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Part 2 Sale or reform
of Insurance Corp? State firms
fail It is not clear
whether ICSL has been subject to any assessment of viability and
whether the decision to privatize has evolved out of that evaluation.
If the drive for divestiture of ICSL is a remedy for the shortcomings
and burdens cast on the government, it still seems to avoid the
point of what the burdens are. How and in what way is the ICSL a
burden to the state which demands its disposal? ICSL is not subsidized
by the government. On the contrary, it has been funding the government
through its contributions to state coffers. An examination of the
ICSL will reveal that it has adapted to circumstances and adopted
business practices, responding to increased competition, warding
off competitors, yielding its monopoly position, holding a major
portion of the market share. This is despite abuse of the ICSL by
various political persons as well as trade unions over the years-
a testament to its resilience that it can withstand such abuse and
yet survive and deliver a good record of profit. However, because
of the abuses, the profit it made is not as much as it could have
made had it been free of political interference. An interesting
point has been made by Professor Wettenhall, in Who Owns What in
Australian Jr. of Public Administration, 1998, an authority on state
enterprises in Australia, by referring to Noonan (1997): “…..the
distinctly odd practice of selling off publicly owned assets to
‘the public’. It seems ludicrous to offer me an opportunity
to buy what I already own - such would be the case of selling off
public property to the public!” More seriously,
he has focused on the trend for “disposal” of state enterprise
when the real need is for continual reform, restructure and improvement,
while retaining their public purpose. If not, the whole aspect of
public purpose that is embedded in state enterprises will be snuffed
out. The private sector cannot be expected to carry through the
public purposes entrenched in the divested enterprises. A similar point
has been stressed by Dr. Gamini Corea in Privatization of Public
Enterprises, Economic Jr., Peoples Bank, 1998. In his view, the
question is not so much one of where or how transfers of ownership
or even management from the public to private sectors should occur,
but how “operational milieu and operational efficiency can
be changed for the better.” The challenge is one of making
public enterprises “more viable, more resilient, more flexible,
and more efficient” without “throwing the baby out with
the bathwater.” Corea believes that the decisions to divest
state enterprise should not be made “ex cathedra.” Tanzi,
(in an IMF staff paper no 36 of 2000), highlighted the need to proceed
from the so-called “first generation reforms” of the 1980’s
and 1990’s. These dealt mainly with “improvements in policies
rather than in institutions… The need now is to improve the
quality of the institutions themselves through “second generations
reforms.” The inordinate
pressure to dispose/divest state enterprises has arisen out of the
British experience as well as from the ground swell created by the
World Bank and the IMF through their influence on member governments.
An ILO report by Rondinelli, Privatization and Economic Transformation,
1993, has identified the fact that world financial bodies have “pressured
government in developing countries to privatize their state owned
enterprises as a part of their overall structural adjustment reforms.”
If the ICSL
is not a loss making business, is this type of pressure the reason
for the disposal of the ICSL? If ICSL divestiture
is a result of world financial institution pressure, Joseph Stiglitz,
former Chief Economist of the World Bank and a Nobel Prize winner,
summed up the failure of the World Bank/IMF espousal of liberalization
and privatization as the only option available for countries, (some
times referred to as the Washington Consensus) because it “confused
the means with ends: it took privatization and trade liberalization
as ends in themselves, rather than as a means to more sustainable,
equitable, and democratic growth. It focused on privatization, but
paid too little attention to the institutional infrastructure that
is required to make markets work.” (Stiglitz, Prebisch Lecture,
Geneva 1998). Under pressure Today there
are no less than eight insurance businesses competing with the ICSL.
Still, and despite this competition, ICSL has a 50% control of the
market share, in essence representing a consumer vote for it in
a consumer democracy. In 2001, it achieved Rs. 6.3 billion premium
income, a growth over the previous year, in the face of stiff and
growing competition. ICSL serves over 500,000 life policies, more
than any other competitor and issued the highest bonus paid by any
insurance entity in the country. The competitors
have not been able to take away the market share of the ICSL despite
23 years of challenge and competition. Indeed one major cause of
the failure of ICSL competitors to make much headway could be that
they emulated than competed with the ICSL. The Commission on Banking
(1992) referred to the insurance scene as one where “ICSL dominates
the industry” with the three private sector insurance companies
playing a “relatively minor role.” This massive failure
on the part of the private sector insurers to win customers away
from ICSL is now going to be resolved by government fiat requiring
the disposals of it than by the democracy of the consumer vote in
patronizing the ICSL. Such a government dictat goes against the
very grain of consumer democracy where the consumer decides the
survival of a business. The assets
of the ICSL are substantial and itself is an indicator not only
of its present health but a pointer to its future. If still better
modern management practices and controls are introduced (freeing
it from political meddling), the potential the ICSL has for its
public purpose as well as the enterprise one is enormous. Given that
the dominant position of the ICSL is because it is able to retain
customer presence, albeit at a declining rate, the alternative may
be to reform the ICSL than to rush to its disposal. Such a remedy
is the same as any business oriented private sector business will
implement when faced with any business challenge. Why such a remedy
cannot be applied to the ICSL has not been properly explained to
the public, especially because the ICSL is a profitable origination
while serving a public purpose. One of the
most significant public purposes which the ICSL performs, is as
an investor in the stock market. This role it has performed admirably,
boosting this vital institution of business with Rs.18 billion so
invested. It provides
low cost insurance in a great variety, some of which have been copied
by the private sector competitors, in the process bearing the brunt
of motor insurance which the private insurers shied away from and
to the promise of which they woke up to only recently. The presence
of the ICSL across the length and breadth of the country, penetrating
the rural hinterland via its large agent network is something which
private sector competitors could not or did not want to emulate.
Privatization would remove this coverage as the private owners would
no longer be interested in the public purpose ingrained in the founding
enactment. Global failures The recent
disclosure of AOL Warner of a US$100 billion loss, the biggest in
history of the United States while being only a tip of the massive
iceberg, underscores the collapse of company management and public
confidence in such management. MSNBC was constrained to describe
the situation: “The stench of scandal that has hung over Wall
Street and Corporate America this past year lingers like a bad bruise”. Such experience requires us not to throw the baby out with the bath water but to seek to preserve the essential public purpose with reform in governance. Such reform in governance is indeed required not only in state sector enterprise but also in government as well. David Osborne’s “Re-inventing Government” is an inspirational initiative to bring better governance to government institutions to make them more service oriented. Without clean, corruption free governance, privatization will in any event fail, as will an economy. The surprising factor is that the institutions pressuring the government to privatize do not seem to exert the same pressure on government to reform its governance, to take strong measures to increase and strengthen independent auditing, to ensure adherence to transparent processes while improving the quality of government staffing. This does not exhaust the needs of the state sector. Indeed in as much as a private sector business would reinvent itself in the face of competition and re-structure to meet the challenges of the market, so should the state sector enterprise. Such action is time consuming and needs a special focus which those in power may not be interested in devoting the time and energy to. Still, without such a recourse it will be a tragedy to smother a national institution for no clear reasons. The government needs to justify the need for selling off a publicly owned institution. In this case there is no clear statement of the ‘why’ of it. Before ICSL is sent to the guillotine, let the public hear of the ‘trial’ and the ‘judgment’ which condemned ICSL to that fate. |
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