Public ownership

Lane Kenworthy, The Good Society
February 2025

The modern company is one of our greatest inventions. Although firms have existed for thousands of years, in the 1800s new limited-liability joint-stock laws in countries such as the United States and Britain enhanced the incentives and capabilities of companies to generate economic advance. These laws allowed the owner of a firm to issue tradable stock shares to investors, and they ensured that if the company went bankrupt the investors would lose only the money they had paid for those shares. This expanded the sources and quantity of available financing, which made it easier for entrepreneurs to start up new companies and easier for existing firms to invest in research, expand operations, or shift into a new line of business. This in turn led to greater competition in many markets, and it improved management structures and decisions by encouraging input from a larger number of interested parties.1

Despite the successes of private companies, most capitalist economies are “mixed economies” in that some organizations providing goods or services are owned and operated by government. These include armies, police, elementary and secondary schools, universities, medical care providers, infrastructure construction and maintenance organizations, telecommunications providers, mail carriers, local providers of water and electricity, and occasionally manufacturing enterprises.

Figure 1 shows how the prominence of public ownership varies across the world’s rich longstanding-democratic nations. Public ownership is measured here using employment data: persons employed by a government organization as a share of all employed persons.2 This ranges from less than 10% in Japan, South Korea, Switzerland, and Germany to around 30% in Norway, Sweden, and Denmark.

While comparable data for most of these countries are available only since 2007, for Denmark and the United States they go back to the middle of the twentieth century. In both of these nations public employment increased from 1950 through the late 1970s. Since around 1980 public employment has held constant in Denmark and decreased a little in the US.

Figure 1. Public employment
Government employment as a share of total employment. Data source for 2007-19: OECD, Government at a Glance Database. Data source for Denmark pre-2007: Henrik Christoffersen et al, The Good Society: A Comparative Study of Denmark and Switzerland, Springer, 2014, p. 255, using data from Statistics Denmark. Data source for the US pre-2007: Federal Reserve Bank of St. Louis, FRED Database, series usgovt and payems.

Some believe we should have more public ownership. Jeremy Corbyn, the Labour Party candidate for prime minister in the United Kingdom in 2017 and 2019, proposed to nationalize rail, water, electricity distribution companies, and mail, as well as some steel firms.3 John Quiggin goes farther, recommending we replace large private companies with public ones not only in education, healthcare, and utilities but also in energy, manufacturing, information technology, and finance.4 In a country like the United States, Quiggin’s proposal would increase public employment from around 15% of total employment to perhaps 50%.

According to these and other proponents, public ownership is likely to yield an array of benefits, including faster economic growth, more jobs, less economic inequality, and more democracy.5 What does the available evidence tell us?

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POTENTIAL ADVANTAGES AND DISADVANTAGES OF PUBLIC OWNERSHIP

There are three circumstances in which public ownership is widely acknowledged to be helpful. One is where a valuable product or service can’t be restricted to paying customers, as is the case with national defense. A second is where there is little likelihood of competition (a “natural monopoly”), as with local provision of water and electricity. The third is where a service or good should be available to everyone but private providers are unlikely to offer it at a price affordable to all. Examples include policing, education, healthcare, local transportation, and mail.

Proponents suggest there are other potential benefits. For instance, because resource allocation will be more intentional and planned, it may be more likely to be directed toward activity that enhances societal wellbeing.

What are the drawbacks to public ownership? Government organizations may be buffered from competition and therefore lack incentives to be efficient, to innovate, and to expand. The fact that they answer more to policymakers than to consumers means they may be less attentive to customer satisfaction than we would like. Expecting them to pursue multiple and sometimes conflicting objectives — not just efficiency and product quality but also assistance with macroeconomic stabilization, support for noneconomic national objectives, redistribution, among others — may impede effective decision making. And in the absence of appropriate safeguards, state-owned enterprises are vulnerable to corruption.6

We’ve seen these advantages and disadvantages play out in the experiences of several affluent democratic countries over the past half century. Around 1980, the general trend toward increasing public ownership began to change, particularly in the United Kingdom, New Zealand, and Australia. Governments in these three nations aggressively sold public enterprises to the private sector in a search for laudable ends such as efficiency, innovation, customer choice, and government revenues but sometimes also less praiseworthy ones such as weakened labor unions.7

The results have been mixed. These enterprises did not, on average, improve in performance, and some of the major privatizations have been reversed. Here is one summary of the evidence8:

The privatization of railway systems has proved consistently problematic…. Privatization has been at best a mixed success in the telecommunications industry…. Consistently poor outcomes have been observed where privatization has been extended to the core areas of the welfare state such as education, health, retirement income, and criminal justice….

Not all privatizations have failed. For example, while infrastructure systems as a whole have strong natural monopoly characteristics, it is often possible to separate competitive or potentially competitive components of the system, in which case privatization may be feasible. In the case of electricity supply, for example, electricity generation is more competitive than transmission and distribution. The retail functions (billing, arranging connections, and so on) are even more competitive. Privatization is more likely to be beneficial where competition is sustainable.

The most successful privatizations have been those of firms that never really belonged in the public sector, and particularly firms that have been rescued from imminent death for social or political reasons. Rolls-Royce in Britain and General Motors in the United States are notable examples. Where a competitive market can be sustained, and there is no special requirement for close regulation, privatization has usually been successful.

PUBLIC OWNERSHIP AND ECONOMIC GROWTH

Does public ownership lead to faster economic growth? Figure 2 compares across the rich democratic nations. Public employment levels are on the horizontal axis, and the vertical axis has economic growth from 1979 to 2019. The pattern suggests no reason to believe that public ownership has had an impact one way or the other on economic growth.

Figure 2. Public employment and economic growth
Catchup-adjusted economic growth: residuals from a regression of 1979-2019 growth rates on 1979 level of GDP per capita. Data source: OECD. Public employment: government employment as a share of total employment, averaged over 2007-19. Data source: OECD, Government at a Glance Database. Public employment data are missing for Australia and New Zealand. “Aus” is Austria. “Aus” is Austria. The line is a linear regression line.

What about the over-time story? Economic growth was faster from 1946 to 1979 than it has been since 1980 in nearly all of the rich democratic nations.9 We have long-run public employment data for only the United States and Denmark. In the US, public employment was the same in both periods — it averaged 16% of total employment in each — so it’s very unlikely to have had any impact on differences in economic growth between the two periods. In Denmark, public employment was 14% of total employment, on average, from 1950 (the earliest year of data) to 1979, when economic growth was faster. It averaged 29% of total employment from 1980 to 2019, when economic growth was slower. That’s inconsistent with the hypothesis that more public employment is good for economic growth. However, the strong economic growth during the mid-twentieth-century “golden age” almost certainly was in part a catch-up process coming on the heels of the Great Depression and World War II. In most of these countries economic growth since 1980 has been roughly on track with the past century and a half’s average growth rate.10 So it isn’t clear what, if anything, we can discern from the difference in economic growth rates between these two periods.

PUBLIC OWNERSHIP AND EMPLOYMENT

Among the affluent democratic nations, the Nordics — Denmark, Norway, Sweden, and Finland — have the highest levels of public employment. Government jobs account for 25% to 30% of all jobs in the Nordic nations. These countries also have relatively high overall employment rates. Are government jobs the key to boosting employment?

The comparatively large number of government jobs in the Nordic countries can mislead us. They are to a significant degree a product of the fact that most medical personnel (doctors, nurses, administrative staff) and most early education providers (teachers, staff) are employed by the government. In other countries their counterparts are somewhat more likely or much more likely to be self-employed or in nonprofit or for-profit companies.

In any case, when we look across the full set of rich democratic nations, there is no noteworthy correlation between the public sector’s share of employment and the overall employment rate. This is shown in figure 3. A number of the nations with the highest overall employment rates — Switzerland, Japan, Germany, and the Netherlands — are light on public employment. And some of the countries with a comparatively large public sector, such as France and Belgium, have a relatively low overall employment rate. So while government jobs surely can contribute to high employment, they are neither necessary nor sufficient.

Figure 3. Public employment and the employment rate
Employment rate: employed persons age 25-64 as a share of all persons age 25-64. Average for the years 2015-19. Data source: OECD. Public employment: persons employed by government as a share of all employed persons. Data aren’t available for Australia and New Zealand. Data source: OECD, Government at a Glance Database. “Aus” is Austria. The line is a linear regression line.

PUBLIC OWNERSHIP AND ECONOMIC INEQUALITY

There are two main paths through which public enterprises might reduce economic inequality. First, government organizations are more likely to be unionized, and unions tend to favor pay compression. Second, public enterprises tend to be at least somewhat buffered from competition, which allows them to choose a more egalitarian pay structure even if market pressures push in the direction of greater pay disparities.

In most of the rich democratic nations, income inequality decreased in the three decades after World War II and then increased beginning around 1980. The causes of these over-time patterns, and of the differences across countries, have been studied fairly extensively. They include labor union strength, globalization, automation, corporate governance, financialization, and more.11 I’m not aware of analyses concluding that public ownership has been a key contributor to these patterns.

Figures 4 and 5 show the pattern across countries since the late 1970s. In figure 4 the vertical axis has a measure of income inequality, and in figure 5 it has a measure of wealth inequality. Neither chart offers any support for the hypothesis that public ownership reduces economic inequality.

Figure 4. Public employment and income inequality across countries
Average for the years 2007-19. Income inequality: top 1%’s share of income. Pretax income. Excludes capital gains. Data source: World Inequality Database. Public employment: government employment as a share of total employment. Data source: OECD, Government at a Glance Database. Public employment data are missing for Australia and New Zealand. “Aus” is Austria. The line is a linear regression line.

Figure 5. Public employment and wealth inequality across countries
Average for the years 2007-19. Wealth inequality: top 1%’s share of wealth. Data source: OECD, Wealth Distribution Database. Public employment: government employment as a share of total employment. Data source: OECD, Government at a Glance Database. Public employment data are missing for Australia and New Zealand. Wealth distribution data are missing for South Korea and Switzerland. “Aus” is Austria. The line is a linear regression line.

What about the long-run over-time story? In the United States, income inequality decreased quite significantly between the end of World War II and the late 1970s, and since then it has increased just as much.12 As noted earlier, public employment averaged 16% of total employment in each period, so there is no reason to think it had much of an impact, if any, on the distribution of income.

In Denmark, the story is a bit different. Figure 6 plots income inequality by public employment in Denmark, with years as the data points. From 1950 to 1979 public employment is rising and income inequality is falling. But the average level of public employment is fairly low, as noted earlier. Then, after 1980, public employment is at a higher level and yet income inequality rises back to its previous level, which is not what the public-ownership-is-better hypothesis would predict.

Figure 6. Public employment and income inequality in Denmark
The data points are years. Income inequality: top 1%’s share of income. Pretax income. Excludes capital gains. Data source: World Inequality Database. Public employment: government employment as a share of total employment. Data source: Henrik Christoffersen, Michelle Beyeler, Reiner Eichenberger, Peter Nannestad, and Martin Paldam, The Good Society: A Comparative Study of Denmark and Switzerland, Springer, 2014, p. 255, using data from Statistics Denmark. The lines are linear regression lines for 1946-79 and 1980-2012.

Overall, the data offer little or no support for the notion that public employment reduces economic inequality.

PUBLIC OWNERSHIP AND DEMOCRACY

An influential adage holds that the government in a capitalist society is structurally dependent on private firms (“capital”).13 Policymakers need the economy to perform well, in part because this is good for people and in part because it boosts politicians’ likelihood of getting reelected. This dependence enables businesses to exert significant influence on policy decisions by withholding investment or threatening to move to another country. “Look around the entire economy,” says Robert Kuttner, “and you find case after case where the sheer power of capital is precluding more social approaches that are not only more decent and fair, but far more efficient and streamlined, and less costly to citizens and the economy.”14

That there is some degree of structural dependence is not in dispute. We have plenty of examples, from France’s Mitterrand government feeling compelled to retreat from its nationalization and government spending plans in the early 1980s to pressure on the governments of all rich democracies to reduce tax rates to particular policies that have been blocked or abandoned due to worry about capital flight.15

However, actual capital flight in the rich democracies has been relatively minor. Many firms have the ability to decamp abroad, but most stay put. They do so because they can make money by utilizing the employee skills, network ties, and high-quality infrastructure in these countries. Torben Iversen and David Soskice put the point as follows: “Advanced capital is geographically embedded in the advanced nation-state rather than footloose…. The value added of advanced companies is geographically embedded in their skilled workforces, via skill clusters, social networks, the need for colocation of workforces, and skills cospecific across workers and the implicit nature of a large proportion of skills. The nature and pattern of industrial organization has changed substantially through the century but the insight of economic geographers that competences are geographically embedded has not. Thus, while advanced companies may be powerful in the marketplace, advanced capitalism has little structural power.”16

What can we glean from over-time and cross-country variation in public ownership about its impact on democratic politics? Consider first the United States. In the view of quite a few observers, companies and high-income Americans have become more politically influential since 1980. Jacob Hacker and Paul Pierson put it as follows: “Runaway inequality has remade American politics, reorienting power and policy toward corporations and the superrich…. The rise of plutocracy is the story of post-1980 American politics.”17 But if that is correct, it suggests public ownership probably has little if any impact on democratic politics, because public ownership has changed only minimally in the United States. Indeed, as we saw in figure 1 above, the average share of employees who work in government enterprises has been almost identical in the decades since 1980 to the share during the three decades following World War II.

What about comparing across nations? We don’t have comprehensive cross-country studies assessing the degree to which business has disproportionate influence on policy making. But studies that have examined this in countries such as the Nordics tend to conclude that there too companies have significant impact on policy choices. The main difference compared to, say, the United States isn’t that business has less influence; it’s that companies have different preferences, because of the broader policy and institutional context.18

Labor unions are an important countervailing force in politics, helping to offset the influence of business firms. One path through which public ownership might be expected to improve democracy is by strengthening or protecting unions. However, in a number of the affluent democracies for which data are available, unionization has decreased more rapidly in the public sector than in the private sector.19

Overall, there is little evidence to support the notion that more public ownership would improve democracy.

SUMMARY

Nothing in the experience of the world’s affluent democracies suggests that dropping from 30% public employment to 20% or 10% will yield significant benefits. There is no support in the aggregate data for large-scale privatization. Nor does there appear to be any reason to fear that increasing public employment to 30% or so would have harmful effects. Countries that want to, for example, add universal public early education or increase the public component of healthcare provision probably needn’t worry that in doing so they’ll end up on the wrong side of a tipping point beyond which public ownership has harmful effects.

At the same time, there is little if any support in the data for the view that increasing public employment from 10% to 20% or from 20% to 30% will bring faster economic growth, a higher employment rate, less economic inequality, or healthier democracy.

It’s conceivable that differences in public ownership at or below 30% of total employment don’t have much impact whereas moving to, say, 50% or 70% would. But it isn’t clear why that would be the case.

  1. Douglas North and R.P. Thomas, The Rise of the Western World, Cambridge University Press, 1973; Nathan Rosenberg and L.E. Birdzell, How the West Grew Rich: The Economic Transformation of the Industrial World, Basic Books, 1986; Alfred D. Chandler Jr., Scale and Scope: The Dynamics of Industrial Capitalism, Harvard University Press, 1990; John Micklethwait and Adrian Wooldridge, The Company: A Short History of a Revolutionary Idea, Random House, 2003; J. Bradford DeLong, Slouching Towards Utopia: An Economic History of the Twentieth Century, Basic Books, 2022. ↩︎
  2. See also Paul Krugman, “The Case for a Mixed Economy,” New York Times, 2018. Are there alternatives to employment in measuring the extent of public ownership? Przemyslaw Kowalski and colleagues examine the 2,000 largest companies around the world, and they provide data for two measures of public ownership. First, for each country they calculate the share of firms on the list that are state-owned enterprises (table A1.1, p. 49). For instance, Sweden has 27 of the 2,000 largest firms. Of those, one (4%) is a state-owned enterprise. Second, the authors calculate the sales of the state-owned enterprises that make this list as a percentage of their country’s gross national income (GNI) (table 3, p. 21). Przemyslaw Kowalski, Max Büge, Monika Sztajerowska, and Matias Egeland, “State-Owned Enterprises: Trade Effects and Policy Implications,” OECD Trade Policy Paper 147, 2013. ↩︎
  3. Michael Settle, “Corbyn: I’m a Socialist Not a Unionist,” The Herald, August 17, 2015; Jim Pickard and Robert Shrimsley, “Jeremy Corbyn’s Plan to Rewrite the Rules of the UK Economy,” Financial Times, August 31, 2019. ↩︎
  4. John Quiggin, “Would We Be Better Off Without Corporations?,” Crooked Timber, July 5, 2022. ↩︎
  5. Andrew Cumbers, Reclaiming Public Ownership, Zed Books, 2012; UK Labour Party, “Alternative Models of Ownership,” 2017; Satoko Kishimoto, Lavinia Steinfort, and Olivier Petitjean, eds. The Future Is Public: Towards Democratic Ownership of Public Services, Transnational Institute, 2020; Thomas Hanna and Michael Brennan, “Socialise Big Tech,” The Democracy Collaborative, 2021; Robert Kuttner, “Capitalism vs. Liberty,” The American Prospect, December 1, 2021; Quiggin, “Would We Be Better Off Without Corporations?” ↩︎
  6. James Buchanan and Gordon Tullock, The Calculus of Consent: Logical Foundations of Constitutional Democracy, University of Michigan Press; 1965; Milton Friedman and Rose Friedman, Free to Choose, Harcourt Brace Jovanovich, 1979; Dennis Mueller, Public Choice II, Cambridge University Press, 1989; Joseph E. Stiglitz et al, The Economic Role of the State, Blackwell, 1989; Joseph Heath and Wayne Norman, “Stakeholder Theory, Corporate Governance and Public Management,” Journal of Business Ethics, 2004; The Economist, “The Perils of Nationalisation,” June 17, 2017. ↩︎
  7. Paul Starr, “The Limits of Privatization,” Economic Policy Institute, 1987; John D. Donahue, The Privatization Decision, Basic Books, 1989; John Quiggin, Zombie Economics: How Dead Ideas Still Walk Among Us, updated edition, Princeton University Press, 2012, ch. 5. ↩︎
  8. Quiggin, Zombie Economics, pp. 190-91, 198, 200. ↩︎
  9. Lane Kenworthy, “Economic Growth,” The Good Society. ↩︎
  10. Kenworthy, “Economic Growth.” ↩︎
  11. Lane Kenworthy, “Income Distribution,” The Good Society. ↩︎
  12. Kenworthy, “Income Distribution.” ↩︎
  13. Fred Block, “The Ruling Class Does Not Rule: Notes on the Marxist Theory of the State,” Socialist Revolution, 1977; Charles E. Lindblom, “The Privileged Position of Business,” in Politics and Markets, Basic Books, 1977; Goran Therborn, What Does the Ruling Class Do When It Rules?, Verso, 1978; Adam Przeworski and Michael Wallerstein, “Structural Dependence of the State on Capital,” American Political Science Review, 1988; Leo Panitch, “Europe’s Left Has Seen How Capitalism Can Bite Back,” The Guardian, 2014; Leo Panitch, “The Long Shot of Democratic Socialism Is Our Only Shot,” Interview with Bhaskar Sunkara, Jacobin, 2020. ↩︎
  14. Kuttner, “Capitalism vs. Liberty.” ↩︎
  15. Peter A. Hall, Governing the Economy, Oxford University Press, 1986; Philipp Genschel, “Globalization, Tax Competition, and the Welfare State,” Politics and Society, 2002; Dani Rodrik, The Globalization Paradox, W.W. Norton, 2010; Kevin A. Young, Tarun Banerjee, and Michael Schwartz, “Capital Strikes as a Corporate Political Strategy: The Structural Power of Business in the Obama Era,” Politics and Society, 2018. ↩︎
  16. Torben Iversen and David Soskice, Democracy and Prosperity, Princeton University Press, 2019, Preface. See also Joel Rogers and Satya Rhodes-Conway, Cities at Work: Progressive Local Policies to Rebuild the Middle Class, Center for American Progress Action Fund, 2014; Torben M. Andersen et al, Nordic Economic Policy Review: Whither the Nordic Welfare Model?, Norden, 2015, ch. 5. ↩︎
  17. Jacob S. Hacker and Paul Pierson, Let Them Eat Tweets: How the Right Rules in an Age of Extreme Inequality, Liveright, 2020, p. 1. See also Benjamin Page and Martin Gilens, Democracy in America? What Has Gone Wrong and What We Can Do About It, University of Chicago Press, 2017; Robert B. Reich, The System: Who Rigged It, How We Fix It, Knopf, 2020; Kevin A. Young, Tarun Banerjee, and Michael Schwartz, Levers of Power: How the 1% Rules and What the 99% Can Do About It, Verso, 2020. ↩︎
  18. Peter J. Katzenstein, Small States in World Markets, Cornell University Press, 1985; Peter Swenson, “Bringing Capital Back in, or Social Democracy Reconsidered: Employer Power, Cross-Class Alliances, and Centralization of Industrial Relations in Denmark and Sweden,” World Politics, 1991; Wolfgang Streeck and Lane Kenworthy, “Theories and Practices of Neo-Corporatism,” in The Handbook of Political Sociology, edited by Thomas Janoski, Robert Alford, Alexander Hicks, and Mildred A. Schwartz, Cambridge University Press, 2005. ↩︎
  19. Lane Kenworthy, “Employee Voice: Additional Data,” The Good Society. ↩︎