescriptions have been mixed, as they have been
in other countries. The market-oriented paradigms of the late 1980s to early 1990s have been found
rather wanting in terms of their effectiveness in bringing about the improved conditions that they
promised (Piasecki & Wolnicki, 2004). Narrowly-defined privatization programs have been seen to
oftentimes lead to the mere change from public and private monopoly and the entrenchment of
economic elites as there was little done in the way of public action to address competition in market
structures and legislative and institutional frameworks needed to ensure the success of privatization.
It has also led to the erosion of state capability to influence the economy through the use of its public
enterprises. Negative effects such as these have offset the modest gains that the country made.
The task then for public enterprise sector reform should be to have the state act as a
facilitator for private sector-led growth and development but also to build up state capacity to
operate existing enterprises as efficiently and effectively as possible so as to stockpile
experience and expertise should it be deemed necessary to expand the public enterprise
sector once more. In other words, the state should improve on its public management capacity (Van
Slyke, 2003). This should not be taken to mean merely the hiring of more personnel.
Public management capacity must be taken to include the qualitative improvement of

government capabilities in terms of personnel, institutional frameworks, regulatory frameworks,
intergovernmental relations, and legislation involved in the operation of the public enterprise
sector as well as its monitoring, evaluation, and regulation alongside the private sector. The
state should also re-affirm its role in the provision of important public goods and services and
addressing market failures. This should lead to a reassessment of its previous decisions with
regard to the public enterprise sector and whether or not those decisions were truly desirable or not in
light of its economic, social and political aims.
Propose pragmatic public sector policy:
 The state has as its objective of fostering private sector growth, while also taking
into consideration the significant role it may play in the economy and the influence
it may wield through the public enterprise sector. While it is affirmed that the growth
and development of the Philippine economy should be primarily private-sector driven the
state should re-examine the notion of strategic intervention so as to foster development.
 The role of the state should be to address market failures and to ensure equity with
regard to the benefits of economic growth and development. As such public
enterprises should be retained in key sectors of the economy, particularly in cases of
natural monopolies wherein privatization might lead to the concentration of economic

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and/or political power in private hands or in cases where in state regulation and
involvement has been deemed necessary to achieve social objectives.
 The state should endeavor to ensure that its existing public enterprises are as
efficiently and effectively run as possible in light of clearly stated organizational
goals and objectives. As such the state must improve upon its public management
capacity, in particular with regard to government-owned and controlled corporations which
will act as models and repositories of technical experience, and with regard to those
functions it had privatized so as to ensure accountability for both public and private
enterprises and the quality of the goods and services rendered.
 The expansion of state intervention through the public enterprise sector should not
be taken lightly and should only be done judiciously and strategically, such as in
sectors deemed vital to national interest, or in a crisis which renders the private sector
unable to facilitate economic growth, or in cases where it is unable to provide needed good
or services, especially those of a public nature.
B. Macro Policy – Addressing Sector-wide Concerns
After clarifying the role of the state in the economy, we recommend that the government should then
address the existing public corporate sector in two ways.
1. First, it must improve public corporate sector governance.
2. Second, it must determine, based on the state ideology, which GOCCs should continue existing
and which are better off abolished. Gouri, et. al. (1991) offer two possible options for addressing
troubled public enterprises (besides abolition): privatization and public enterprise reform.
Improving Public Corporate Sector Governance – Managed Interdependence and Performance

Evaluation
Improving accountability in government has long been a major concern of public

administration. Rules and regulations are at the core of bureaucracies. So, it is with public
enterprises. Because of the public interest and public ownership inherent in their nature, public
enterprises and their managers must therefore be held accountable to the state. However, as was
mentioned in the earlier section on public enterprise issues, there has often been conflict between the
intended autonomy of public enterprises and notions of public accountability.
As the flexibility of decision-making of an autonomous enterprise is one of the major reasons

for the adoption of the public enterprise form of organization, often debates and conflicts will arise
when state actors seek to hold public enterprises more accountable or when public enterprise
managers seek greater discretion in the management of their organizations’ affairs. Sometimes the
dilemma can lead to, or be caused by ministerial or political interference, which hampers the
autonomy of the public enterprise. Sometimes it may lead to preferential treatment of PEs through the
granting of great degrees of discretion to public enterprise managers, creating public enterprises that
are unaccountable and could become vehicles of abuse of state resources by managers or
employees.
Accountability is important, as public enterprises are state assets and their managers
and employees are by extension bureaucrats of the state. Public interest needs to be protected.
But in order for public enterprises to truly make full use of the special organizational arrangement and
decision-making structure, they must remain autonomous thus more flexible than traditional
bureaucracy.
To address this, we adopt Austin’s prescribed paradigm of managed interdependence. Austin

(1985) argues that these two principles need not be in conflict one another, nor should they be. He
argues that no public enterprise is ever truly autonomous, as they are policy instruments of the state,
and that the more correct way to view autonomy is in terms of degrees. Additionally, he argues that

IM No.: IM-PA 511-1st Sem-2021-2022
the dilemma of accountability and autonomy is a false one that does more harm than good (Austin,
1985). In this paradigm the inextricably necessary interaction between public enterprise and
government is viewed as positive rather than negative sum game. In it, the emphasis is on shared
interests which he argued to outweigh points of conflict (Ibid.).
There are four major areas of concern in the managed interdependence paradigm:
1. Collaborative management
 Requires that policymakers and managers recognize that their interaction must be
collaborative in nature.
 The reality of government is that managers as just as involved in policy formation as
policymakers may be in management.
 Managers and policymakers must work with one another to set goals and objectives where
interactions would lead to clearer objectives as well as mutual understanding and trust
between policymakers and public enterprise managers.
2. Information flows
 Deals with issues of transparency.

 Lack of information available to policymakers and the public on the activities of public
enterprises is often the cause of political interference.
 Mechanisms of transparency must be put in place to pacify and to allow key stakeholders the
ability to evaluate the activities and performance of GOCCs.
 Austin writes that information management is key for public enterprises: The information
needs of stakeholders must be identified and addressed, a proper information management
system needs to be put into place, and this information system can be a means through which
vital feedback from stakeholders may be taken in and utilized by the PE.
3. Interaction diversity
 Deals with ways in which public enterprises interact with the government.
 Austin argues that the state should be open to diverse arrangements of interaction with
different types of public enterprises.
 This is as opposed to standardization which seeks uniformity, instead the state should attempt
to find optimum arrangements depending on character of the public enterprise involved.
4. Results orientation
 Deals with the focus of both policymakers and managers with regard to public enterprise.
 Rather than the traditional bureaucratic orientation to emphasize rules, regulations and
procedures emphasis should be placed on public enterprise performance.
 This would necessarily require a performance evaluation system that takes into consideration
the nature of public enterprises and uses appropriate measures and standards for different
types of public enterprises with different social objectives.
Below we cite ways in which it may be possible to apply the managed interdependence paradigm, as
well as look at how the new GOCC Governance Act measures up to its prescriptions.
One of the important steps that should be taken to improve accountability is to disentangle and
streamline the current networks of accountability. Due to the growth of the public enterprise sector
over decades, and the lack of a clear public enterprise policy has led to a complex network of
accountability and supervisory relations between GOCCs and various departments and agencies,
wherein there is much overlap.
The government has taken this approach with the newly-created Governance Commission for
Government-Owned or -Controlled Corporations (GCG), a central body dedicated specifically for
addressing the public corporate sector.

IM No.: IM-PA 511-1st Sem-2021-2022
Republic Act No. 10149 outlines the following powers and functions for the commission:
1. Evaluation of performance and relevance of GOCCs and determining what actions is to be

taken to address them;
2. Classification of the various GOCCs based on, but not limited to, sector;
3. Formulation, in consultation with relevant departments and stakeholders, of an ownership and
operations manual as well as corporate governance standards for GOCCs;
4. Recommend suspension for erring members of Boards of Directors/Trustees who violate or do
not comply with the ownership manual;
5. Determine necessary skills for and make a list of, recommended qualified candidates for
appointive directors for the President;
6. Create performance evaluation systems for all GOCCs as well as for each GOCC
classification;
7. Conduct periodic assessments of GOCCs;
8. Conduct compensation studies and recommend a competitive and attractive remuneration
system for public enterprises;
9. Provide technical advice and assistance to relevant government agencies for monitoring
performance of GOCCs vis-à-vis their objectives and targets;
10. Coordination and monitoring of GOCC operations to ensure consistency with national policy;
11. Prepare semi-annual progress reports for the President and Congress;
12. Review functions of GOCCs and make recommendations to the President should there be a
conflict of interest with regard to regulatory and commercial functions;
Collaborative management
In terms of area of concern of collaborative management, we would recommend that the GCG in its
functions of coordination and monitoring operations and performance of GOCCs should endeavor to
meet with, consult and coordinate with both the GOCCs and their respective government
departments or agencies in order to clear up objectives and goals so that both GOCCs and
the national government have a mutual understanding regarding these as well as of the
national policy. As it is, the only seeming way in which collaboration takes place is in the one-time
formulation of the GOCC ownership manual. The rest of the functions and powers ascribed to the
GCG outline a traditional top-down approach to public corporate governance.
Transparency
With regard to transparency, the mandate of the GCG seems to be certainly well covered when it
comes to requiring transparency of GOCCs. However, while one might be quite certain that the
results assessments of GOCCs will be made available for the public much like the results of
Commission on Audit (COA) annual audit reports, stakeholders in different types of GOCCs may
require much more in the way of disclosure either in frequency or content. Therefore,
individual GOCCs will have to address this need through the development of their own
information management systems aimed at addressing their stakeholders. There is also the
possibility for sector or industry-based information systems managed by the GCG for public firms
whose stakeholders might have similar information requirements, possibly government financial
institutions (GFIs).
Inter-governmental relations between the national government and GOCCs
With regard to inter-governmental relations between the national government (through the GCG), and
GOCCs, it seems that while the law seeks to centralize oversight of public enterprises, it appears
that existing lines of supervision will be maintained, at least as far as the law stipulates.
Modifications to intra-governmental relations may be possible based on the interpretation of the words
‘reorganized’ and ‘streamlined’ in Sec. 5 (a) of the law. That said, we recommend that in reviewing
GOCCs, the Commission should take into consideration intra-governmental lines of
supervision, monitoring, etc. to the end of streamlining and removing unnecessary overlap as
well as determine the most efficient/practical arrangement for individual GOCCs.

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Results orientation approach towards public enterprise
With regard to the concern for a ‘results orientation approach’ towards public enterprises:
Performance assessment has is undoubtedly one of the major concerns of R.A. 10149. In this
sense the law is most strict, and implementation of this in the government has been rather
aggressive. Such evaluation is critical for the efficient and effective running of public enterprises. In
fact, Jones (1987) argued that much of the problems of public enterprises can be traced to
inadequate performance evaluation.
However, while the law requires the development of performance scorecards based on
GOCCs’ strategic objectives, the majority of disclosure requirements for GOCCs center around
traditional accounting standards concerned largely with financial performance. Such an evaluation
framework is insufficient as it only considers the financial health and viability of public enterprises and
therefore only covers its proprietary dimension/objectives.
We recommend the adoption of performance evaluation/accounting framework that better

takes into consideration the different objectives pursued public enterprises at the same time as well
as providing an expanded set of criteria for evaluating those objectives. Getting performance
evaluation right for GOCCs is crucial, as like private enterprises, performance evaluation of public
enterprises provides vital feedback necessary for efficient and effective management.
Performance Evaluation
Given this, we recommend the adoption of Guina’s (1986) framework or a similar framework,
for evaluating public enterprises. Formulated as a doctoral thesis, the framework encompasses a
wide variety of performance criteria and indicators that can be used to assess public enterprises.
Figure 1 outlines Guina’s performance evaluation framework:

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Figure 1.
Framework for evaluation of public enterprises.
Guina, 1986 (https://i.imgur.com/frYTzJw.png)
The adoption of such a comprehensive framework would help the Commission in developing
GOCC performance scorecards as well as improving the overall performance evaluation system by
allowing it to move beyond traditional accounting methods.
Lastly, we recommend the development of an incentives system that encourages “socially

desirable behavior” from public enterprises, and which is linked to the performance evaluation
system. We borrow from Jones’ (1987) proposed framework of a ‘signaling system’ composed of
performance evaluation system that deals with assessment, a performance information
system that deals with monitoring and am incentives system that links national interest with
public enterprise managers’ individual interest.
Such a system would mimic in a way the simpler incentives system found in private
enterprises. In private enterprises, good performance is measured by profit, the clear and simple goal
of any company (Von Mises, 1969). Behavior that brings profit is rewarded. This gives managers very
strong incentives to perform. This is not the case in bureaucracies, and often in public enterprises
where pay is often fixed and security of tenure assured, providing little to no incentives for good
performance.
R.A. 10149 partly addresses this with its chapter three which outlines the development of a
compensation system for GOCCs both covered and exempted from the Salary Standardization Law
(SSL). This system more closely approximates the compensation system used during the Marcos
years which was replaced by the SSL. It seeks to provide compensation for work comparable to that
of the private sector. It also provides for additional incentives tied to good performance. This
provision, however, only states that the GCG may recommend incentives for certain position for good
performance of GOCCs. This idea is commendable, but a more comprehensive system with closer
linkages between good performance and incentives is needed to better encourage good management
of public enterprises.
Privatization or Public Enterprise Reform?
Ever since the establishment of the Committee on Privatization during the first Aquino
administration, the Philippine government, inspired by the neoliberal wave, actively pursued
privatization as a means of addressing its problematic public enterprises, some might say with a bit
too much enthusiasm and not enough critical thinking. Though privatization has slowed down both in
the country and globally and the enthusiasm for it has waned, it remains a major strategy for dealing
with public enterprises, in spite of real-life experiences and events that have put the economic tenets
that support it into question (Quiggin, 2011). In this section we will re-evaluate the strategy of
privatization in light of experience, its limitations and as well as the alternative strategy of public
enterprise reform.
Privatization
 It refers to the process of transferring public assets to private ownership and/or control.
 In the context of macro-economic government policy, it may come in two forms: sale of
assets and liberalization.
Sale of assets - involves the straight forward sale of government assets to the private sector
Liberalization - involves both the divesture of public assets to the private sector as well as
deregulation and decontrol of the economy in a gradual shift towards a freer market
(Gouri, Sankar, Reddy, & Shams, 1991).

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 Privatization was a primary strategy for dealing with public enterprises in many country cases,
particularly during the height of the reinventing government movement, when the intention was
to downsize the public sector to give room the private as well as improve outcomes.
 It was also often undertaken as a means of generating revenues for the government.
Underlying this strategy was the argument that the private sector would be more efficient in
delivering certain goods and services than the public sector (Lim & Moore, 1989).
However, privatization strategies have had mixed results in different country cases. In a case
study conducted in Honduras which covered several construction projects that were outsourced to
private companies, Lim & Moore (1989) found little in terms of improvement with regard to cost, time
and quality of the privatized projects as compared to estimates as to the cost, time and quality of
those projects if done under direct administration.
With regard to factors that affected privatization, three major considerations were derived from
the Honduran case:
1. The level of competitiveness in the market for the good in question.

2. The existing institutional and regulatory framework and its possible effect on privatization.
3. Possible social, political or economic impacts that may arise from privatization.
The first and second points in particular highlight one of the fundamental assumptions of
proponents of privatization: that the market is more efficient in delivering goods and services than the
state. The arguments for privatization all have the assumption of a competitive market underlying
them (Van Slyke, 2003). But markets are only efficient to the extent that they are free and
competitive.
In cases where in markets are not sufficiently competitive or where in the industry or sector is
not amicable to competition (e.g. natural monopolies) privatization may yield little to no benefit. In
such cases private ownership/management may matter little, and in fact public ownership may even
be more desirable. Regulations and the institutional structure established by the state may add further
barriers to competition.
The third point highlights the political and social objectives often attached to public
enterprises. Though privatization may improve the economic viability of certain PEs, it does not
guarantee that those organizations non-proprietary objectives will be met as well as under public
ownership and management. It also highlights the displacements that may take place as the state
pulls back from its role as provider, producer and guarantor. This is particularly pertinent to those
public enterprises meant to cater to the needs of indigent groups or sectors (minorities, the poor,
etc.).
Gouri, et. al. (1991) made similar findings and reached similar conclusion in a cross-country
study composed of eight countries from the Asia-Pacific region covering Australia, China, India,
(South) Korea, Malaysia, Philippines, Sri Lanka and Thailand. The authors determined that among
the country cases, the benefits accrued from privatization ranged from rather moderate to low. Like
the findings in the Honduran study, the authors emphasized the significance of the conditions and
structure of the market, as well as the potential social, political or economic impacts of privatization.
The report similarly prescribed reforms and development of market structures, as well as the need for
safety nets to deal with social tensions that may arise. Additionally, the authors emphasized the need
for countries to have a clear understanding of the rationale, objectives and methods to be had should
they pursue privatization.
In the case study of the privatization of social services in New York state, another key factor
that was cited as being necessary for the success of privatization was that of public management
capacity (Van Slyke, 2003). Public management capacity is defined as the possession of skilled
personnel with “contract managing expertise, negotiation, bargaining, and mediation skills,
oversight and program audit capabilities, and the necessary communication and political
skills to manage programs with third parties in a complex political environment. (Van Slyke, pp.
296-297)” The study linked the need for such in the public sector due to the necessity of ensuring the
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existence of a competitive market structure as well as necessary monitoring and evaluation
measures. In addition, the study also reassessed the role of non-profit NGOs in the delivery of social
services.
While it is conventional wisdom is that the participation of civic groups in shouldering the
burden is a good thing, Van Slyke (2003) identified that, while NGOs offer specialized expertise
their actions often restricted competition into the service markets that they operated in. In
particular, the networks by which NGOs often use to connect with public officials to maximize the
interests of those NGOs. Van Slyke cited the push for legislation requiring certification standards to
be applied to suppliers of specific services. In such cases the proponent NGOs would be the most
qualified to meet those standards, while the need for certification doubles as a barrier to the entry of
other players.
In effect, such cases presented a change from a public monopoly to a private (non-profit)
monopoly. The pros and cons between which are up for debate, thought it seems that the non-profits
offer specialized expertise and flexibility in addressing particular issue-areas (Van Slyke, 2003), while
government monopoly would probably allow for more generalized coverage and possibly easier
coordination. Thus, there appears to be a trade-off between the two cases of public service
monopoly. Granted, the existence of NGOs dependent on public funding seem to limit the
effectiveness of transferring responsibility to private actors in terms reducing public fiscal burden.
All in all, cross-country analysis of past experience indicates that more often than not,
successful privatization requires much in terms of government effort. This brings to question
the attractiveness of privatization as a strategy for addressing public enterprises, which
brings us to the alternative strategy: public enterprise reform.
Public Enterprise Reform
In contrast to privatization, public enterprise reform has no widely accepted definition.

Indeed, the term ‘reform’ while implying change, betrays nothing about the type of change
meant to be undertaken except that it is definitely meant to be for the better. Nevertheless, we
do have some guidance as to what reform can mean based on the GOCC Governance Act which
besides privatization lists the available options for dealing with public enterprises: reorganization,
merging, streamlining, or abolition. Here we will take the term ‘public enterprise reform’ to imply
the use of any of these in a macro-economic context referring to the public enterprise sector
as a whole. With these options on the table, it is now up to the GCG to study the cases of individual
GOCCs and to subsequently recommend what course of action to take as to implement that course of
action.
Obviously, determining the specific modality of public enterprise reform to be applied in

any particular case necessitates careful and deliberate consideration of the various GOCCs
now under the jurisdiction of the GCG. The issues, problems and challenges of each GOCC
need to be considered along with their mandates and objectives. Indeed, some GOCCs fulfill
some of the goals of their mandate merely by existing (Jones, 1987).
That said, many unsuccessful or underperforming public enterprises can be made successful
with the proper reforms. As such, the government, particularly the GCG, should endeavor to
determine what reforms are needed and to implement them. It is beyond the scope of this lesson
as well as of practicability to recommend more than this.
In their conclusion Gouri, et. al. (1991) contended that the pursuit of privatization is a
matter of ideology and therefore of political choice. As it is, the economic debate on the pros and
cons of public and private firms remains unresolved (Quiggin, 2011) offering no definitive answer for
policymakers. Should societies and their governments feel that their economy needs to be more
market-oriented then they will likely pursue privatization policies. Other governments and societies
may be more inclined towards government participation in the economy and may prefer to retain
public enterprises. However, privatization and public enterprise reform need not be mutually
exclusive.
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IM No.: IM-PA 511-1st Sem-2021-2022
While countries may opt to go for an extensive privatization campaign or for an extensive
public enterprise reform campaign, they may also apply both on a macro- and micro-level. In the
same way that there are different instruments for privatization, a general reform of the public sector
may utilize different approached for different public enterprises and sectors. Some sectors or
individual PEs may be deemed as needing privatization, while others may be retained by the
government.
It would make sense to privatize enterprises that have become superfluous due to changing
government objectives, or when they are unprofitable due to public constraints and this might be
better off under private ownership where they would be free of these constraints. In the case of the
latter, it is important to consider if the constraints to are truly tied to public ownership (Quiggin, 2011).
On the other hand, if public enterprises have goals and mandates that are considered important to
national policy, if their operations contribute significant revenues to government coffers or if market
conditions are such that there is a lack of competition such that the chance of potential benefits from
privatization are relatively low, it would make sense to retain public enterprises.
Decisions on what is to be done must be anchored in the state ideology, and the specific
circumstances of the PEs and sectors in question (nature of market, financial status, potential social
and economic displacements, vulnerability to foreign firms and interests, etc.). A mixed strategy using
both privatization and public enterprise reform, if properly backed up by a clear and unambiguous
demarcation between the public and private spheres and of when the state ought to intervene would
allow for a large degree of flexibility in dealing with the myriad of public enterprise issues found, in
particular, in developing countries.
Without a clear meta policy or a desire to adhere to it, there is the risk of confusion and
inconsistency in the application of either privatization or public enterprise reform.
Conclusion
Reform of the Philippine public enterprise sector will require much in terms deliberation,
coordination and technical knowledge. It will require rethinking of the conventional wisdom on the part
of policymakers as much as it will require much political will to enact. The current administration, with
its anti-corruption mandate has launched the most extensive overhaul of the sector in years.
However, in spite of the zeal by which the current administration has pursued this effort, there are
noticeable weaknesses in its reform efforts, particularly in the contents of its centerpiece legislation,
the GOCC Governance Act possibly owing to the rushed manner in which this law was passed or to a
lack of understanding or deliberation on the issues faced by the public enterprise sector, or very likely
both.
There has been much written about topics public enterprises and public enterprise reform.
Unfortunately, legislation has not taken much if any of the lessons learned on public enterprises and
reforming them, owing largely to a lack of expertise and awareness among current legislators and
government officials. This situation is not helped by the lack of local interest in the academic field of
public enterprise studies. It therefore rests upon the few the academe who have studied public
enterprises, as well as those who work in public enterprises themselves, to champion the cause of
public enterprise reform.
VI. LEARNING ACTIVITIES
A. Reaction Paper
Direction: Each student will write a reaction paper expressing agreement or disagreement on
the following. Particular issue or issues should be discussed and elaborated further to support such
convention or argument.

16
IM No.: IM-PA 511-1st Sem-2021-2022
1. The strategy of privatization in light of experience, limitation, and alternative strategy of
public enterprise
2. The sector-wide proposed public enterprise reform to improve public corporate

governance
VII. ASSIGNMENT
A. Make a brief summary of the three major periods of Philippine public enterprise. What are the
significant developments that made each period coincided with a major crisis that prompted an
expansion of the public enterprise sector?
VIII. EVALUATION
Direction: Answer the following questions concisely and comprehensively.
1. Discuss thoroughly the different considerations when attempting to address the various issues
that may plague different public enterprise in different countries. In the Philippine setting, what
particular consideration do you think should be given a paramount concern? Why?
2. Any reform packages that seek to cover the entire public enterprise sector must first and
foremost have a plan for meta reform. Do you agree or disagree? Why?
3. Do you think that hiring of more personnel and experts would be a significant action for a
public enterprise sector reform should it deemed necessary to expand? Why?
4. How do the paradigms of managed interdependence prescribed by Austin (1985) address the
principles of accountability and autonomy that need not be in conflict with one another
concerning public enterprise?
5. What are the most significant considerations or approaches in addressing whether a public
enterprise/GOCC should pursue privatization or reform? Elaborate your answer.
IX. REFERENCE/S
Girder (2019) The Philippine Public Enterprise Sector. Defense of the Republic of the Philippines.
March 24, 2019
Prepared by:
AURELIO F. POLONIO, MPA, MAEd

Assistant Professor II
Reviewed by:

16
IM No.: IM-PA 511-1st Sem-2021-2022
IMELDA S. OCAMPO, PhD

Program Chair, CAS-GS
Approved by:
JORGELINDO R. LUCAS, PhD

Dean, College of Arts and Sciences

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Republic of the Philippines

NUEVA VIZCAYA STATE UNIVERSITY

College: College of Arts and Sciences

DEGREE MPA COURSE NO. PA 511

I. UNIT TITLE/CHAPTER TITLE: Proposed Reform Package

Proposed reform Package

 Ambiguity and uncertainly can lead to an undesirable proliferation of public

 Clarifying public enterprise objectives and priorities is a pre-requisite to their

If public enterprises are supposed to be able to accrue the benefits of autonomy:

Three Major Periods of Philippine Public Enterprise:

Public management capacity must be taken to include the qualitative improvement of

Propose pragmatic public sector policy:

NVSU-FR-ICD-05-00 (081220) Page 4 of 16

B. Macro Policy – Addressing Sector-wide Concerns

1. First, it must improve public corporate sector governance.

Improving Public Corporate Sector Governance – Managed Interdependence and Performance

Improving accountability in government has long been a major concern of public

As the flexibility of decision-making of an autonomous enterprise is one of the major reasons

To address this, we adopt Austin’s prescribed paradigm of managed interdependence. Austin

NVSU-FR-ICD-05-00 (081220) Page 5 of 16

 Deals with issues of transparency.

NVSU-FR-ICD-05-00 (081220) Page 6 of 16

1. Evaluation of performance and relevance of GOCCs and determining what actions is to be

Inter-governmental relations between the national government and GOCCs

NVSU-FR-ICD-05-00 (081220) Page 7 of 16

Results orientation approach towards public enterprise

We recommend the adoption of performance evaluation/accounting framework that better

NVSU-FR-ICD-05-00 (081220) Page 8 of 16

Lastly, we recommend the development of an incentives system that encourages “socially

Privatization or Public Enterprise Reform?

NVSU-FR-ICD-05-00 (081220) Page 9 of 16

1. The level of competitiveness in the market for the good in question.

NVSU-FR-ICD-05-00 (081220) Page 10 of

Public Enterprise Reform

In contrast to privatization, public enterprise reform has no widely accepted definition.

Obviously, determining the specific modality of public enterprise reform to be applied in

VI. LEARNING ACTIVITIES

NVSU-FR-ICD-05-00 (081220) Page 12 of

2. The sector-wide proposed public enterprise reform to improve public corporate

Direction: Answer the following questions concisely and comprehensively.

AURELIO F. POLONIO, MPA, MAEd

NVSU-FR-ICD-05-00 (081220) Page 13 of

IMELDA S. OCAMPO, PhD

JORGELINDO R. LUCAS, PhD

NVSU-FR-ICD-05-00 (081220) Page 14 of

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