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Greater accountability needed in State Enterprises

24 July 2013 06:30 pm - 0     - {{hitsCtrl.values.hits}}


By Dinesh Weerakkody
Sri Lanka’s parliamentary Committee on Public Enterprises (COPE) says that some state enterprises have caused a loss of Rs. 15 billion to the Treasury.
Today there are around 235 state enterprises in Sri Lanka. Of the 41 commercial enterprises, 11 are loss making and of this lot only 4 enterprises are responsible for 95% of the entire public sector losses. Therefore, the public sector as it is today, and the strategic nature of its products, makes it very critical to the economic social and political life of the country and therefore, worthy of an objective review.

The history
Over the years the last 50 years the imposition of various bureaucratic rules and regulations of service in our public service has taken a tremendous toll on talent and performance in public enterprises. Furthermore, rewarding of mediocrity has resulted in alienating top achievers. This resulted in a considerable drop in the service delivery to the public. On the other hand politicians have only looked to acquire a situation, which gave them maximum control of the enterprises’ finances and Bureaucrats have looked to acquire a situation to retain their own positions, above all keeping maximum control of the purse strings but without actually clashing headlong with the minister.

Generally in the first year or two of a new administration an uneasy truce is called while each side adapts to the new situation and sometimes high calibre public servants are replaced for non compliance, some times to be succeeded by politically fervent figures as a “gift” for past services. However, in the last few years the professionalism and discipline in the management of some of the enterprises have improved greatly and as a result these enterprises have contributed positively to the economic and social life of the country.

The importance of planning, decision making in public corporations, and also the need for the adoption of adequate techniques underpinned by sound
professionalism and a base of economics and capability are vital to improve public confidence and for performance to become similar to that of private enterprises functioning in a similar context. In the past because of the acute and different socio-economic situations at various times, various methods have been adopted in the process of planning. Some countries have a highly centralised form of planning emanating from a “think tank” at the national level creating a situation of implementation only at the corporation level. Then some developing countries widely use the decentralised planning methodologies which usually result in a bottom up type of planning-i.e. regional and enterprise level, working upwards to a coordinated national plan.

However between these two extremes there are a number of methods of coordinating macro-level planning. There is a need today to ensure that the planning process is conducted with a high degree of professionalism and that all the modern techniques and tools of planning, including economic forecasting, market analysis, feasibility studies, etc., are adequately employed. Needless to say, this implies that skilled manpower needs to be employed, trained and developed. Micro-planning envisages planning within the enterprises, i.e. financial planning, manpower planning, marketing and risk management. Owing to a lack of professionalism, training and infrastructural facilities, sustained effort in all these planning areas is insufficient and often not adequately practiced.

Autonomy and accountability
There is a great diversity in structural forms, which public corporations had assumed over the years. Among the structural forms are:
  •     Statutory corporations and authorities established under acts of parliament and
  •     Departmental undertakings run directly by government;
  •     Companies registered under normal Company Law;
  •     Enterprises run by local bodies.
The patterns and forms certainly influence managerial efficiency of organisations, but they do not however constitute a panacea for all managerial ills. What is far too important to be left out is the system of operation, that is the relationship between the state and the enterprises, the working relationship between management, labour, the acceptance of common goals and objectives and a total understanding of the process of management at all levels. The various enterprises need to be however backed by the highest levels of professional and managerial competence. The establishment of business enterprises on a public basis necessitates the grant of adequate autonomy to the enterprises for management of their affairs. Our public sector operates under considerable constraints and over centralised controls, hence, it makes it very difficult for them to develop internal self-reliance and an entrepreneurial skill and spirit. However in some situations excessive decentralisation and an excess of autonomy have also led to problems of communication and cash flow.

It is widely accepted and recognised that managerial efficiencies in most public enterprises depend to a large extent on the level of autonomy permitted. Autonomy however cannot and should not be totally unrestricted. It is very necessary that the interest of the investor (usually the state) and the overall public (voter) interest should be adequately safeguarded. For this purpose, while according autonomy to the enterprises, there is a strong case (need) for systems of accountability for public authorities. These could take the form of:
  •     The right of the authorities to be associated with major capital investment decisions, particularly where the funds for such investments come from the Treasury and
  • The publication of full information about the affairs of the company, financial, production, achievement of targets, profitability, productivity and accumulation of surpluses;
  •     The need to coordinate at central levels the activities of different public sector enterprises in order to ensure the harmonious correlation between micro-plans and national macro-plans.

Autonomy and accountability are two of the most sensitive issues in the management of public enterprises. Today there is a definite need for the establishment of an adequate supervisory authority and, where this authority is lacking, to bring about improvement in performance and to deal with shortfalls. Such authority should undertake periodic appraisals with reference to predetermined objectives and goals. Such authority should be a ministry, a control bureau or a regional organisation. However, to function effectively the authority needs to have an adequate reporting system and be capable of auditing performance in a professional manner. Firstly, we must examine the question of performance in public enterprises and the manner in which it can be fairly assessed. Performance of a public enterprise cannot be adjudicated solely on considerations of profit-making, a yardstick used in the classical private enterprise system. Since public enterprises have been established to discharge a variety of objectives, the assessment of performance needs to have reference to the fulfilment of these objectives. There is always considerable debate about the relationship between financial profitability and social profitability. The achievement of social profitability involves the calculation of the impact of the enterprise on the achievement of national goals such as creation of employment, import substitution and foreign exchange earnings.

There has been a tendency (and this has certainly been the case in Sri Lanka) to run public enterprises at a considerable loss. These losses are however being financed annually by the state budget, thereby becoming heavy burdens on the taxpayer and citizen. Thus, whether financial or social objectives are sought, effectiveness of management must be assured, and in particular, optimum utilisation of capacities, higher productivity and the most important need is to eliminate waste. What is necessary is to make our public sector management aware that they need to make conscious decisions with full knowledge of the consequences.

On the other hand it is normally accepted that there must be some degree of protection of public sector industries, particularly during their gestation period. The policy of protection would enable infant industries to grow and to gain strength. However, an absolute protection could tend to breed inefficiencies into the sector, and the “take it or leave it” attitude could be encouraged further. However, this can be avoided in three ways:
  •     By establishing competitive situations within the internal market and
  •     By insisting that public enterprises should seek export markets and test their quality and price in competitive international markets;
  •     By allowing at appropriate times importation of foreign goods, mainly for the purpose of generating a degree of competition for achieving good standards.

In the final analysis the size of the public sector as it is today, and the strategic nature of its products, makes it far too important to the economic social and political life of the country to be left entirely in the hands of a few people in an authority or enterprise. Therefore, it is important for the minister to appoint competent professionals and then give them the flexibility in the running of their enterprises in order to achieve set targets; the control should be through evaluation of performance on an ex-post facto basis rather than of the process.

(The writer is a former Chairman of the Employees’ Trust Fund Board)

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