Ownership or Management Problems? A Case Study of Three Indonesian State Enterprises

Public enterprise managers will tend to behave as entrepreneurs, strive for efficiency and achieve profitability if they and the government ministry responsible for their supervision have compatible profit objectives. The adoption of such objectives by both parties will help to shift state enterprises away from political influence and towards a strictly market orientation. In contrast, managers will behave as government representatives and adopt a bureaucratic style of management if the government imposes sociopolitical goals on state enterprises. Agency costs (costs incurred in the relationship between principal and agent) increase as the parties become less cost conscious, and inefficiency tends to be the result. Too great an emphasis on socio-political rather than commercial goals may leave a country facing the problem of a ‘high-cost’ economy. These tendencies are indicated in this study of three Indonesian state enterprises.