Public enterprise is one of several possible institutional responses to the problem of producing marketed output in conditions where unregulated markets are presumed to result in social inefficiency. In this module we have looked at the difficult problems of control which arise when there are no tradeable claims to the profit of an enterprise, when social objectives are complex and difficult to summarise in a simple measure, and when monitoring costs are substantial. There is evidence that recent reforms in the UK such as the introduction of financial and performance targets, the liberalisation of entry into several industries, the implementation of efficiency audits, and the trend towards privatisation, have been accompanied by a considerable increase in productive efficiency compared with the 1970s. In the natural monopoly industries, however, there have been criticisms that this productive efficiency has been purchased at the expense of considerable allocative inefficiency as prices have been set only with financial targets in view. It seems that operational incentive schemes have yet to be devised and implemented which are capable of maintaining technical and productive efficiency while simultaneously rewarding allocative efficiency. You should always bear in mind, however, that institutions can only be assessed against other available (and imperfect) possibilities for solving the same problems. It is therefore important to read this module in conjunction with the problems of regulation which were encountered in Module 3.
