Measuring public enterprise productive efficiency : a suggested framework

Abstract

In discussing the productive efficiency of public enterprises, the expert group meeting convened by ICPE in November 1981, noted that in the imperfect market conditions prevailing in developing countries, where different factors, including price distortions, have to be taken into consideration, indicators of productive efficiency represent a necessary evaluative tool compensating for the inadequacy of profitability indicators. This need is often highlighted in those instances where public enterprises are entrusted with social goals, particularly in the underpricing of products, which run counter to commercial objectives. The rationale of this paper is that unless some systematic means of measuring the output and productivity of public enterprises is found, a large proportion of economic activity will remain unaccountable. It is inconceivable that the "efficiency" measures expected of public enterprises by concerned citizens and administrators in developing countries are either non-existent or are so primitive as to give misleading information. Notwithstanding the number of conceptual and methodological problems which abound in this area, it must be realized that parallel attempts are being made by governments and research institutions of advanced industrial countries to measure the productivity of non- commercial public sector activity.