Revitalise, then privatise: Fixing up public sector enterprises

Restructure and reorganise state owned units before putting them on sale.

Public ownership per se is not the only reason for lacklustre performance of the public sector organisations and privatisation may not turn out to be an effective cure for salvaging the public sector enterprises (PSE) if the government lacks adequate regulatory capabilities or it is perceived as a relatively corrupt government.

Alternatively, if the government has a strong political will to introduce organisational reforms in public sector enterprises, state of affairs can be improved without resorting to privatisation. Moreover, privatisation of loss-incurring enterprises is not a cakewalk. You cannot sell rotten eggs in the market. Introducing fundamental reforms for improving governance of the PSEs is a must to make them palatable. It implies that ‘third options’ should be explored that can either act as substitute for privatisation or pave way for their successful privatisation by making them saleable.

Introduction of fundamental organisational reforms is the first set of policy prescriptions that can be explored as one of the options. The goals and objectives of the PSEs need to be examined critically and should be reduced to the minimum possible number. Redundant or overlapping functions should be done away with.

Another important ingredient of organisational reforms is to ensure transparency in money matters. The PSEs should be required to maintain high standards of transparency and disclosure.

 

The appointment of CEOs and other top officials who are primarily responsible to set the direction of the organisations should be through an open, transparent and merit-based process. The aspirants may be asked to submit their strategy papers for making these enterprises profitable and efficient organisations. In order to reduce interference from the government, the CEOs of the PSEs should be accountable to a parliamentary committee composed of representatives of both the government and the opposition having good understanding of managerial and economic issues. Once a CEO is selected through a competitive and merit-based process, the government should support the actions he/she takes to improve the performance and efficient running of the organisation and should not interfere.

Linking the incentive system with performance, efficiency, productivity, and consumer satisfaction may be another important initiative in the domain of HR.

Another set of policy prescription to salvage public sector enterprises can be increasing competition. Agreed that in cases where PSEs enjoy natural monopoly, increasing competition is either impossible or socially unproductive. Also agreed that coordination costs of increasing competition can be sometimes high but it does not mean that we do not have room for improving the productivity of a PSE by stimulating competition. For example, a PSE can be divided into regional units. Reward/punishment of such regional units should be according to their relative performance. Such a strategy can pave way for privatisation of some of the regional units at some later stage as was experimented by the British Railway system.

But above all it is the political will of the government that matters. The administrative and structural reforms require a high level of commitment. The culture of political patronage that has permeated into the public sector organisations is the biggest stumbling block to restructuring and reforms. But the fact of the matter is that public sector enterprises are here to stay. There are limits to the down-sizing and right-sizing of the public sector. So the need of the hour is that these organisations and enterprises are subjected to wide-ranging reforms of fundamental nature. A few lines from the Economist’s Special report on the future of the state (March 19, 2011) are worth quoting:

“The disruptive reforms that have so changed the private sector should now be let loose on the public sector---the Leviathan can be made far more efficient. The state has woefully lagged behind the private sector — catching up is not just a case of nuts-and-bolts productivity improvements — nobody should expect that to be easy.”

The writer is a graduate from Columbia University, USA, in Economic Policy Management and studied economic governance in the UK

Published in The Express Tribune, June 13^th, 2011.