Municipally owned enterprises and heightened corruption risks

Abstract

Some scholars argue that there areunattractive, unintended side-effects of the ‘quasi-privatizations’ that have been associated with New Public Management(NPM).One aspect of this question is the international trend towards an increased use of municipally owned enterprises (MOEs) in the deliv-erance of public services.Since it has been hypothesized that NPM may, for instance,deteriorate integrity systems of public organizations,we analyse if the increased use of MOEs isassociated with heightenedcorruptions risks. To test this proposition, we focus on a setting that has witnesseda burgeoning growth of MOEs the past two decades: Sweden. A local government corruption index is employed, developed for each Swedish municipality, and weask ifthe drive towards creating, owning and operating MOEs correlates withperceived presence of corruption. Our findings indicate thatsuchan association is present and that the impact of MOEs indeed is more significant than ‘usual suspect’-variables highlighted as important in the corruption literature. Our findings confirm theories on the hazardsand unintended consequencesof ‘quasi-privatization’ and corroborate widespread political worries expressed by, for instance,the World Bank, OECD and UNDP on the risks of not keeping politicians at arm’s length from the operations of publicly owned enterprises.