Opinion
- Editorial- Commentary
William
Lucie-Smith:
Why
we should privatise now
A few weeks ago I suggested that the PNM government
from 1991-1995 had been more successful than the last
administration. Two significant economic achievements
of that administration were the abolition of exchange
control and a successful privatisation programme.
Unfortunately now that the Government has a strong
revenue base from a booming economy it appears to have
abandoned privatisation as an economic policy. This
is a great pity and is very short-sighted. The best
time to undertake a privatisation programme is when
the economy is doing well and there is significant
demand to purchase the businesses to be privatised.
Businesses can be sold directly to local or foreign
owners or even floated on the stock exchange to help
build the local capital market.
It is my personal belief that the state is wholly
unsuited to the ownership and management of companies
engaged in business in competition with the private
sector. This is because the governance structure of
state enterprises does not lend itself to efficient
decision-making. Frequently there is political interference
or even when there is not, the centralisation of authority
in a political board leads to weak management and inefficient
use of capital.
Private sector ownership is likely to lead to a more
efficient use of capital and more sustainable employment.
The State should confine itself to a development role
and divest and privatise just as soon as the industry
is economically viable and open to competition.
The state took on the developmental role as part of
its early industrialisation programme. In many cases
foreign investors wanted the comfort of having the
state as a joint venture partner, and in some cases
only the State was prepared to take the economic risks
involved in the investment.
It is a matter of argument as to whether the development
and industrialisation progammme was in fact a success,
or whether the private sector could and would have
made the appropriate investment at the appropriate
time. A number of the companies bought or started by
the Government were in fact huge loss-makers that were
a significant drain on the treasury and consequently
held back other possible investments.
Nevertheless the intention to promote industrialisation
was a legitimate one. The original privatisation
programmes were forced on the NAR Government simply
because the state could not continue to subsidise
inefficient, loss-making industries.
Companies like ISCOTT and Trinidad and Tobago Urea
Co, never generated a profit and were finally sold
for much less than their original cost to foreign investors
(Ispat and Arcadian respectively). There is no question
that Ispat (now part of Arcelor Mittal) and TTUC (now
part of PCS Nitrogen) are now very successful companies
and part of highly successful multinational groups.
They provide greater and more secure employment on
better terms and conditions than their predecessors
ever did.
The
same could be said about other successfully privatised
companies including Fertrin, TCL, T&T Methanol,
and EOG Resources (formerly Trintomar), to name just
a few.
Of course not all companies succeed and we have seen
the privatised BWIA fail just as many other companies
in the private sector fail under competitive pressures
and with limited capital.
Sometimes
the state is required to invest to correct the failings
of the market (Caribbean Airlines would
be an example). State ownership, however, can give
the employees a false sense of security in their naïve
belief that profit is not essential to sustainability.
Ultimately we have seen BWIA, TTT and Caroni closed
as the state was unable to continue funding losses
indefinitely just to maintain employment that was not
self-sustaining.
The trade union movement has always been against privatisation,
which needs some explanation if the policy is as much
in the national interest as I have suggested. The explanation
is simple. The lack of political will to reduce employment
levels when dictated by economic conditions means that
state companies are easy to negotiate with and often
have bloated levels of employment. This inefficiency
is obvious for all to see but hard for the state sector
to deal with.
One corollary to over-employment is that the state
sector is often grossly underpaid for the necessary
skill sets. In times of collapse a government has set
the precedent of guaranteeing a generous severance
settlement. So although the reality is that the employees
are on average far better off in privatised companies
the security of state employment remains attractive
to unions.
Now is absolutely the right time to move aggressively
towards further liberalisation and privatisation,
while the economy booms and there are many potential
purchasers. We are already seeing companies under
state control performing well below acceptable levels
of efficiency including (but not limited to) the
Port, National Flour Mills, Plipdeco, Petrotrin,
NP and TSTT.
There are also well managed enterprises that could
flourish in the private sector and make successful
IPOs to help develop the local stock market (eg Tringen,
Phoenix Park, Unit Trust, FCB, NGC and NEL).
My greatest fear, however, is that by not privatising
now we run the risk that we may be forced to do it
when the time is not opportune. Indeed if there is
any reduction in energy prices or production, the state
may be unable to afford to keep its large portfolio
and may be forced to sell when prices are low.
It is also true that given the scarcity of resources
in the booming economy the state should limit its focus
to priority issues e.g. improving the quality, training
and size of the police force and judiciary.
Time will tell.
William
Lucie-Smith is
a Trinidad Express' columnist. Petroleumworld
not necessarily share these views.
Editor's
Note: This article was first publish
in Trinidad Express, Monday, January 14th 2008.
Petroleumworld reprint this article in the interest
of our readers.
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Petroleumworld
01/ 13 /07
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