Can Public Organizations Perform Like Private Firms? The Role of Heterogeneous Resources and Practices

Abstract

Despite the well-known governance problems in public (state-owned) organizations, such as process rigidity, limited autonomy, and weak incentives, public organizations exhibit substantial performance heterogeneity, with some performing similarly to their private counterparts. In this paper, we scrutinize those sources of heterogeneous performance based on the interplay of management practices and resources. We argue that the governance constraints in public organizations inhibit the adoption of performance-enhancing practices. However, this negative effect is attenuated by the presence of distinct resources, such as human capital. We examine these effects in the context of over 9,000 public and private schools in Brazil. We find that private schools are more likely to use internal operational practices, such as planning and human resource management, as well as practices of engaging with external stakeholders. Differential adoption of these practices partially explains why private schools outperform their public counterparts in terms of student learning. Yet, access to highly educated teachers in public schools attenuates the negative association between public governance and the adoption of superior practices. In other words, schools with skilled teachers are more likely to adopt superior practices, thus reducing their performance gap compared with private schools. This result suggests that heterogeneous resource endowments—in our context, human capital—can soften governance constraints that inhibit performance-enhancing practices in public organizations. We thus show that heterogeneous practices and resources jointly explain not only performance differences across public and private organizations but also variations in the performance of organizations with the same governance form.