How do you manage loss-making public companies?
Different economists have different opinions on how to approach this question. However, overall, the main debate revolves around whether public entities should be privatized, should be part of a public-private partnership, or if their efficiency can be improved through better management. The commercial standard contacted three economists for their opinion on the subject.
“Loss-making public enterprises should adopt alternative forms of industrialization”
Dr Khondaker Golam Moazzem
Research Director, Center for Policy Dialogue
State enterprises and corporations have specificities in terms of activities and services. Some are service-related, some are utility providers, and some are monitoring and facilitating organizations. While some are manufacturers.
The four types of public entities have distinct roles and relate to the private sector or deal with market demand and structure in different ways.
They are also different in terms of economic viability. So, if one of the organizations, or even several of them, is in difficulty or loses entities, a one-size-fits-all solution will not fit all equally.
It is evident that services, as well as public organizations related to manufacturing, find it difficult to compete in the market where they share space with the private sector. Utility providers, on the other hand, are mostly monopolistic.
Many public organizations regularly experience losses and have many inefficiencies, as well as irregularities. The relevant sections recommend different solutions to solve the problems. I think the performance evaluation of organizations should be done in a proper way.
We suggest that public organizations losing their competitiveness adopt alternative forms of industrialization.
In the case of manufacturing sectors, including jute, sugar, paper, glass and ceramics, the government can lease the properties to BSCIC, BEZA and BEPZA. These particular agencies have proven, in some cases, conducive to successful industrialization. Small and medium industries, as well as foreign investment or domestic exclusive industrial zones, can be established there. There are many litters, and we’ve seen some of these investments lately.
Institutional inefficiency is a big concern for public service-oriented organizations like the BRTC. Private transport agencies and influential market associations face enormous challenges. Opportunities exist to explore ways to address these challenges. The services are mainly used by people with low incomes. Appropriate models can be adapted to make the sectors low cost and at the same time profitable.
Overall, the public organization should operate in a competitive structure. They must be developed as profitable organizations. In such a case, the public-private partnership can work. These partnerships can be financial or technical.
Overall, private sectors avoid massive investments in sectors that are monopolistic. These sectors are managed by public bodies. Utilities, including gas, electricity, water and sewage, should be made to compete so that they cannot operate inefficiently or manipulate consumer rights. They should not be allowed to shift the burden of depreciation onto consumers.
This is why these sectors must guarantee transparency, while proper valuation is crucial to combat corruption and irregularities and to set pricing policy so that consumers do not have to bear “unnecessary” burdens.
Access to appropriate information from the state-owned organization is difficult. We doubt that the audit reports are written by globally recognized auditors. Recently, the Parliamentary Standing Committee on Public Enterprises was shocked to see the number of irregularities and objections to a BPC audit.
Prior to any alternative investment or rejuvenation of the existing organization, a thorough assessment of the financial situation, assets and liabilities, reasons for losses and recommended changes in the existing modality to attract long-term funding should be undertaken.
To do this, four internationally recognized auditing organizations, known as the Big Four, should be appointed for the audit.
Khondaker Golam Moazzem spoke to Sadiqur Rahman of The Business Standard
“The government should not do too much”
The government has many responsibilities in the areas of public policy, regulation, social protection and the provision of public goods. It lacks adequate capacity to carry out these responsibilities well, and this is reflected in the poor design and implementation of public investment projects, gaps between policies on paper and their execution on the ground. , inadequate enforcement of regulations and gaps in social protection for the poor and vulnerable.
Given this, it is important that the government does not get involved in activities that the private sector is both willing and able to do. I do not understand, for example, why the government should be involved in the mobile phone sector when there are so many good mobile phone companies in the private sector that provide adequate services. If there is a problem with the quality of their services, it should be dealt with by ensuring competition and, when competition is not enough, through regulations. There is no justification for the government directly providing such services via Teletalk. I can give many other examples like this in different sectors.
By getting involved in such activities, the government diverts scarce administrative resources and attention away from activities that fall within its legitimate jurisdiction, such as those I mentioned at the beginning.
The government should move away from these activities by closing the companies or privatizing them. Privatization should imply a complete break. I’m not a big fan of public-private companies in manufacturing. Halfway solutions are no good. Most of these companies end up with the worst of both worlds. In addition, when public enterprises are privatized, existing debts must be taken over by the government; companies should start with a new list. This should be reflected in the prices at which businesses are sold.
There is often a reluctance to close factories. But an essential characteristic of a dynamic economy is the reallocation of resources. When an activity is no longer profitable, it is best to reallocate, as much as possible, the resources used in that activity, such as land, labor and machinery, to other activities where they can be more productive. Not all machines may be reusable, but some can be. Workers who lose their jobs when a factory closes can find jobs elsewhere; the government can facilitate their job search or help them acquire new skills. Some can retire with severance pay from the government.
A bold decision was taken exactly 20 years ago, namely the closure of Adamjee Jute Mills. 26,000 workers lost their jobs, but the Adamjee EPZ installed in its place now employs more than 60,000 people. Much of the machinery used there has been sold to small jute mills that have sprung up in North Bengal. The government saves taka crores which were previously used to cover the losses of Adamjee Jute Mills. A vibrant economy needs such bold decisions.