Ridding economy of inefficient SoEs
Wednesday, 18 June 2008
FINANCE and Planning Adviser Mirza Azizul Islam early this week pointed out some hard facts about the state-owned enterprises (SoEs). His observation may not go well with the exponents of state control and market intervention. Speaking at a discussion meeting in Dhaka, the finance adviser said mills and factories under state control could never be profitable mainly because their officials, employees and workers underperform for reasons of systemic factors like lack of appropriate incentive structure, absence of proper management and accountability framework etc. His comment came in response to a demand from some speakers at the same function to raise duty on the imported sugar to help save the public sector sugar mills. Mirza Aziz maintained there was no way other than privatisation to save the country's ailing sugar mills.
The state of affairs with the country's public sector, the size of which has been greatly reduced over the years with the principles of market-oriented economy gaining ground, is a story known to everybody. The level of inefficiency in the SoEs has been astounding. Corruption and mismanagement are the hallmarks of these enterprises. All these vices together have exacted a heavy toll on the economy since the early days of the country's independence when the then government made its policy choice in favour of 'a socialist economic system, under the circumstances prevailing at that time. There are a few exceptions among the SoEs which have a good track record as far as their financial performance is concerned. Besides, for reasons, technical or otherwise, the government has no option but to keep certain operations under the public sector control.
The private sector started gaining control over various segments of the economy, following a major policy change, particularly in the early '90s, in favour of deregulation and decontrol to facilitate the growth of a competitive market-oriented economy. Thus, the sector has gradually emerged as the main engine of economic growth, playing a dominant role in manufacturing, external trade, services sector and employment generation. The private sector, in spite of many still-lingering impediments to its efficient functioning, has done well. Even many of those who were earlier the votaries of the 'statist' intervention on a large scale, do now recognise the need for creating an enabling environment for the private sector-led growth. There is no denying that the performance of the private sector operators is yet to reach the level expected of them, mainly because of some factors remaining beyond their control and many entrepreneurial capability not yet fully being developed. Some entrepreneurs tend to be guided by opportunism and cronyism - the characteristics commonly observed in many Third World economies. However, establishment of transparency and accountability at all levels of national life can ensure improved performance on the part of private entrepreneurs.
In line with the steps taken by the governments since the early '90s, the present caretaker administration has put emphasis on the divestment of the public sector entities. Some of the SoEs have been partially divested and some others are awaiting the process. However, there still exists a sort of hesitation on the part of the government as far as the acceleration of the pace of the privatisation programme is concerned. It has been observed that unless pressurised by some influential outsiders, the policymakers dither about taking firm decisions. The bureaucracy, having the vested interests in maintaining the status quo in the SoEs, allegedly, tries to stall the privatisation programme. But it is high time for the government to get rid of SoEs that have been giving rise to serious fiscal imbalances. The finance chiefs of the country have always tried to hide this fact. The fiscal deficits shown in the national budgets or the revised estimates thereof, are not the real ones. The subsidies provided to SoEs in the form of bonds are not included in such estimates. There should be no reason for any government worth its name to resort to this kind of trickery to condone inefficiency of the SoEs.
The state of affairs with the country's public sector, the size of which has been greatly reduced over the years with the principles of market-oriented economy gaining ground, is a story known to everybody. The level of inefficiency in the SoEs has been astounding. Corruption and mismanagement are the hallmarks of these enterprises. All these vices together have exacted a heavy toll on the economy since the early days of the country's independence when the then government made its policy choice in favour of 'a socialist economic system, under the circumstances prevailing at that time. There are a few exceptions among the SoEs which have a good track record as far as their financial performance is concerned. Besides, for reasons, technical or otherwise, the government has no option but to keep certain operations under the public sector control.
The private sector started gaining control over various segments of the economy, following a major policy change, particularly in the early '90s, in favour of deregulation and decontrol to facilitate the growth of a competitive market-oriented economy. Thus, the sector has gradually emerged as the main engine of economic growth, playing a dominant role in manufacturing, external trade, services sector and employment generation. The private sector, in spite of many still-lingering impediments to its efficient functioning, has done well. Even many of those who were earlier the votaries of the 'statist' intervention on a large scale, do now recognise the need for creating an enabling environment for the private sector-led growth. There is no denying that the performance of the private sector operators is yet to reach the level expected of them, mainly because of some factors remaining beyond their control and many entrepreneurial capability not yet fully being developed. Some entrepreneurs tend to be guided by opportunism and cronyism - the characteristics commonly observed in many Third World economies. However, establishment of transparency and accountability at all levels of national life can ensure improved performance on the part of private entrepreneurs.
In line with the steps taken by the governments since the early '90s, the present caretaker administration has put emphasis on the divestment of the public sector entities. Some of the SoEs have been partially divested and some others are awaiting the process. However, there still exists a sort of hesitation on the part of the government as far as the acceleration of the pace of the privatisation programme is concerned. It has been observed that unless pressurised by some influential outsiders, the policymakers dither about taking firm decisions. The bureaucracy, having the vested interests in maintaining the status quo in the SoEs, allegedly, tries to stall the privatisation programme. But it is high time for the government to get rid of SoEs that have been giving rise to serious fiscal imbalances. The finance chiefs of the country have always tried to hide this fact. The fiscal deficits shown in the national budgets or the revised estimates thereof, are not the real ones. The subsidies provided to SoEs in the form of bonds are not included in such estimates. There should be no reason for any government worth its name to resort to this kind of trickery to condone inefficiency of the SoEs.