It is recognized that perpetual achievers in any field engage in life long learning, through reading and other forms of accessing fresh ideas and discoveries thereby making themselves up-to-date.
World Bank has excellent publications. Those in public affairs and administration would benefit from regularly reading the Bank publication entitled: Bureaucrats in Business. This publication is about ways to go about privatising state owned enterprises (SOEs). Like most World Bank policy research reports, it can be easily understood without being an economist.
My trips to several developing countries as well as those in economic transitions and through the world research team led by Mary Shirley, there are three types of contracts between the state and bureaucrats or officials in business: Performance, Management and Regulatory Contracts.
The first category performance contracts defined the relationship between the government and the government employees managing in state owned enterprises. There are people in Nigeria who are in charge of statutory corporations. Some of these corporations have been privatized or in the process of being privatized.
There are great deal of hesitation and controversy over the privatization of power sector and the Port Authority. The thinking has been bureaucrats or technocrats operating these enterprises are insufficient and that this is the reason statutory corporations suffer losses instead of making profits.
After visiting 33 developing countries, the World Bank research team comes to the conclusion that performance contracts (by government employees in business) worked badly because they failed to address all three contracting problems; they did not reduce the managers’ information advantage.
Instead managers are able to use their knowledge of the firm to negotiate multiple soft targets that were easy for them to reach. Performance contracts rarely included rewards that could motivate managers and staffs to exert more effort. When cash bonus were offered they had little effect because they were not linked to better performance
With respect to performance, government demonstrated little commitment to the terms of the contract. They frequently dispensed with the promises they had made. This increased managers’ incentives to use their information to negotiate soft targets.
The World Bank put their findings succinctly: “Bureaucrats typically perform poorly in business not because they are incompetent. They aren’t because they face contradictory goals and perverse incentives that can distract and discourage even able and dedicated public workers. The problem is not the people but the system, not bureaucrats per se but the situation they find themselves in as bureaucrats in business”.
The problem facing decision-makers over the state enterprises like electricity and water is whether these entities can fulfill both commercial and social welfare goals. The dilemma has never been vigorously addressed. However, the consequences of under performance continued to find their way into public finance and the public in turn continue to bear the brunt of under-performance.
Managers of privately owned firms performed better not because they possess better education or by nature more energetic or innovative than state employees. The simple truth is in the private sectors the carrot and the sticks are readily asserted. Manager are promised and assured of substantial shares of the profit of the company they manage. These are directly linked to performance and not a matter of inbuilt rights. If the manager of a company incurs losses, he gets the sack. If the business fail to pay its creditor it is taken to court, declared bankrupt and wound up and finally out of business.
The carrot and the stick are not used to the same extent in state-owned enterprises. But should they be tried? Development economists would readily say, yes, but no politician would hesitate to say so because he has election votes to worry about. In actual fact, politicians would protect their interests first even at the expense of masses. Privatizing and dismissing state employees is a sure way of a political party to forfeit votes, especially in the urban centers.
Take for instance, both the ZANU-PF in Zimbabwe and the UDF in Malawi lost seats to the opposition mostly in urban centers. It is there that people suffer most when major companies’ folds up or most employees are laid off following privatization.
When we decide to sell state enterprise that should bid for it? Should the bid be open to foreign entrepreneurs or should it be restricted to the nationals? The point is these loss making enterprises should be bought by whoever would make it more than a going concern, regardless of nationality. Politician must balance the claims of efficiency, profit-making and those of national pride.
The history of economic transformation in Singapore suggests much is gained from skilful balancing. Foreigners have the technology, the extra capital and the knowledge of the markets abroad where products are to be sold. Hardly any country that has recently experienced increased economic growth and Direct Foreign Investment done so without foreign capital, finance and enterprise.
But there could be some concerns when strategic sector of the economy is in the hands of foreigners such exiting when there are more government intervention in the economy. Also in the event the economy starts to falter, foreign investors panic and exit. This happened during the crisis that visited the Tigers of the Far East and Argentina in the recent years. Entrepreneurs either foreign or local are always comparing opportunities in one country or area. He does not stick with an ailing economy.
The other two contractual relationships have been discussed at length mainly because they are not the centre of the privatization debate here. The management contract between the government and the private firms exist in the hotel industry. Regulatory contracts consist of the regulations and registration that define the relation between the government and owner of private regulated contracts. Of the three contractual relationships the World Bank found the regulatory contracts as the most effective.
For privatization to be pursued with zeal it is necessary that both the political party in power and other oppositions should believe in it and not make it party A or B issue. But such an understanding is difficult to achieve in a country where contesting and being in politics is seen as money making and sharing in the national cake.
A ruling party may believe that privatization is the way out but the opposition will-try to entice voters by accusing the ruling party of ignoring the sufferings of those who have been laid off. This too poses a dilemma.
*Odesola, a Development and HIV/AIDS prevention activist contributes this piece from Lusaka, Zambia.