By Jarvis Jerome Lagman, Esq.

ABRSTRACT

Pooled regression data of firms with mixed public-private ownership provides empirical support for the axiomatic propositions that: (1) partial government ownership has a positive impact on firm performance; (2) the relationship between government ownership and firm performance follows an inverted U-shape pattern; and (3) a certain level of government ownership is optimal.  The purpose of this paper is to introduce a new theoretical model that explains these results and which demonstrates that partial government ownership of business firms, in a proportion that is specifically calibrated to equal an optimal equilibrium between public and private ownership that balances political risk with the benefits of government ownership, is a necessary condition for the optimization of firm performance. Given that firms are collective resources owned jointly by their shareholders, collective action problems in firm governance are a systemic source of inefficiency. The implementation of a permanent institutional policy pursuant to which government conducts transactions in the equity securities of business firms through technical innovations in the conduct of fiscal policy and tax policy would expand the parameters of public policy formulation and create more dynamism in government’s capacity to influence economic behavior and facilitate optimization. On the basis of the unique rights and privileges appurtenant to the legal status of shareholders under existing law, government would be empowered to leverage the special economic rights, control rights, information rights and litigation rights conferred only to shareholders to resolve systemic inefficiencies in firm performance in a manner that is not otherwise possible without such partial government ownership. These results have implications that would: (1) improve upon hegemonic assumptions about the role of government in economic activity; and (2) give rise to technical innovations in the design of the public policies that determine the structure in which relationships between government, firms and investors are organized.

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