Demonizing State-Owned Enterprises

Privatization has not provided the miracle cure for the problems (especially the inefficiencies) associated with the public sector. Credit: IPS

Privatization has not provided the miracle cure for the problems (especially the inefficiencies) associated with the public sector. Credit: IPS

By Jomo Kwame Sundaram
KUALA LUMPUR , Aug 14 2018 (IPS)

Historically, the private sector has been unable or unwilling to affordably provide needed services. Hence, meeting such needs could not be left to the market or private interests. Thus, state-owned enterprises (SOEs) emerged, often under colonial rule, due to such ‘market failure’ as the private sector could not meet the needs of colonial capitalist expansion.

Thus, the establishment of government departments, statutory bodies or even government-owned private companies were deemed essential for maintaining the status quo and to advance state and private, particularly powerful and influential commercial interests.

Jomo Kwame Sundaram. Credit: FAO

SOEs have also been established to advance national public policy priorities. Again, these emerged owing to ‘market failures’ to those who believe that markets would serve the national interest or purpose.

However, neoliberal or libertarian economists do not recognize the existence of national or public interests, characterizing all associated policies as mere subterfuges for advancing particular interests under such guises.

Nevertheless, regardless of their original rationale or intent, many SOEs have undoubtedly become problematic and often inefficient. Yet, privatization is not, and has never been a universal panacea for the myriad problems faced by SOEs.

 

Causes of inefficiency

Undoubtedly, the track records of SOEs are very mixed and often vary by sector, activity and performance, with different governance and accountability arrangements. While many SOEs may have been quite inefficient, it is crucial to recognize the causes of and address such inefficiencies, rather than simply expect improvements from privatization.

First, SOEs often suffer from unclear, or sometimes even contradictory objectives. Some SOEs may be expected to deliver services to the entire population or to reduce geographical imbalances.

Other SOEs may be expected to enhance growth, promote technological progress or generate jobs. Over-regulation may worsen such problems by imposing contradictory rules.

Privatization has never been a universal panacea. One has to understand the specific nature of a problem; sustainable solutions can only come from careful understanding of the specific problems to be addressed.

To be sure, unclear and contradictory objectives – e.g., to simultaneously maximize sales revenue, address disparities and generate employment — often mean ambiguous performance criteria, open to abuse.

Typically, SOE failure by one criterion (such as cost efficiency) could be excused by citing fulfillment of other objectives (such as employment generation). Importantly, such ambiguity of objectives is not due to public or state ownership per se.

Second, performance criteria for evaluating SOEs — and privatization — are often ambiguous. SOE inefficiencies have often been justified by public policy objectives, such as employment generation, industrial or agricultural development, accelerating technological progress, regional development, affirmative action, or other considerations.

Ineffective monitoring, poor transparency and ambiguous accountability typically compromise SOE performance. Inadequate accountability requirements were a major problem as some public sectors grew rapidly, with policy objectives very loosely and broadly interpreted.

Third, coordination problems have often been exacerbated by inter-ministerial, inter-agency or inter-departmental rivalries. Some consequences included ineffective monitoring, inadequate accountability, or alternatively, over-regulation.

 

Hazard

Moral hazard has also been a problem as many SOE managements expected sustained financial support from the government due to weak fiscal discipline or ‘soft budget constraints’. In many former state-socialist countries, such as the Soviet Union and Yugoslavia, SOEs continued to be financed regardless of performance.

Excessive regulation has not helped as it generally proves counter-productive and ultimately ineffective. The powers of SOEs are widely acknowledged to have been abused, but privatization would simply transfer such powers to private hands.

Very often, inadequate managerial and technical skills and experience have weakened SOE performance, especially in developing countries, where the problem has sometimes been exacerbated by efforts to ‘nationalize’ managerial personnel.

Often, SOE managements have lacked adequate or relevant skills, but have also been constrained from addressing them expeditiously. Privatization, however, does not automatically overcome poor managerial capacities and capabilities.

Similarly, the privatization of SOEs which are natural monopolies (such as public utilities) will not overcome inefficiencies due to the monopolistic or monopsonistic nature of the industry or market. The key remaining question is whether privatization is an adequate or appropriate response to address SOE problems.

 

Throwing baby out with bathwater

SOEs often enjoy monopolistic powers, which can be abused, and hence require appropriate checks and balances. In this regard, there are instances where privatization may well be best. Two examples from Britain and Hungary may be helpful.

The most successful case of privatization in the United Kingdom during the Thatcher period involved National Freight, through a successful Employee Stock Ownership Plan (ESOP). Thus, truck drivers and other staff co-owned National Freight and developed personal stakes in ensuring its success.

In Hungary, the state became involved in running small stores. Many were poorly run due to over-centralized control. After privatization, most were more successfully run by the new owners who were previously store managers.

Hence, there are circumstances when privatization can result in desirable outcomes, but a few such examples do not mean that privatization is the answer to all SOE problems.

Privatization has never been a universal panacea. One has to understand the specific nature of a problem; sustainable solutions can only come from careful understanding of the specific problems to be addressed.

 

Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.

Let Food Be Thy Medicine

Health is more than the absence of disease: adequate nutrition is a critical part of the equation

Typical food store in Brazzaville, Congo. Credit: WHO

By Adelheid Onyango and Bibi Giyose
BRAZZAVILLE, Congo, Aug 14 2018 (IPS)

When faced with a crisis, our natural reaction is to deal with its immediate threats. Ateka* came to the make-shift clinic with profuse diarrhoea: they diagnosed cholera. The urgent concern in the midst of that humanitarian crisis was to treat the infection and send her home as quickly as possible. But she came back to the treatment centre a few days later – not for cholera, but because she was suffering from severe acute malnutrition. Doctors had saved her life but not restored her health. And there were others too, who like Ateka eventually succumbed to severe malnutrition.  

This scene could have taken place in any of the dozen or so African countries that have suffered a cholera outbreak this year alone. Experience from managing epidemics has shown that when the population’s baseline nutritional status is poor, the loss of life is high.

Beyond malnutrition’s damaging impact on bodily health, it weakens the immune system, reducing the body’s resistance to infection and resilience in illness.

Most of the diseases that entail catastrophic costs to individuals, households and national healthcare systems in Africa could be avoided if everyone was living actively and consuming adequate, diverse, safe and nutritious food. After all, a healthy diet not only allows us to grow, develop and prosper, it also protects against obesity, diabetes, raised blood pressure, cardiovascular disease and some cancers.

On the flipside, integrating the treatment of malnutrition in the response to humanitarian crises assures survival and recovery better than an exclusive focus on treating diseases.

As countries across the continent commit themselves to Universal Health Coverage (UHC), the same lessons need to apply. UHC is ultimately about achieving health and wellbeing for all by 2030, a goal that is inextricably linked with that of ending hunger and all forms of malnutrition.

With 11 million Africans falling into poverty every year due to catastrophic out-of-pocket payments for healthcare, no one can question the need to ensure that everyone, everywhere, can obtain the health services they need, when and where they need them, without facing financial hardship.

As wealth patterns and consumption habits change, the African region is now faced with the triple burden of malnutrition – undernutrition coupled with micronutrient deficiencies and increasing levels of obesity and diet-related non-communicable diseases.

In 2016, an estimated 59 million children in Africa were stunted (a 17 percent increase since 2000) and 14 million suffered from wasting – a strong predictor of death among children under five. That same year, 10 million were overweight; almost double the figure from 2000. It’s estimated that by 2020, non-communicable diseases will cause around 3.9 million deaths annually in the African region alone.

Yet most of the diseases that entail catastrophic costs to individuals, households and national healthcare systems in Africa could be avoided if everyone was living actively and consuming adequate, diverse, safe and nutritious food. After all, a healthy diet not only allows us to grow, develop and prosper, it also protects against obesity, diabetes, raised blood pressure, cardiovascular disease and some cancers.

To tackle malnutrition, achieve UHC and ultimately reach the goal of health and wellbeing for all, governments need to put in place the right investments, policies and incentives.

As a starting point, governments need to assure the basic necessities of food security, clean water and improved sanitation to prevent and reduce undernutrition among poor rural communities and urban slum populations in Africa. For example, reduction in open defecation has been successful in reducing undernutrition in Ethiopia, parts of the Democratic Republic of Congo, Mali and Tanzania.

Then, to influence what people eat, we need to do a better job at improving food environments and at educating them about what constitutes a healthy diet. Hippocrates asserted that “all disease begins in the gut,” with the related counsel to “let food be thy medicine.”

Current research on chronic diseases is reasserting the health benefits of consuming minimally-processed staple foods which formed the basis of traditional African diets. This information needs to be communicated to the public through the health and education sectors and complemented by agricultural innovation to increase production of the nutrient-rich grains, crickets, herbs, roots, fruits and vegetables that were the medicine for longevity among our hardy ancestors.

But until that awareness is in place, policies and programmes are urgently needed to protect and promote healthy diets right from birth. This includes regulating the marketing of breast milk substitutes and foods that help establish unhealthy food preferences and eating habits from early childhood.

In South Africa, for example, the country with the highest obesity rate in Sub-Saharan Africa, the government has introduced a ‘sugar tax’ that is expected to increase the price of sugary soft drinks. The hope is that this will encourage consumers to make healthier choices and manufacturers to reduce the amount of sugar in their products.

Finally, governments must create incentives – and apply adequately dissuasive sanctions when necessary – to help food manufacturers collaborate in promoting healthy diets through reformulation and informative labelling, for example. In cases of food contamination, we are very quick to take products off the shelves. Yet we are much slower to react to the illnesses caused by processed foods containing high quantities of salt, sugars, saturated fats and trans fats.

A shortcut to achieving Universal Health Coverage is to reduce the need for costly treatments. And there is no better way to do that than to ensure that everyone, everywhere, preserves their health and has access to safe and nutritious food: let food be thy medicine.

*name has been changed