State ownership in terms of transition: Curse or blessing

Abstract

This Article argues that the institutional framework within transition economies, including the lack of a liquid capital market and a competitive product market, in addition to the focus on public benefits and socioeconomic development, favors state-owned companies in terms of a nonmarket-based system notwithstanding the popular concept of transaction costs and corporate efficiency. Despite the apparent costs of state ownership, including political considerations, soft budget constraints, and weak profit motivations, there is a rational choice for state ownership in cases when private firms are not able to deliver the same quality of goods at a lower cost. Therefore, this Article offers another insight into questions of corporate efficiency and alternative governance models of state ownership in transitional economies based on the example of Kazakhstan. It attempts to determine whether the models of state ownership existing in transition economies diminish institutional shortcomings and have important implications for capital costs.