The state interest in SOEs should be in policy and regulation
20 Oct 2015 - {{hitsCtrl.values.hits}}
Enterprise Development Deputy Minister Eran Wickramaratne recently in an interview observed that the government’s interest in state enterprise should be in policy and regulation. The general thinking worldwide nowadays, especially after the financial crisis, is in line with Eran’s thinking that governments should not run commercial enterprises, no matter whether they are profit-making or not, and the government should only limit its involvement to simply running essential public utilities. We all know it’s not the government’s job to run businesses. It should act as a regulator and facilitator.
Over the years successive governments have dumped hundreds of millions of rupees just to prop up loss-making state-run corporations and as a result, increased our public debt many times over. The new ministry of enterprise development has been given almost 75 percent of the state-owned enterprises (SOEs) in this country. The mandate according to Eran is to get the SOEs allocated to the ministry restructured, bring into management more efficiency and reduce the dependence on the taxpayers. Currently the institutions that are under the purview of the Parliamentary Committee of Public Enterprises (COPE) are:
Banking and finance
Bank of Ceylon
People’s Bank
National Savings Bank
State Mortgage and Investment Bank
Housing Development Finance Corporation (HDFC)
Lankaputhra Development bank
Pradeshiya Sanwardena Bank
Sri Lanka Savings Bank
Employees’ Trust Fund Board
Insurance
Sri Lanka Insurance Corporation
National Insurance Trust Fund
Sri Lanka Export Credit Insurance Corporation
Agriculture and Agrarian Insurance Board
Energy
Ceylon Electricity Board
Ceylon Petroleum Corporation
Ports
Sri Lanka Ports Authority
Water
National Water Supply and Drainage Board
Aviation
Airport and Aviation Services (SL) Ltd
SriLankan Airlines
Mihin Lanka
Commuter transport
Sri Lanka Transport Board
Construction
State Engineering Corporation of Sri Lanka
Central Engineering Consultancy Bureau
State Development and Construction Corporation
Livestock
Milco Ltd
National Livestock Development Board
Plantation
Sri Lanka State Plantations Corporation
Janatha Estates Development Board
Kurunegala Plantations Ltd
Elkaduwa Plantations Ltd
Chilaw Plantations Ltd
Kalubovitiyana Tea Factory Ltd
Sri Lanka Cashew Corporation
Nonrenewable resources
Lanka Mineral Sands Ltd
Lanka Phosphate Ltd
Kahatagaha Graphite Lanka Ltd
Lotteries
Development Lottery Board
National Lottery Board
Health
State Pharmaceuticals and Manufacturing Corporation of Sri Lanka
Sri Lanka Ayurvedic Drugs Corporation
State Pharmaceuticals Corporation
Sri Jayewardenepura General Hospital
Media
Independent Television Network Ltd
Sri Lanka Rupavahini Corp
Sri Lanka Broadcasting Corporation
Marketing and distribution
Sri Lanka Handicraft Board
State Timber Corporation
STC General Trading Company
Lanka Sathosa Ltd
State Printing Corporation
Ceylon Fisheries Corporation
Ceylon Fishery Harbour Corporation
Ceylon Fertilizer Company Ltd
Colombo Commercial Fertilizer Company Ltd
Hotel Developers Ltd
Strategic direction
Many of the institutions that have been vested with the new ministry have been moved out from other ministries; it may have been prudent however to have allocated them on the basis of similarity of subjects. For example, the Central Bank of Sri Lanka, which regulates all banks and financial institutions, is under the Economic Affairs and Policy Planning Ministry. Thus, the monetary and financial policy of the government has to be implemented by two totally different ministries. This may result in conflicts. It would have been prudent to have one cluster for all the state banks and the Central Bank.
Similarly, other SOEs would have been better managed if they were allocated to ministries with related functions. This clustering of institutions with similar functions in one ministry will automatically ensure the concentration of experts in that field in that ministry. Management scholars such as Henri Fayol argued principles such as specialization of labour and the right span of control result in optimal organisational performance. The right mix would also enable the minister in charge to take a long-term view and optimize the income generation potential of the institutions under his purview.
Making SOEs profitable
Governments usually fail in business because politicians, not business executives, run governments. Politicians generally make political decisions, not economic ones. Generally, cost management does not work well with bureaucracies. Indeed, when cost efficiencies are inescapable, bureaucracies often make cuts that inconvenience the public, generating political pressure thereafter to reverse the cuts.
Usually, the CEO of a private sector company has the power to manage independently. He decides the company policy, recruits the right people, and allocates resources very much as he thinks best to achieve the set objectives for the year. The board of directors, generally does nothing more than reviewing the strategy, the risks, challenge some of the initiatives of the CEO and then ratify his moves, and will certainly fire him, if he fails to deliver the promised results. This allows a company to act quickly when needed.
The next issue is the government is regulated by the government. It is the government’s job to make and enforce the rules that allow a society to function effectively. But it has a dismal record of regulating itself. Therefore, while we all know capitalism isn’t perfect. Indeed, to paraphrase Winston Churchill’s famous description of democracy, it’s the worst economic system except for all the others.
But the inescapable fact is that often it is the profit motive and competition that help to keep enterprises lean, efficient, innovative, encourage meritocracies and stay customer-oriented and this is often not the case with SOEs. Therefore, Eran certainly has a big challenge on his hands firstly, to ensure he finds the right talent to run the SOEs, secondly to ensure the SOEs gradually become less of a burden on the taxpayers and eventually all SOEs pay for their upkeep.
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