My view about public enterprises
is that they are not good for business but I know and I have stated here that
public enterprises have worked in Europe. Developing countries were forced to
sell these public enterprises because they were a cost to the economy which is
true. Under the current economic conditions, it would be difficult for public
enterprises to succeed. I have this feeling that under good conditions especially
with stewardship conditions and less
corruption, these enterprises may be the solution to some of Africa’s economic
challenges. I found this article interesting.
Public enterprises
(PEs) are the embodiment of a nation’s collective aspirations. They were set
up, with the noble idea of enabling relatively underdeveloped economies like
ours to fast track development. We also believed that they helped us retain
control of the ‘commanding heights’ of our economies. Public finance
literature, which is
Western in
orientation is replete with justifications of why societies (read governments)
need to form PEs. These arguments are legion. These institutions enable
governments to deliver socially desirable goods and services that the private
sector is ill suited to provide. They also enable governments to influence and,
therefore, drive economic activity in a desired direction. For example,
governments can set up development banks, which provide low cost loans to
investors over the long term. If these banks are significant actors in the
economy, they can influence the price of money markedly. They can also be used
to kick-start development on new frontiers where private capital is reticent.
In the 1960s Uganda Hotels investments in various upcountry towns formed the
nucleus around which towns developed. The hotels formed a bulwark for commerce
by providing demand for employment, a meeting place in these rural areas and in
a sense, a livable environment for newly arriving investors.
Waiting for Godot
Uganda’s reforms
have had a significant positive impact and in many cases improved service
delivery through the private sector. But for many, this trickle down process is
akin to ‘waiting for Godot’. Many suffered the vagaries of structural
adjustment as public sector jobs disappeared and the private sector did not
take up the slack. The mixture of free-market rhetoric and government
intervention has worked particularly badly for developing countries. We were
told to stop intervening in agriculture, thereby exposing farmers to
devastating competition from the United States and Europe. Our farmers might
have been able to compete with American and European farmers, but they could
not compete with US and European Union subsidies. Not surprisingly, investments
in agriculture in developing countries faded, and a food gap widened in many
countries with inclement weather patterns. Subsidized products under PL 480
‘From the American People’ are a very stigmatizing reminder of failure to take
care of our own!
Things seem to be
changing though
According to
American economic guru Joseph Stiglitz, the neo-liberalism, that grab-bag of
ideas based on the fundamentalist notion that markets are self-correcting,
allocate resources efficiently, and serve the public interest well seems to be
on the wane. It was this market fundamentalism that underlay Thatcherism,
Reaganomics, and the socalled “Washington Consensus” in favor of privatization,
liberalization, and independent central banks focusing single-mindedly on
inflation. For a quarter-century, there has been a contest among developing
countries, and the losers are clear: countries that pursued neo-liberal
policies not only lost the growth sweepstakes; when they did grow, the benefits
accrued disproportionately to those at the top.
We now know that
markets are not efficient and it is a fallacy to believe that they always lead
to optimal resource allocation. The American housing crisis and its fall out is
all too obvious as a bad experiment in liberalism. Left to their own devices,
markets will allocate resources to the most profitable sectors of the economy,
without necessarily optimizing the desired outcomes because the priorities of
the private sector do not necessarily align with the short and long-term
keyperformance indicators of a government or the economy. Thus, even as we
liberalized, there was a greater need for regulation of the private sector to
create a level playing field.
Private sector led
is necessary but...
What we have since
learnt is that private sector led growth is necessary but not sufficient for
economic transformation in poor countries like Uganda. The private sector is
still small and poorly resourced. Investors in the private sector are also
profit driven rather than socially oriented. It is therefore difficult to use
only tax incentives to divert investment away from Kampala, if that is where
the largest market and skills are located.
In the past,
through Uganda
Development
Corporation (UDC), government set up several large-scale investments were
geographically distributed and thus made an impact on different regional sub
economies. Today these investments have been run down and it is not practical
to expect the private sector to invest in remote areas purely for purposes of
those areas regeneration. Thus the critical and strategic role of a more
efficiently managed UDC remains relevant to our development agenda. Nucleus
activities as a basis for regenerating upcountry towns are a must and this does
not lie within the remit of private enterprises. Government must reenergize and
efficiently manage its social investment programmes through vehicles like UDC,
Uganda Development Bank Limited (UDBL) and other strategic vehicles. These
strategic areas include energy, infrastructure and social services – health and
education.
Subjecting such
sectors to market forces without any form of regulation may result in failure
to achieve government objectives such as balanced growth and wealth
redistribution. It is true that many of the PEs that were eventually privatized
were non performing. But most of the privatised PEs had been formed by
nationalizing companies under the 1970 ‘Move to the Left’ and the 1972
‘Economic War’ policies. Indeed, government had no business making soft drinks
or tobacco! That however, does not negate the strategic importance of a public
transport system, which cannot be commerciallydelivered by a private sector
operator on its own. That is the legacy of UTODA’s mess in Kampala – failure to
run a rationally managed transport system. Improving pay in the public service
with specific emphasis on social services (education and health) and
eliminating rent seeking behaviour that debilitates government programmes is a
must. One of the problems created by a poor public sector pay is corruption.
Powerful, but poorly incentivized public servants derail government programmes
by: not attending to their mandate and key service delivery programmes,
diverting resources meant for service delivery for their own use, forcing the intended
beneficiaries to ultimately pay for services that have been already paid for
through the consolidated fund and not regulating PEs under their docket
effectively. Indeed the failure of PEs seems to have been a direct result of
poor governance rather than the original flawed thinking that they did not
work. In many instances, services have not been delivered because the public
sector pay is not performance based and the intended beneficiaries lost the
moral authority to challenge service delivery after abolition of local poll
taxes. In addition, especially in the case of local government, the
introduction of elective office has muddled the political and civic roles of
public office. Efforts by local government leaders to deliver services are
often denigrated by voters who threaten not to vote for serious leaders. In
Lwengo district, the LC chairperson, one George Mutabaazi, was warned that he
would lose votes in the next election for haranguing his constituents to build
better houses. The general result of the mixed roles is that those charged with
the responsibility of service delivery are constrained by the need to pander to
populist and laissez faire attitudes. So maybe, as with changing times, PEs
will have a second lease of life in some sectors. At least we now know what
makes them work and what makes them fail. According to Stiglitz again, there is
a mismatch between social and private returns. Unless they are closely aligned,
the market system cannot work well. Neo-liberal market fundamentalism was
always a political doctrine serving certain interests. It was never supported
by economic theory. Nor, it should now be clear, is it supported by historical
experience. Learning this lesson may be the silver lining in the dark cloud now
hanging over the global economy.
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