Principles of privatization (1)
By Peter Wickham | Sun, November 04, 2012 - 12:01 AM
Matters relating to what can be termed “privatization” have become central to public discourse recently, especially as the Leader of the Opposition has alluded to his party’s proposals that would include the privatizing of at least one state entity.
The issue is, however, broader than the simple privatization of the Caribbean Broadcasting Corporation (CBC) since there are both theoretical and practical components to the privatization of any state entity. Moreover, the management of state enterprises is of paramount importance to our national development and therefore needs to be the focus of informed national public discussion.
As such, People & Things will examine this issue over the next two weeks in an effort to inform national discussion on the plausibility of a privatization programme.
The feasibility of the Barbados Labour Party’s (BLP) proposals will be considered in this broader context that would require an understanding of:
• What is privatization?
• Is the privatization philosophy appropriate to our national development at this time?
• The record of both parties on the issue of privatization; and
• The public attitude to privatization.
The terms privatization and nationalization are opposing concepts that oversimplify the range of options available to Government for the management of the delivery of various services, which can range from information and entertainment (as in the case of CBC) to the sale of food and consumer durables, as in the case of Guyana Stores Ltd. Government can choose to become involved in any economic activity, but where it chooses to become involved and later decides to withdraw either fully or partially, several options are available which are broadly referred to as privatization.
Specifically, however, a government that fully manages the delivery of some service can opt to create either a statutory corporation or public company, with the latter being referred to as “corporatization”, or can move in the direction of either partially or fully privatizing an entity by selling shares or the “whole kit and caboodle”.
Over time, governments across the world have engaged this issue and become more or less involved with commercial enterprises. This has generally been in the interest of preserving the public interest. In the case of “left-leaning” governments, nationalization was seen as a way of ensuring the people own the “commanding heights” of their economies, which is consistent with the socialist creed articulated by V.I. Lenin.
As such, governments that articulate this philosophical position have been partial to nationalization programmes that are similar to those practised in the former Soviet Union.
Regional “best-case” nationalization programmes were implemented in places such as Guyana and Jamaica, with the former pursuing cooperative socialism and nationalizing virtually every major area of economic activity, ranging from gold and sugar production to the sale of food and stationery (among other things) at Guyana Stores Ltd. Around that time the Guyana nationalization model was consistent with the types of economic development policy of the times, which used the state as a lever to secure a public stake in the type of commercial activity that was associated with the type of production being pursued.
As such, entities like Guysuco and Guyana Stores assured Guyanese of a stake in sugar and distribution in much the same way that the nationalization of Cable & Wireless (BARTEL) assured Barbadians a stake in the important telecommunications sector.
Nationalization was “fashionable” as a developmental tool throughout the 1970s and 1980s. However, during the 1990s, several governments surrendered their control of these entities and encouraged private enterprise. It could be argued that this shift was forced by economic crises that highlighted the extent to which these state enterprises were inefficient and hence contributed to economic underdevelopment.
Alternatively, it could be argued that privatization was brought on by a realization that governments need not entirely control any entity for people to have a “stake” in that sector’s economic activity.
On this issue I am inclined towards the pragmatic perspective that the inefficiency of state enterprises made privatization prudent, since the state inefficiency itself compromised the national interest that nationalization attempted to secure. Guyana Stores has ironically emerged as a “worst-case” example of the perils of nationalization since national ownership did little to assure Guyanese of the efficient delivery of products at affordable prices, since that operation’s losses were making an obvious contribution to that country’s economic problems than any benefits it brought to the table.
At the same time, similar private operations in Guyana and elsewhere were efficiently delivering goods and services, employing people and enhancing government’s revenues by way of taxation. Government could therefore use the revenues that were procured to enhance the lives of its citizens in other ways.
One could therefore ask whether an inefficient nationalized operation better serves the interest of the population, than an efficient privatized operation that “behaves” in a way that is consistent with national developmental priorities, employs nationals and generates revenues that can later be taxed and contribute to government’s coffers.
Suffice it to say there are currently several models available which now allow government to “step back” from full national ownership, without compromising the national stake in that sector. The “corporatization” of an entity is one such model which imposes an independent corporate structure that is entirely owned by government. This arrangement is, however, often a stepping stone to complete or partial divestment, at which time government can assume a regulatory role and supervise private operations instead of running them, and achieve the same effect.
This approach forces a government to consider “what exactly is the national stake it is trying to assure” and to identify regulatory structures that can achieve these objectives while someone else is responsible for day-to-day management.
Ironically, the citizenry is often “better off” under this type of arrangement since it receives necessary goods and services at a cost that can be controlled and without the burden imposed by inefficient state enterprises.
It is interesting that Barbados has unwittingly become a laboratory for the plausibility of the privatization model since one of our main economic drivers is tourism, which is largely a private enterprise. Few Barbadians would argue that “we” don’t have a stake in this sector since it employs thousands of our citizens and further provides by way of tax revenues that have paid for the health care and education of several people over the years.
• Peter W. Wickham (email@example.com) is a political consultant and a director of Caribbean Development Research Services (CADRES).
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