AbstractThe Egyptian public sector is labouring under a mass of legal controls which are proving an obstacle to its efficient running. A variety of government agencies, as well as the Board of Directors and the General Assembly, are burdening each company with regulations and demands for information. The little latitude thus allowed company managers in deciding upon such essential problems as finance, the size of the labour force and the price of output has had severe effects in decreasing the efficiency of each company and of the sector as a whole. Some dynamic company managers are trying to find a way around the system, but this is having negative efficiency and welfare effects. Examples of the negative effects of the mass of controls on problems such as finance and pricing are given in the article. Attempts at forming joint ventures, in order to escape the oppression of belonging to the state, have been made by some companies, but these have met with union opposition in some cases although the state seems to encourage the reduction in investment outlay which this policy might have. The article develops the analysis of the politico administrative framework of economic activity presented by Ayubi (1982).