Is privatisation a panacea for govts in distress?

The government has announced in its second-term maiden budget that 35 state enterprises have been earmarked for privatisation. Speculation is rife that among them are the Ceylon Electricity Board (CEB), the Water Board (WB) and several other institutions providing essential services to the public.

Mired neck deep in an economic crisis, the government, is trying to bridge the budget deficit by selling the remaining family silver to raise a projected Rs. 25 billion.

It is unfortunate that the sorry state of affairs in state institutions helps government present a case for privatising them. The government has on several occasions sought to justify privatisation on the grounds of inefficiency of these institutions and the massive cost at which they are maintained.

Most state ventures are teetering on the brink of collapse. The canker of inefficiency has set in, in most public sector institutions. These once well protected enterprises under a closed economy have been lagging behind the private sector for the last two decades. Successive governments for fear of political consequences have baulked at divestiture advocated by the lending agencies. These institutions provide employment to tens of thousands of people and governments are wary of resorting to any action that will entail the much hated RIF (reduction in force). Governments in this country have come to be looked upon by the people as job providers and politicians’ efforts to seek short cuts to power by providing jobs to their supporters have resulted in an ever expanding state sector.

In the wake of every election comes an ‘employment drive’ burdening the state coffers further. This the country has seen for decades since Independence and is paying for it today.

The state institutions here are said to be plagued by political interference, bureaucratic red tape and resultant lack of flexibility, mismanagement, overstaffing, lack of motivation and lackadaisical attitude of the workforce commonly known as ‘government-servant mentality.’ Corruption too is said to have eaten into the vitals of most state institutions. The revelations President Chandrika Kumaratunga recently made as regards what ails the CEB are a case in point.

But is privatisation the only solution? Does it work miracles overnight and can it transform a bankrupt or an inefficient state venture into a profit-making efficient enterprise?

Take for example the state institutions that have already been privatised. The Central Transport Board or the Sri Lanka Transport Board was peoplised at the behest of the World Bank and the IMF years ago. But, today, it continues to be the same bankrupt institution it used to be. Moreover, now plans are said to be underway to make it a state enterprise again. Whether with this move the peoplised bus companies will improve or stall their downward slide is yet to be seen. All these experiments have been at the expense of commuters who are being exploited by private bus operators.

The Colombo Gas was. But what happened? People were shell-shocked. Constant price hikes and various restrictions harass the gas consumers. They pay more for less gas today. So much so for the improvement effected by privatisation.

Sri Lanka’s (bitter) experience with vital sectors such as transport, energy, health and education, points to the need for the state to play a dominant role if the people are to be protected against unconscionable profits being made by the private sector.

Privatisation amounts to a government clipping its own wings in that in the process it is deprived of ways and means of generating employment for its supporters. It also leads to the shrinking of the public sector and subdues the dominant role governments usually want to play in vital sectors. Reflected in the need to privatise a state institution is, in addition to the conditions laid down by the aid donors, the poor performance of the government in power and its desperation to raise funds to bridge the budget deficit.

Privatisation being the last thing that any Sri Lankan government would want to sully its hands with, the present government’s decision to privatise 35 state institutions is, it could be argued, a manifestation of the magnitude of the economic crisis it is faced with. Beggars, they say, cannot be choosers.

However, it is imperative that no hasty decisions be taken by the government be it at the behest of lending agencies or otherwise in respect of the these 35 institutions. Expert opinion must be sought and responsible political parties consulted paying sufficient attention to the country’s experience with past privatisation programmes before any such programme is embarked on again. This is an area where the government must tread cautiously.

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