French, Singapore models of managing state enterprises involve professionals, not political stooges

French, Singapore models of managing state enterprises involve professionals, not political stooges
By Jayampathy jayasinghe
The Sunday Times

French and Singapore models in running state enterprises involve hiring professionals not stooges of ministers as the case is in Sri Lanka, alleged an economist and former public sector official.

Dr. T. Lalithasiri Gunaruwan, Senior Lecturer (economics) of the University of Colombo, a former Transport Secretary and former General Manager of Railways, said the French model where the state held major shares and was run by professionals was an example.

The Singapore model of ‘Temasek’ was another successful initiative where all strategic enterprises were governed by the Temasek board manned by professionals who run them efficiently.

He was speaking to the Business Times on successful public enterprises owned by the state which are run by professionals. This week, President Mahinda Rajapaksa criticised the Temasek model and said the Government will rely on its home-grown model.

Dr. Gunaruwan said that when some say that state enterprises need not be privatised, they have other ulterior political motives which are not beneficial to the enterprise. “When ministers appoint stooges to boards of state enterprises they only look after their interests rather than making the enterprise profitable. After all the true owners of these enterprises were the public. How (If there was no professional management) did Singapore or France make their state sector viable,” he asked.

Dealing with productivity, he said although productivity in state sector enterprises has become a current topic today it is not something new at all. Different solutions and strategies had been proposed in the past when such topics surfaced at different times. Since the topic has re-emerged today it is important to understand a few parameters of the state sector organisations and its enterprises, he added.

He said why the state sector failed is worthwhile looking at in detail. Some attribute the collapse to fulfillment of social obligations for its people while some are of the view that social orientations and profitability does not go hand in hand. Others believe that it was due to mismanagement, inefficiency and due to trade unionism and other factors.

He said the state sector enterprise became necessary for two reasons in the immediate aftermath of independence as the country needed political and economic independence and to break away from shackles of the colonial enterprise. “When we look at the Sri Lankan economy way back in the 1940- 1950s we saw that a large part of the Sri Lankan economy which was plantation driven was owned by British companies. He said” the political independence and sovereignty we talked about following independence did not have any meaning as we did not have any economic autonomy”.

The economic strings were held by foreigners particularly the colonial powers and the limited universal franchise held by then “Ceylon” by having a Prime Minister meant nothing.

For this reason the newly independent Sri Lankan government became aware of having an advanced economic autonomy. The government was aware that the private sector at that time wasn’t equipped or developed to fulfill this task. So the state sector stepped in and decided to set up national enterprises to fill the vacuum. The state vigorously promoted state enterprises from 1950 up to 1970 and the first to be nationalized was the bus transport sector. An enterprise named the Ceylon Transport Board (CTB) was set up in 1958 followed by nationalisation of ports and the airports of the country.

The petroleum industry was nationalised in 1960 and was known as the Ceylon Petroleum Corporation. In addition the government created new state-owned enterprises like the Steel Corporation, Salt Corporation, the Tyre Corporation, Cement Corporation, the Hardware Corporation, etc.
Meanwhile the Socialist regimes in power that time had other strategies to promote such as rapid industrialisation and social development to which the private sector was not willing to invest in on a long-term basis. The private sector was not willing to invest on long term projects like petroleum and heavy industries for that matter, he added.

“Thereafter the question arose as to how successful the state enterprises were. Most of them were monopolies and were not exposed to competition. As a result they became dependant on the state and never grew up into adult stage,” he said.

State enterprises were protected by tariff and by other measures. They were mostly dependant on the Treasury. As a matter of fact some of the surpluses earned by the state enterprises were not on competitive environments. They were most dependant on the Treasury and when the Treasury did not pump money they became weak. Most of these enterprises did not acquire modern technology and they remain where they were from its infancy.

The technological leap frog did not take place as the state did not have enough capital to inject into these enterprises, Dr. Gunaruwan said.
He said the other factor for the failure of these enterprises was due to politicisation. The interest of the ministers was given top priority overlooking the profitability of the enterprise. “Party-based trade unionism flourished in these enterprises. As a result political stooges ran these enterprises rather than professional managers”.

However when governments changed in 1977 they went to the other extreme of privatising these enterprises. Owing to neo liberal policies and market driven policies of successive governments, when these state enterprises were opened up to outside competition they fell apart. The cement industry was a classic example, he said.

However when privatisation was brought in to rectify these shortcomings, another set of problems cropped up. Some industries ended up in private hands. The net result was that many nationalised enterprises became de-nationalised and went into foreign companies.