Does privatisation secure the public interest? 

The privatisation of the public companies is justified by the fact that the private sector will be able to carry out these economic activities and utilise these assets to a higher level

Introduction 

The role of the Government has been an area that was up for debate; there are many different philosophies that explain as to what are the key activities that the Government will need to undertake in order to benefit the people of the country. The primary target of the Government is to improve the quality of life for the people. The Government also has to consider the economy and make sure that economic development takes place so that the lives of the people are enriched. While some of the nations have been able to successfully develop the economies such as Singapore, there are many other places where the market forces have provided a more effective outcome when compared with the Government activities. 

The private sector would look into the market forces and allocate the sufficient resources accordingly. Thus, the market mechanisms associated with these activities are likely to be beneficial and the parties will be able to achieve the right outcomes in terms of managing these challenges. 

Importance of privatisation

The privatisation of the public companies is justified by the fact that the private sector will be able to carry out these economic activities and utilise these assets to a higher level. It is often the case that the Government sector is not profit-focused. When the Government entities are being managed, the lack of profit focus and target driven environment would eventually lead to inefficiencies in the operations and deteriorating the productivity of the organisation. Whilst maximising the benefits to the people remain a key area of importance, the Government sector related inefficiencies would eventually lead to wastage of many resources resulting in the inability to meet the intended results. While many countries still maintain very large state-owned enterprises, there are many examples of effective privatisation and how this has impacted different sectors in a positive manner. Thus, the outcomes have been successful in many different areas and hence privatisation remains an area of focus which requires appropriate attention. 

With the increasing focus of the Government being a regulator and facilitator in a country, they have been moving away from the commercial enterprises/profit-oriented sector. In Sri Lankan context, the successive governments also continued to move towards a more neoliberalist economic model and as a result of this they have started privatising many different industries. This has contributed to many positives as well as negative issues related to these areas. 

Core prospects 

The main prospect associated with the privatisation is the increasing productivity of the organisations which will be able to continue to improve the performance levels and achieve the desired outcomes. Basically, the private sector should generate the profits. That’s what they exist for. Moreover, the private companies also do not have the liberty to depend on funding by another party. Thus, the private companies are compelled to focus on the overall performance whilst achieving sustainable development. This would improve the financial focus and because of this, the state enterprises can be converted to more efficient operating units that will generate profits. 

They will also have the ability to focus on the market needs. When they have the right focus on the market expectations, they will be able to develop the products and services according to the market demand. This means that they will be able to modernise the activities in line with the customer expectations. This shows that the markets will also benefit from the privatisation of these enterprises due to the competition. The economy is ultimately expected to benefit because of the privatisation as the Government will be able to utilise the funds for other development as well as welfare activities. These are some of the important areas of concern that require attention. 

Then the employees are expected to be more performance-oriented as they have to achieve certain targets if they want to sustain or upgrade. They will be required to work with a specific set of outcomes in mind to secure their jobs. These will allow them to look into achieving certain benefits in the future. The career growth for the employees also can be better facilitated through privatisation as the private enterprises continue to look for growth opportunities. Especially in Sri Lankan context, the majority of promotions of Government employees are driven by seniority. Whether they perform or not they are promoted after completing the required number of years. Consequently, the Government enterprises on the other hand could allow the employees to stagnate in their comfort zones.

Major limitations

Nevertheless, there are many issues that should be considered before making the final decision to privatise certain enterprises. This is due to the fact that the private enterprises are highly focused on generating profits and operating in a competitive environment. They rapidly amend the prices of their products or the services according to the market indicators with the intention of making profits than the competitors. This might highlight the fact that they will not be able to provide certain services to the lower income generating people of the country. The quality of life of the lower income generating group might be negatively impacted due to these issues. 

There are many instances which highlight the short-term financial goals that the private sector might have. Sometimes these state enterprises are very large organisations and have many undervalued assets. The private sector will be able to purchase these entities and then sell off the assets rather than actually continuing with the operations. These could harm the interests of the economy as well as the employees. This could prove to be challenging for the parties.

There are many instances that the private sector has not been able to efficiently manage the state enterprises. As a result of this, the quality of the services has deteriorated, and many other issues were identified to be in place. The private sector sometimes does not have the required knowledge to manage these state enterprises and has failed to provide the required capital and improvements to the work areas. These are some of the main issues that require attention when the privatisation is taking place. 

Success stories

There are many areas that can be identified as success stories related to privatisation; one of the best examples is the telecom sector of Sri Lanka. Prior to privatisation and deregulation of the sector, the state telecommunications giant had the monopoly in the area. However, the operation was so inefficient that the customers had to wait for many years in order to obtain a telephone connection. Thus, the customers were always inconvenienced without being able to receive high-quality service from the company. After allowing privatisation and deregulation, many players entered into the market and the competition has resulted in improved efficiencies as well as quality of services. 

The same can be identified related to SriLankan Airlines; when a part of the company’s shares were sold to Emirates Airlines, they had been able to provide the company with the management know-how and technical expertise. The improvements related to the quality of the operations have benefited SriLankan Airlines. The eventual result was that the company has been able to generate profits and achieve beneficial outcomes. However, after the Government took over the operation, SriLankan Airlines started making massive losses. This shows that renationalisation of the airline has not been able to provide the specific economic outcomes which were expected. 

However, owing to some of the decisions taken to privatise state enterprises in the 1980s and 1990s, the country has lost many production facilities as the private sector only had short-term goals of taking over the assets and selling them at a high margin. This shows that privatisation has not been a total success story in the context of Sri Lanka. The successive governments have changed their policies related to privatisation from time to time. The governments from 1977 to 2005 have been maintaining the different policies of privatisation of the state enterprises. However, after 2005, a limited renationalisation drive was initiated. Thus, the consistency of the privatisation policy of the country is in question and changes with the governments that are in power. 

The way forward 

The privatisation of the state enterprises has become a part of the neoliberal economic policies of the world. The policies were devised with the view that the Government has to move out of the commercial activities and provide the private sector to manage these activities. The Sri Lankan Government consecutively followed this policy from 1977 to 2005 with mixed success. While some areas such as the telecommunication sector have seen a higher degree of success due to privatisation, the other sectors such as textiles, chemicals and other industries have suffered due to privatisation. The production facilities were either left to deteriorate due to the lack of knowledge by the private sector or they only had short-term targets with these facilities. Thus, it is important in the future to identify as to how the privatisation policy can be developed and what the results are expected to maximise the beneficial results to the public through privatisation. 

(The writer is a Chartered Accountant.)