Tuesday, December 16, 2008

Privatization: A Panacea for Poverty?


Can anyone think of any failed government enterprise that was privatized and became a success story in the Maldives? Dhiraagu? MWSC? Maldive Gas? Not many people agree that these companies were privatized in the first place. Further, on closer look the success of such organizations may not be related to privatization at all.

A former board member of Dhiraagu says the success of the company was mainly due to the management expertise of the foreign partner, which also had the advantage of a signed agreement with the government through which they were able to control government interference to a minimum. The exclusive monopoly on telephony also helped of course. It’s the same story basically with MWSC.

Will privatization help a company such as STO? A former STO board member doubts it. According to him the main problem with STO during his time was government interference, particularly from relatives of the former president. It was particularly difficult when two very close relatives were vying for influence and giving conflicting commands to STO.

From these examples it appears that the remedy for poor performance is reducing government interference, not privatization. This is exactly what Deng Xiaoping did in China. He did not privatize the village factories, which were the engine of the growth of the rural economy. In fact, they were almost all owned by local governments in Deng’s China. In the cities too, reforms in industry didn’t include privatization at all. What Deng did was cutting government influence from the factories and open them up to market forces. Perhaps we can learn something from his policies.

“It does not matter what color a cat is as long as it catches mice.” –Deng Xiaoping

8 comments:

Yusuf said...

Marxism had failed a long ago. so please don't quote examples from communist china. Privatisation will be the ultimate solution for the bad performance of the government business enterprises (GBEs). Privatisation will position the enterprise with a clear profit motive and encourages them to improve both efficiency and productivity. With privatisation and an effective regulatory body we will not have to worry about excessive and unnecessary government influence.

Anonymous said...

Good article. The government will play a big role in the success of companies by not playing a big role in influencing to make biased decisions. Its an oxymoron, but positive government influence is a must.

foofighter said...

I endorse this thought.

Abdullah Waheed's Blog said...

To Yusuf:
Considering the success of China, can we say Marxism is an unqualified failure? And considering the economic crisis plaguing US and EU today, would you say either monetarism, market capitalism or remarketized capitalism is an unqualified success? Now we observe both US and EU moving more and more towards Kenyesian style managed capitalism. How is that different from Deng Xiaoping's managed marxism?

Rilwan said...

Marxism is defunct and in the 21st Century none talks about historical materialism and state running business. However if Karl Mark was alive to see the capitalists in the Maldives swinging of Adam Smith’s invisible hand in full speed and their influence in politics and economy he might have gone crazy. He might have write a another book or Das Kapital 4.

Anonymous said...

The famous privatization effort introduced by Thatcher in UK during the eigties has failed and I can say that it is a 'dead' concept now. As far as Maldivian corporate sector is concerned, we have very small enterprises and our private sector is very small too. Therefore, I do not see any significant reason to privatize our companies like MIFCO, STELCO or any other. Government has initiated this through allowing the participation of private sector or individuals in STOPLC, BMLPLC, MTDCPLC, and MTCCPLC as shareholders. What is required here is to give full power to the Boards of Directors of those enterprises to run the affairs themseleves rather than dictated by the state. However, there should be a good mechanism to regulate the sector by the government and should ensure that the right people are appointed to the boards rather than appointing people who have close 'relationship' with the government. This approach by the government will have lessor say to the decisions of the companies but have a stronger hand in regulating the companies so that profits get increased. With the new approach, Companies will produce more and reduce waste. Let us give a chance this way.

Anonymous said...

Government always has a big role to play in any economy. They have to set standards, policy,regulate and monitor.The current problems in the US economy is largely not checking on the banks to c what they were upto.

Anonymous said...

A clear profit motive is something we have to think deeply. The people will be uncertain when these services are privatized as they will have a high bargaining power as a monopoly and we will have no option but to heed to their requests. Ultimately the people will suffer in big time and the top notch of the government will be looked after by state funds... I am not against this privatization hoax,,, but what I feel is that there should a way out if they jeopardize our daily lives....