By Dinesh Weerakkody

All governments, whether in developed or developing countries engage themselves in entrepreneurial activity to some degree at least? In the centrally planned economies, the involvement is almost total where as in open-economy situations, at the other end of the scale, state involvement is minuscule, and may be confined to a few public utilities such as rail, road, communications, power and water.

In developing economies, state ownership and state enterprises are a common feature irrespective of political ideology. Mixed economies are generally the accepted norm in the developing nations.

In Sri Lanka, state intervention was first in the service and in the areas of transport (railway), telecommunication, post and power. The bus services were taken over in 1956: the bank of Ceylon, which began in 1931, was nationalized in 1963. The people’s bank was setup as a state venture in collaboration with the co-operative movement. Insurance business was also nationalized. State trading was consolidated in the 60’s & 70’s so that foreign exchange could be conserved. The nationalization of plantations was also a significant step.

In 1977 with the advent of the UNP Government there was a change of direction and the government sought a departure of a mixed economy and towards a free and liberalized economy.

Objectives of the State

Today solving the unemployment problem is the most pressing issue. The unemployment rate in 1977 was officially 20 percent and today it is over 10 percent. Therefore the current government should aim to promote long term growth and large-scale domestic employment on an urgent basis.

In fact our development objectives should be to:

1. The acceleration of the growth rate.

2. Expansion of employment.

3. Rehabilitation and expansion of the nation’s capitol stock.

4. A progressive improvement in the country’s balance of payment.

It has been stated that, the extension of the manufacturing sector under competitive conditions is seen as necessary for generating exports and foreign exchange.

It is now recognized that a healthy public sector should exist side by side with the private sector in poor third world countries like Sri Lanka.

Unfortunately, however, some public enterprises are becoming an intolerable burden on the budget and on the people of the country. We all know a budget deficit can be a great burden on people. The large allocations to public enterprises directly from the budget have drastically reduced financial provisions for several essential sectors or in the alternative have resulted in increased in direct taxes on the people. Unless we do something immediately to improve the efficiency of public enterprises, the implication for the future is likely to be serious. The people ultimately have to pay for the sins of commission and omission of public corporations. On the other hand the private sector is not developed enough to undertake heavy investments particularly in infrastructure and that there were certain essential investments with low direct rates of return although the social rate of return is very high. In such instances the private sector does not have the capacity or the will to undertake certain types of investments in several countries not only in the socialist world but also with free market economies have very efficiently run public enterprises. The reality is that when a public sector corporation runs at a loss and is a burden on the budget it is ultimately a burden on the people of this land, every man, woman and child in the country will pay for these losses by way of direct or indirect taxes.

Problems facing public sector enterprises:

1. Financially profit or losses should normally be the criterion in evaluation of the performance of any public enterprises. This criterion should be used with some caution, since public enterprises are not entirely free to fix prices and also because they are often required to perform relatively uneconomic services which should not be undertaken by private commercial establishments.

The Rajapakse committee in its report on corporations also highlights this, pointing out that a public corporations operate on a system of multiple motives and that accounting profits should not be the sole standard for judging the efficiency of public corporations. It is stated that suitable test efficiency depends at least to some extent also on whether the corporation provides facilities, which are reasonably adequate to meet public need at prices which are also reasonable and which will enable the undertaking to pay its way.

2. Public corporations have faced difficulties as a result of technology transfer problems and it has been stated that inadequacies in regard to technological capability and know how have been a major constraint. Especially at the commencement, of public corporations have hired foreign expertise, which has severely drained the resources of the corporation.’

3. At the outset when corporations where being set up, senior management was drawn essentially from existing government departments and there was a general reluctance to absorb private sector personnel except at blue-collar level. This lead to undertakings of a commercial nature being managed by persons with the background in administrative service which had systems quite inappropriate to the running of commercial establishment. Although in recent times there have been less direct recruitment from government departments, the selection, which often has a political basis, has left much to be desired and entrepreneurial skills have never been encouraged in the corporations.

4. The capital for the corporation is provided by the state and therefore investment decisions have to be approved from outside. The scope of activities carried on by the corporation is naturally restricted by the shortage of funds.

5. The private sector rewards and incentives are readily available to motivate employees to record higher productivity and an employee’s skill, diligence at work and his overall contribution to the enterprise are given adequate weightage when payments have to be decided. The flexibility to reward the individual is not available in corporations where rigid rules apply in such matters.

6. Changes in the political power structure over the years have resulted in major changes from top to bottom in the corporations which has had an unsettling effect.

7. The lack of competition, in the case of state monopolies, does not help to encourage the industry concerned to remain relevant.

8. Due to the system of public accountability, in most corporations there is a great degree of centralization which, in turn, encourages bureaucracy, causes frustration and inhibits initiative.

9. There is little or no will on the part of public enterprises to streamline or to develop their marketing abilities. They therefore find it difficult to compete with other products and marketing strategies are more or less non-existent.

10. It is stated that the objects and plans of many Corporations have become purely conventional rituals as for example, the corporation would take the budget of the previous year, make an allowance for inflation on the basis of what existed in the previous year and then arrive at its budgets. No thought is paid for external factors such as the political climate: the competitions faced or even the industrial relations climate in the workplace.