| This study compares the relative performance of public and private enterprises in the Indian cement industry. It is an ideal industry for exploring this issue because the homogeniety of output and uniformity of production process across firms, make it easier to focus on the differences related to ownership. Further, large sample size enables us to use statistical methods to arrive at generalizable conclusions.; The sample includes eight private and six public enterprises from 76/77 to 81/82. It has two analytical blocks. The first, comparative performance evaluation, finds the popular perception--that the public enterprises in this industry are inefficient--to be inaccurate. In terms of the level of public profitability (or quasi-rents per unit of fixed operating assets), calculated from detailed plant level data, we find no significant difference between the two sectors. In fact, in terms of the trend, the public sector out-performs the private sector. However, analysis of the two constituents of the public sector--state and central enterprises--reveals significant differences. State enterprises show a lower level but a higher trend in public profitability.; The second, comparative performance explanation, decomposes performance into its subcomponents and finds that, in general, the efficiency of a particular input in public sector is inversely related to the degree the discretion available in its use. For instance, it finds no significant inter-sectoral difference in the efficiency of intermediate inputs, whose use is technologically constrained. On the other hand, the public sector has a disadvantage in labor and working capital expenses, where managerial discretion is greater. Also, we attempt to explain observed differences in terms of quantifiable factors, such as economies of scale and rate of power-trippings, and unquantifiable factors, such as the market structure and the role of performance monitoring.; It is usually presumed that public enterprises are inefficient because they lack flexibility and initiative and are difficult to monitor. However, this study concludes that they may have done well in this industry because the fixed coefficent technology and supply constrained markets do not require much flexibility and initiative. Also, relatively simple technology and homogeneous output have made it easier to monitor performance in this industry. In short, the alleged organizational costs associated with public enterprises is a function of the nature of the industry and other policies. This study attempts to uncover some of these functional relationships. |
