Academic journal article Public Administration Quarterly

Efficiency or Insufficiency? the Privatization of the Chunghwa Telecom Company in Taiwan

Academic journal article Public Administration Quarterly

Efficiency or Insufficiency? the Privatization of the Chunghwa Telecom Company in Taiwan

Article excerpt


Since the late 1970s, New Public Management (NPM) has been advocated worldwide. It is now being practiced not only in Western Europe and the U.S., but also in Latin America, Eastern Europe, Asia, and Africa (Hodge, 2000; Banerjee and Munger, 2004). The well-known values of NPM are entrepreneurship and competition, but privatization has been a significant policy tool of NPM.

Privatization has been analyzed from several perspectives during the last three decades. Feigenbaum and Henig (1994) see privatization policy as a political phenomenon rather than as a simple technical adjustment to the outside environment. On the other hand, Stigler (1971) and Buchanan (1986) analyzed regulatory policies from an economic perspective and pointed out that state-owned enterprises would be comparatively inefficient. In short, the core concept of privatization is "to scale the activity of public services and the ownership of assets of government down, make the private sector play more in public services delivery, and make the role of government fundamentally change." (Buchanan, 1986; Feigenbaum and Henig, 1994; Stigler, 1971)

We have supplemented the usual arguments for privatization here. Efficiency, competitiveness, reduced corruption, and fidelity to the public interest have been evident in Korea when that country implemented privatization. We selected the Chunghwa Telecom (CHT) Company, the largest telecom company in Taiwan, for our case study. Using qualitative data from several important government figures and the staff of CHT, we argue that the experiences of CHT could be instructive for other state-owned enterprises.

Efficiency or Insufficiency? Some Controversies Surrounding Privatization

The literature on privatization has grown rapidly since the 1980s. For example, the British privatization program has been widely acclaimed as a major economic and political success (Marsh, 1991: 459). However, as we reviewed the experiences of privatization in this decade in other countries, we asked the following question: "Is privatization a panacea?" Overall, the core spirit of privatization is "steering rather than rowing" (Osborne and Gaebler, 1992). However, it is important to ask whether a government is indeed capable of steering. We discuss two major issues that usually surface when government assets or public services are privatized, corruption and the public interest.

Controversy 1: Privatization promotes efficiency. As Banerjee and Munger (2004: 214) observed, from the 1930s to the 1980s the trend was toward centralization, i.e. the nation had pervasive public ownership of assets. However, as a consequence of economic conditions, the activity of international agencies, and neo-conservative political ideology, the role of the state has been transformed. According to the Chicago School or the Public Choice School, liberalization and deregulation are the core values of privatization (Jackson and Price, 1994; Swann, 1993). Jackson and Price (1994: 25) caution, however, that it would be wrong to judge the success or performance of privatization purely in terms of its cost efficiency. Society has other goals and these are in large measure reflected in the objectives of public enterprises.

Controversy 2: Privatization facilitates organizational competitiveness.

Privatization in competitive industries is recognized as a key component of structural reform policies in both developed and developing countries. Experience and research have shown that privatizing state-owned firms in competitive sectors can be an effective way to correct economic inefficiencies, enhance competitiveness, and spur growth. For example, Nellis and Kikeri's (2002) survey of the empirical literature supports the widely accepted belief that privatization in competitive industries generally yields significant improvements in performance. It also shows that privatization does not necessarily lead to a decline in employment. …

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