Public ownership

Lane Kenworthy, The Good Society
August 2022

The company is one of our greatest inventions. Although firms have existed for thousands of years, new limited-liability joint-stock laws in the 1800s 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 committed by their purchase of shares. This expanded the options for financing a new venture, which made it easier for an entrepreneur to start up a new company. And it vastly increased the pool of capital firms could tap in order to invest in research, expand operations, or shift into a new line of business. By facilitating startups and an increase in the scale and scope of firms, it increased 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 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 forces, K-12 schools, universities, medical care providers, telecommunications, mail carriers, local providers of water and electricity, and occasionally manufacturing enterprises.

Figure 1 shows how this varies across the world’s rich democratic nations. It uses persons employed by a government organization as a share of all employed persons to measure the prominence of public ownership.2 This differs significantly across the countries, from less than 10% in Japan, South Korea, Switzerland, and Germany to around 30% in Norway, Sweden, and Denmark.

For most of these countries, comparable data are available only since 2007. But we have longer data series for Denmark and the United States. In both of these nations public employment increased from the 1940s through the 1970s. Since around 1980 public employment has held constant in Denmark and declined 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.

There are three circumstances in which public ownership is likely to be preferable to private. 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 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. The third is where there is little likelihood of competition — where there is, in other words, a “natural” monopoly. Local public utilities are the classic instance here.

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 in utilities, finance, education, healthcare, energy, manufacturing, and information technology.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 yields an array of benefits, including better allocation of resources toward beneficial activities, more jobs, less economic inequality, and more democracy.5

Yet there are reasons to be skeptical that extensive public ownership will tend to produce better outcomes. 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

So theory on this question is indeterminate. We can’t deduce whether more public ownership would be better. What does the available evidence tell us?

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THE PRIVATIZATION EXPERIENCE

As we saw above for the United States and Denmark, the trend in the affluent democratic countries in the middle of the twentieth century was a slow but steady rise in the size and scope of public ownership. Around 1980 that 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 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 John Quiggin’s 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

Economic growth was faster from 1946 to 1979 than it has been since 1980 in nearly all of the rich democratic nations.9 But it isn’t clear what we should infer from this about the merits of public ownership. On the one hand, public ownership tended to rise during the period of stronger growth and, at least in some countries, decline during the period of slower growth. That suggests public ownership might be good for growth. On the other hand, in most of these countries the level of public ownership has tended to be higher during the period of slower growth, as we see for example with Denmark in figure 1 above. Given that it is the level of public ownership, rather than the trend, that ought to have an impact, this suggests perhaps public ownership has hindered growth rather than helped.

The key point here, however, is that the strong economic growth during that 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 historical average for the past century and a half.10

What if we compare across nations? Figure 2 suggests no reason to conclude 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 1979-2016 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. Ireland, South Korea, and Norway are economic growth outliers and so are omitted. “Aus” is Austria. “Aus” is Austria. The line is a linear regression line.

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 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. Government organizations are more likely to be unionized, and unions tend to favor pay compression. And 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.

The several decades following World War II are commonly viewed as the period in which public ownership reached its height, before declining during the neoliberal era that began around 1980. This seems to fit with the shifts in income inequality and wealth inequality. Both were lower in the first of these two periods and higher in the second. However, as noted earlier, for most of these countries we don’t have good data on public employment or output that go very far back in time.

What about comparing across countries? We would expect nations with more public ownership to have less inequality of income and wealth. The OECD has public employment data beginning in 2007. The horizontal axis in figures 4 and 5 shows the public employment average for each country in the years 2007-2019. There’s a good bit of variation. Japan, South Korea, Switzerland, and Germany are at the low end with public employment at around 10% or less, and Norway, Denmark, and Sweden are at the high end with 30%. 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.

Let’s return to the over-time story, because some countries do have a lengthy data series for public employment. One is the United States. Figure 6 again shows public employment on the horizontal axis and income inequality on the vertical. This time the data points are years. I’ve drawn two lines through the data points: one for 1946-1979 and the other for 1980-2018. In the first period, we see the expected downward slope — public employment is increasing and income inequality is decreasing. However, there were a number of other causes of the decline in top-end income inequality during those years, including union strength, a stakeholder-oriented corporate governance orientation, and high income tax rates.11

In the second period we again see the predicted downward slope. Here public employment is falling and income inequality is rising. However, the magnitude of the implied causal effect is implausible. Public employment decreases by just a few percentage points while the share of income going to the top 1% jumps from 11% to 21%. Here too social scientists tend to agree that other developments — globalization, technological change, a shift to “shareholder value” corporate governance, financialization, and union decline — were the key contributors to the rise in inequality.12

Figure 6. Public employment and income inequality in the United States
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: FRED database, series usgovt and payems. The lines are linear regression lines for 1946-79 and 1980-2018.

Figure 7 is a similar plot with data for Denmark. As in the United States, we see a downward slope for the post-WW2 era. But once again we know there were other contributing factors that likely played a more prominent causal role. After 1980 the pattern runs in the wrong direction; public employment has continued to rise, yet income inequality has increased.

Figure 7. 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.

This simple data check suggests there might be something to the notion that public employment matters for income inequality. But it also offers substantial grounds for skepticism.

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

PUBLIC OWNERSHIP AND DEMOCRACY

An influential adage, often attributed to Karl Marx, holds that the government in a capitalist society is structurally dependent on capital.13 Policy makers 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 choices 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, some thoughtful analysts conclude that the threat of capital flight in the affluent democracies is much smaller than the conventional image holds. 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. According to 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 years since 1980 as it was in 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 policymaking. 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

One particular path through which public ownership might be expected to improve democracy is by helping labor unions. Unions are an important countervailing force, helping to offset the influence of business firms. What we might predict is that public enterprises will be less hostile toward unions than privately-owned ones, and so even if private-sector unionization is declining, as has been common since the late 1970s, the impact will be dampened by a steady or rising unionization rate in the public sector.

However, it turns out that this isn’t how things have played out. Instead, 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

It is perhaps worth mentioning here a recent comparative analysis by Larry Bartels, which looks at the degree to which policy changes tend to correspond to the expressed preferences of people at different income levels in an array of affluent democratic nations. Bartels focuses on just one type of government policy: social programs. Interestingly, he finds no difference in the magnitude of the rich-poor disparity in policy responsiveness across countries that have very different levels of income inequality. Instead, it turns out that inequality in policy responsiveness is “rampant in contemporary affluent democracies, not limited to the United States.” Bartels didn’t test the impact of business in politics, which is our concern here. But the fact that the political systems in other rich democracies appear to be just as vulnerable as the United States to inequality of influence based on income differences suggests that public employment differences — which, recall from figure 1, vary quite a lot across these nations — may not matter very much.20

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.

By the same token, there doesn’t appear to be any reason to fear an increase in public ownership up to at least 30% or so of employment. 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. But they also probably shouldn’t expect that greater public ownership will bring faster economic growth, a higher employment rate, less economic inequality, or healthier democracy.


  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, 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. 
  20. Larry M. Bartels, “Political Inequality in Affluent Democracies: The Social Welfare Deficit,” Working Paper 5-2017, Center for the Study of Democratic Institutions, Vanderbilt University, 2017.