Norwegian municipal enterprises financed by Ministry of Local Government and Regional Development

A new report for a project focusing on the balance between political control and enterprise autonomy by examining the municipal enterprise model

This report presents results gained from the project “A description and analysis of Norwegian municipal enterprises” financed by Ministry of Local Government and Regional Development. The report focuses on the balance between political control and enterprise autonomy by examining the municipal enterprise model (kommunal foretaksmodell). These enterprises are 100 percent owned by the municipalities and are legally an integrated part of the municipality. They are legally regulated by the Local Government Act (kommuneloven).
The municipal enterprise model is inspired by the ideas of enterprise autonomy and management by objectives (MBO). This in turn has consequences for how the enterprises are governed and managed by the local politicians. The municipal enterprise model leaves rather much responsibility and tasks to the board and the enterprise management. The overall governing of the enterprises are supposed to be in accordance with the goals and performance requirements decided by the politicians. An overarching question in this project has been to examine the political and democratic consequences of the municipal enterprise model.

In the report we describe how many municipal enterprises there are in Norway, what tasks they perform and how their economic conditions are. The report also gives a description of what policy tools local politicians apply to exercise power and control vis-à-vis the board and the enterprise management. How the trade-off between political control and enterprise autonomy is experienced and practiced is analyzed by use of survey data collected among all enterprise managers and interviews in six selected municipalities including local politicians, civil servants and chairmen of the enterprise boards.

Altogether 139 municipalities have established one or more enterprises summing up to 224 municipal enterprises. A majority of the enterprises is run in accordance with the municipal` budgetary policy. The analyzes show that the enterprises are important to politicians and that the municipalities in most cases have achieved a balance between the interests of political control and freedom to the enterprise`s board and management. However, where the point of balance between political control and enterprise autonomy lies varies. Some municipalities apply a governance strategy based on direct and hierarchical means (for instance instructions and ad hoc interventions) while a majority apply a strategy based on management by objectives, municipal by-laws and appointment of board members. This finding suggests that local authorities believe an indirect form of political control is best suited to the legal requirements that regulate the municipal enterprise model. This indirect governance strategy makes it possible to achieve a plus-sum game between political control and autonomy.

That there is room for local adaptation within the legal requirements of the enterprise model, seems to be important for the relatively widespread satisfaction there is with this model in the municipalities. There is a widespread consensus among different actors in the municipalities that the enterprise model helps to increase efficiency and distribute responsibility between the actors in a distinct way. A crucial factor is the role of the board. The board is a connecting link between the politicians and the enterprises` management. The study shows that the enterprise boards combine the role of being a supervisory body representing the will of the local politicians and the role of being a spokesman for the interests of the enterprise. This combination seems to ensure a satisfying balance between political control and enterprise autonomy.

Download the report  ”Kommunale foretak – konsekvenser for folkevalgt styring og lokaldemokrati”.
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