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SOEs the bane of our economy: The darlings of politicos
It is pointless our groaning and moaning about the increases in the electricity tariff that have already taken place, and will continue to do so. We ourselves are indirectly responsible for the present state of affairs.
On 4th May, 2013 the Financial Review of the Island newspaper carried an article under the headline “Sri Lanka SOE losses hurt investment and jobs”. The IMF representative Dr Koshi Mathai said that last year the two State Owned Enterprises (SOEs) the CEB and the CPC had lost Rs 150 billion. This is an incredible sum that most of us would find it difficult to visualize. These losses were according to Dr Mathai hidden in the balance sheets of the two state banks. If full provision is made for loans by these two banks (Bank of Ceylon and Peoples Bank) to all SOEs they may be close to insolvency if they have not already achieved it.
What the general populace does not realize is that these losses will not disappear. If at all they will increase. This is as inevitable as Death and Taxes. The reason why they will increase is that SOEs are so structured, their very nature is such, that they are doomed to inefficiency when they engage in commercial activities. This is so the world over; and only purblind Leftists would believe otherwise. The only exception I can think of is Singapore Airlines (SIA) that is unique because it is run by a government that does not tolerate corruption and rewards the employees of SIA (an SOE) with salaries and perquisites that excel those in the private sector. Singapore is unique and we have no hope whatsoever of emulating it. So we had better accept that government in this country should stay out of business.
Although I have written on the subject of Privatisation many times before I will briefly reiterate why SOEs in Lanka are doomed to failure unless they Privatise. The first major misunderstanding in the public mind that has to be corrected is that Privatisation necessarily means the sale of the assets of the SOE to the private sector – anathema to Marxists. That is not so at all. There are many different ways to privatise an SOE. The essential ingredient of Privatisation is that the management of the SOE is transferred from politicians and public servants in thrall to them, to professionals in the private sector. This can be done by de-regulation (as in the case of Telecom) and what is called ‘un-bundling’ that was recommended for the CEB and was well on its way to implementation in the last days of the previous government. This process was stopped at the demand of Leftists when the new government took over. We (the public) are paying for it now.
The present structure of the CEB (and CPC) is such that both SOEs are handicapped at every turn. Because of their structure (the role that politicians play in management) the following are some of the consequences:
1. They are overstaffed.
The SOE is looked upon (understandably) by every influential politician or manager as a freely available source of employment for friends and relations. This adds enormously to the cost of running SOEs.
2. These superfluous employees are usually unqualified or in other ways unsuitable for their jobs as they are not recruited on merit through a competitive process. The performance of the SOE therefore suffers.
3. The employees are less motivated to hard work than private sector employees.
This is because the public sector does not have the carrots and sticks that drive performance in the private sector. An employee in an SOE gains neither additional bonuses, increments nor promotions for above average performance, unlike workers and executives in the private sector. They therefore do the minimum necessary to avoid reprimand.
4. Discipline is at a low ebb in an SOE. Managers soon learn the futility of attempting to discipline errant staff. As the SOE is highly politicized a disciplinarian would soon find himself in trouble with the politically influential in the enterprise to whom the errant employee would immediately run for succour.
5. Losses in an SOE do not adversely affect the employees. SOEs lead a charmed life where closure due to insolvency is concerned. Employees’ jobs are not at risk. This is at stark variance with private sector employees whose jobs are at stake every day. Failure in the private sector means disaster. (Success, as a result of hard work, can on the other hand be commensurately very rewarding).
Unemployed graduates prefer safe jobs in the public sector to risky, though rewarding jobs in the private sector. They can look forward to security of tenure, pensions and stress-free jobs. Work is not an ethic in the public sector. There are exceptions of course to the generalizations I have been making. But they are rare.
These are some (and only some) of the reasons why no amount of well-intentioned tinkering with the management of an SOE can make more than a marginal dent in the losses. We Sri Lankans have an extraordinary capacity for self-deception. We believe that with the help of expert advice and the guiding hand of politicians we can stop the haemorrhaging that is taking place in SOEs, and make them miraculously profitable. This is as much a pipe dream as the myth that we are the ‘Miracle of Asia.’
This is our curse; we are Lotus Eaters who have begun to believe our own propaganda. That is why I started this article with the statement that we are indirectly responsible for the increasing electricity tariffs that we will have to learn to live with. Our leaders have swallowed – hook, line and sinker – the faulty ideology of Marxists that Privatisation is unacceptable – almost a sin. One has only to look at the progress of Telecom in Lanka to realize the absurdity of their world view. Another characteristic of us Sri Lankans is our unfortunate reluctance to admit that we can ever make a mistake. We will not take corrective action even when disaster is staring us in the face.
The writer is a former Chairman of Aitken Spence and a leading businessman
Follow @timesonlinelk
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