|The return of the Public Sector
Performance evaluation is a subject of labyrinthine convolutions. It is made further complex in the case of public enterprise. This is because public enterprise goals are difficult to specify. Organizations without meaningful and quantifiable objectives have great difficulty in controlling efficiency. If poor performance is justified by the achievement of vague "socio-economic" objectives and no effort is made to distinguish between genuine reasons for poor commercial performance. The organisation then in effect tends to loose direction and inefficiency ensues. There is a clear case, therefore, for introducing a specific public enterprise performance evaluation system to assess whether public funds are being spent economically, efficiently and effectively. Often their performance has attracted much attention and criticism, often hostile, over the years. The critics have generally concentrated on their financial performance, usually on their failure to hit financial targets. However, Financial results alone are inadequate, can be misleading.
When evaluating, how well public enterprises are performing, questions should also be asked from the government whether or not there is a requirement for greater accountability from public enterprises, where performance cannot be fully tested using accounting information, Disagreement between the many critics and parties involved in, or effected by public entities often stems from their differing view on how public entities should operate. Some people feel that the industries should operate like companies in the private sector, with profit and profitability as the major objectives and measured of success. Others would accept "reasonable profit" or "minimum loss" to commensurate with the consideration of other objectives, on the other hand, the government would regard social goals as paramount and accept the resulting "accounting losses" and concentrate providing subsidies from public taxation and the government coffers. However in recent years concern about the management of public resources and how public money is spent including how well it is spent have led public sector entities to reconsider the desirability of any profitability criteria as a measure of assessing its performance. The objectives of each public enterprise are stated in the acts of parliament which establishes the industry. Therefore these objectives should provide the broad criteria by which the performance of public enterprises are to be judged, however though each public entity lays down obligations and duties specific to the particular industry. The following objectives are common to all state enterprises,
a) To provide on a continuing basis a particular product or service, e.g.. Transport must extend to all rural areas,
b) To break even taking one year with another,
c) To take into account the public interest especially with regard to employees and the community. The acceptance of multiple objectives, and the use that governments make of the public corporations in carrying out Macro-economic and Micro economic policies, mean that performance of state entities cannot be fully tested by any profitability criteria. Given the wide range of objectives that are considered appropriate in state enterprise it is clearly unrealistic to assess performance within the narrow framework of historical financial accounting. In a practical sense a wide range of performance indicators are necessary to assess the many different aspects of performance. Therefore it is unrealistic to pass judgement as a whole using a few key figures of profitability ratios.
Changes in the political power structure over the years have resulted in major changes in public enterprises due to the system of public accountability. In most etnterprises three sets of criteria were provided by which performance would be judged. a) Financial target, decided industry by industry. The financial target is seen as the primary expression of financial results. b) An investment criteria, this takes the form of a required rate of return. c) Non financial performance indicators to supplement the financial targets.
However it is important to be mindful that, the financial targets are clearly a critical measure of performance and corresponds closely to the financial measures used in the private sector, however they need to be linked to the performance in non financial terms that is achieved by the corporations.
The use of the performance indicators help the public and the government to assess the performance of public enterprises. Morefully and realistically than had been in the past, using profitability criteria. It is also arguably part of the widening of the horizons of accounting. State entities which are expected to be profit making, do not operate to achieve only commercial and financial objectives, therefore, they are obliged, to pursue policies which provide social welfare to society, ideally public enterprises should provide measures of their progress towards social goals such as; a) Employment; b) Quality of goods and services produced; c) benefits to society as a whole and the effects of pursuing "uneconomic" policies should be shown separately in the profit and loss statement so that costs and benefits can be evaluated and the overall profit or loss interpreted with better understanding. Therefore, while stressing the importance of public enterprises in Sri Lanka as an instrument of government domestic and international policy, much of the existing state enterprises are still being run inefficiently and are becoming an increasing burden on the taxpayer. Performance improvement in state enterprises could be stimulated through the professionalism of internal management, including the participation of non political workers in decision making. Lastly, the shape and the direction of our economy and the success or otherwise of our ambitious national programmes are undoubtedly dependent upon the effectiveness of our public enterprises and therefore, it is the duty of any government to manage these enterprises in the best interest of the general public. Finally, the gradual move into a liberal world economic environment combined with technological advances would require new thinking and skills from those people managing these enterprises.
Therefore, the effectiveness of our public enterprises will depend on whether the government can provide that educational re-tooling to those managers in key positions and employ competent and dynamic people to head these institutions. The UNF government should make every effort to commercialize (manage it like a private sector institution) some of the key state institutions to induce a new wave of efficiency and profitability. In the final analysis it is important to give the management the flexibility in the running the enterprises in order to achieve the set targets; the control should be through evaluation of performance on an ex-post facto basis rather than the process.
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