Parag Khanna on the Rise of Parastatals

The many variations that occur when public not only meets private but blends with it are what we can call “hybrid governance”; government-sponsored entities with multistakeholder management, publicly financed corporations that compete in the international marketplace, federally chartered bodies with substantial private investment, and other combinations… Today we are witnessing a massive proliferation in the number of new parastatal entities around the world.  Parastatals are wholly or partially publicly owned but often privately managed…

Parastatals have…been crucial for quickly achieving the level of international regulatory harmonization that international investors demand. This is the niche filled by SEZs, special administrative zones, and free zones. In 1980, Shenzhen became China’s first SEZ, quickly leveraging foreign investment to rise up the value chain in manufacturing and now in services and technology. Perhaps the world’s most ambitious infrastructure project at the moment is the Delhi Mumbai Industrial Corridor (DMIC), which aims to build an entire new artery of cities, railways, airports, expressways, power projects, and innovation clusters on a 1,400 kilometer stretch across seven states… Given low investor interest in India today, creating an autonomous parastatal unit such as DMIC…was an essential prerequisite to bring the largest investors, such as the government of Japan and India’s major conglomerates, on board.

…the question thus becomes what impact will they have on accountability. Indeed, to a large extent each parastatal has a unique bureaucratic structure and legal mandate that makes its authority specific yet opaque and its management structure clear but detached from democratic oversight… [At] their best they can be stewards of Rousseau’s “general will,” improving hard and soft infrastructure and building companies that mobilize and empower struggling societies. On the other hand, at times they can also crowd out a genuinely inclusive private sector in favor of corporate monuments manipulated by “bureau-garchs” for personal gain.

Despite the lack of public scrutiny, they have proven to be effective vehicles for harnessing scarce financial and managerial resources. Furthermore, as international competition for investment intensifies, increasing numbers of states are likely to take the path of parastatals to promote their attractiveness to the outside world. Governance has never ceased to be a competitive arena. Exporting parastatal models—whether Singapore’s land-management authority, Rotterdam’s port, or Songdo’s smart city—is a new economic and commercial field.