Political control of government enterprises: Who controls whom?

Government enterprises are vulnerable to political intervention and influence of various interest groups. The theoretical literature emphasizes the role multiple and conflicting goals that distorts incentives and accountability. We offer empirical evidence of the importance of the political ownership with respect to internal and external interests in the enterprise. Our theoretical starting point is a veto player model of the relationship between two political parties and an interest group. The interest groups can exploit conflict between two political parties regarding the goals of the enterprise, and they can hold back the capacity to reform and restructure the enterprise. The empirical analyses are based on a survey questionnaire to board members and CEOs of the major government enterprises in Norway. The survey offers enterprise-specific measures of party agreement/conflict and interest group influence. The estimates suggest that political conflict increases interest group influence, both internal and external, and thereby holds back restructuring of the enterprise. Furthermore, when current revenues come from government grants, interest group influence tends to be extensive. In an extension of the analysis we show that media attention implies that board members are held more accountable.