Debate: Shadow government—A note for European corporatization research

Introduction

Some years ago, in Public Money & Management, Ferry et al. (2018) persuasively argued that municipal corporatization—the use of ‘arm’s length bodies’ (Van Genugten et al., 2020) for local public service delivery—has brought a recent ‘field-level change’ in European public administration. In a series of responses, Harrison (2019), Torsteinsen (2019), and Voorn et al. (2018) all agreed and argued for more research into municipal corporatization in Europe. Now, some years later, the topic of European municipal corporatization has received increasing traction, and is discussed in special issues and soon a book (Andrews et al., forthcoming). However, a substantial body of research into local government corporatization in the USA has slipped under the radar of European research—and it poses relevant questions for European public administration.

Evidence from the USA

Indeed, while Ferry et al. (2018) (correctly) identified a trend in local government corporatization in Europe this century, there is evidence that a similar trend had occurred already a few decades prior in the USA. Two forms of corporatization exist in the USA: corporatization through ‘public authorities’ (for example Bourdeaux, 2007) and corporatization through ‘enterprise funds’ (Molinari & Tyer, 2003). Both allow US local governments to run services as businesses—to replace taxes with user fees—and both were popular in the 20th century, when corporatization in Europe was still in its infancy. For instance, Axelrod (1992) pointed out that corporatized ‘public authorities’ in the hands of local governments controlled over a trillion USD in public money in the USA, and Bunch (2000) demonstrated a large growth in enterprise fund use by US local governments between the 1980s and 1990s. In contrast, local corporatization in Europe did not really get going until the start of the present century (Aars & Ringkjøb, 2011; Ferry et al., 2018; Gradus & Budding, 2020).

US–Europe differences

In this sense, it is fascinating to see the difference between European scholarly debates about corporatization, which began last decade after seminal papers by Tavares and Camões (2007) and Grossi and Reichard (2008), and US scholarly debates, which had their peak in the 1980s (see Voorn, 2021). Current debates in the European literature are empirical and pragmatic, primarily focusing on questions like ‘do municipally-owned corporations deliver greater efficiency?’; ‘are they forms of hybrid governance?’; or ‘how diverse are their boards?’ The US literature, in contrast, engaged in a different, more principled debate, focusing on questions such as ‘is corporatization constitutional?’; ‘does corporatization increase government spending?’; and ‘what are the implications of ‘shadow’ government?’

Lessons for European research

The US literature on municipal corporatization has lessons for European local corporatization research. First, it challenges some findings in the European literature: for instance, corporatization is/was mostly seen as a left-wing policy in the USA, to allow ‘hidden’ expansion of government (DiLorenzo, 1982), while in Europe, corporatization is more associated with the political right (Gradus & Budding, 2020; Tavares & Camões, 2007). Second, the extensive US literature reminds us of the fact that local government corporatization may be a new field-level change in Europe, as Ferry et al. (2018) outline, but that it may not be new internationally.

Conclusion

Summarizing, the European literature about municipal corporatization asks many important, pragmatic, questions—does corporatization work, and what causes it? In many ways, we do not yet have the answer. However, we should not ignore a long-standing US literature on municipal corporatization, which predates the European experience. The US literature challenges some European findings, and we should investigate why the US trend towards corporatization seems to be differently politically motivated; why it predates the European experience by several decades; and where local corporatization currently stands in the US. If nothing else, the US literature challenges us to think about the more principled questions that so far have remained under-addressed in the European literature on municipal corporatization—what are the consequences of moving spending off the books of municipalities, how does this transform government, and how happy are we to move government activities increasingly into the shadows?

Disclosure statement

No potential conflict of interest was reported by the author(s).