The Myth of Privatisation

Daily News, Colombo
http://www.dailynews.lk
February 10, 2004

Those of us watching these developments unfold wonder whether the scheme of privatisation has been carefully selected as the most viable option to develop the country after consulting the public through economic specialists? Or was the decision made elsewhere? It is important to find out on whose advice our policy makers decided on privatisation.

The citizens of a country get to enjoy the right to development through the development of the country he or she lives in. The development plans for a country are drawn up by its rulers. The plans so drawn up must necessarily be geared to meet the development needs of its citizens.

These days our rulers are also busily preparing a blue print ostensibly for the development of the country. One of the main vehicles for such proposed development is the privatisation of public enterprises. Through a massive publicity campaign in the print and electronic media that no doubt cost several hundred millions of rupees in public funding, we are inundated with promises of a rosy future through privatisation.

Re-energising through privatisation has become the theme of this programme. The television advertisements show that the burden hitherto carried by the nation will be relieved through privatisation and how light and happy the people removed of such burden will be thereafter, depicting privatisation as the only saviour of the people of Sri Lanka.

Will prosperity and happiness dawn on the people of Sri Lanka as so cleverly depicted in those colourful advertisements by privatising public enterprises.

The Lakbima newspaper of 18.8.2002 reported that the World Bank has advised Sri Lanka to finalise the privatisation of State enterprises by December 2002. The report further stated that foreign aid to Sri Lanka for the next year is dependent on how Sri Lanka will implement these measures.

Reviving the economy

The countries that gave foreign aid to Sri Lanka, previously known as the Sri Lanka Aid Consortium is now known as the Sri Lanka Development Forum. At a meeting held in Sri Lanka on 5th and 6th June 2002 in Colombo between representatives of these countries and the Directors of the World Bank, discussions were on as to how Sri Lanka should manage its economy, consideration of the proposals of the World Bank and the IMF to 'revive the economy' and government's acceptance of those recommendations, to assess the implementation of the proposals accepted by the previous government and to call for explanations where changes have been effected unilaterally to agreed grant conditions.

However no pledge was made as to the amount of money Sri Lanka would be given as aid at this meeting and the decision was deferred till the next meeting.

Acceptance of conditions and decisions on the quantum of aid is taken at two separate meetings to ensure that the government takes certain key steps leading to the carrying out of the agreed conditions.

It is through this mechanism that the World Bank, Asian Development Bank and the European Union achieve their objectives. These institutions have stipulated that any country wishing to obtain aid from them must present proposals to alleviate poverty in their country. The ultimate objective of this condition is to enable the opening of the human and natural resources of the country to the plunder of multinationals and to develop international trade.

This is obvious when one looks at the proposals devised to alleviate poverty in Sri Lanka.

Proposals for poverty alleviation

According to these proposals 90% of those in poverty is in rural Sri Lanka. Only by pulling the rural poor towards national and international markets can one eliminate rural poverty in Sri Lanka.

For this purpose a number of proposals have been made to ensure that a network of Highways running from Colombo to a number of main cities are being built; telecommunication networks are developed, migration to cities encouraged; Governmental expenditure on health and education curtailed by enabling greater participation of the private sector, all welfare measures curtailed; water resources sold in the guise of water management, town management and garbage disposal privatised and state enterprises privatised. We do not propose to discuss all such plans made for 'development' and would limit ourselves only to privatisation.

In discussing whether Sri Lanka can be developed through privatisation, it is indeed pertinent to look towards the lessons learnt in the past and to the services provided by these institutions prior to privatisation.

Examples justifying non-privatisation

By now the entire trade in the sale of LP Gas is in the hands of the private sector. Shell Gas now sells LP gas at Rs. 602 per 12.5 kg cylinder, which the consumer obtained at Rs. 210 per 13 kg cylinder before privatisation.

Within the last 6 years the cost of a domestic cylinder of Gas has gone up by as much as Rs. 380.

Postage and telecommunication costs have been on the rise ever since these services were subjected to semi-privatisation and the charges levied by all the private telephone operators in the country is still higher than the semi-privatised Telecom. With the de-activation of the Paddy Marketing Board, while the farmer was reduced to burn up his harvest due to his inability to sell the paddy at harvest time, prices of rice went up as much as Rs. 38 - Rs. 42 per Kilo. This situation was prevalent throughout the last few years.

The bulk of passenger transport was given over to the private sector after 1977 when the open economy was introduced in Sri Lanka.

Within the twenty year period that has lapsed, the bus travelling public knows that passenger services did not improve while bus fares increased regularly and the number of accidents involving private bus went up at an alarming rate.

These few examples should be enough to convince anyone that privatisation is not the panacea to all our ills. The collapse of the Tractor Corporation since it was semi privatised is another example.

On the other hand those enterprises earmarked for privatisation is not all loss making entities as we are made to believe.

Another set of institutions to be privatised soon is the State Banks. Some of the main arguments put forward for their privatisation are that these institutions are not efficient, are not managed efficiently and that they have now become loss-making entities.

Yet we can assess the position of the People's Bank and the Bank of Ceylon by their own financial records.

According to these statistics the People's Bank suffered their biggest loss in the year 1998. According to E. Somachandra, President of the Bank of Ceylon Workers Union the loss for that year was so high because a number of loans were identified as non-performing loans.

The total so identified as non-performing loans are Rs. 24,000 million. Mr. Somachandra has further said that half of these loans have been given to only 4 Sri Lankan citizens.

What this shows is that if the state banks have suffered a set back, then the responsibility lies squarely with politicians whose interference to obtain massive loans at will to their henchmen by-passing normal bank procedures.

Privatisation is not always a solutions for financial crisis

On the other hand, there are countless examples to show that restructuring or privatisation alone cannot lift an institution in financial difficulty.

The sealing of the Pramuka Bank is a case in point. Just because an institution is private does not necessarily mean that it is financially sound or that it is managed efficiently.

Another case in point is the situation that arose with the privatisation of the management of the People's Bank. According to the President of the People's Bank Union branch of the Ceylon Bank Employees Union, the Banks failed to perform to the expected level in spite of the plans made to resuscitate the Bank by 13 consultants recruited at extremely high salaries outside of the Banks management cadre.

These examples clearly show that privatising state enterprises doesn't mean that the public will receive a better service because of it and that it's a myth that a country can develop with privatisation.

A writer by the name of Vikum Ruwan writing to the Lakbima newspaper of 8.7.2002 had argued that the concept of privatisation is now obsolete.

The writer had by way of example taken the situation in the estate sector pursuant to privatisation. A number of factories in the Bogawantalawa Plantations are facing the imminent threat of closure, which would jeopardise the jobs of 81 staff and 2045 labourers.

According to eminent economist Dr. Jayantha Kelegama the power sector in California faced a complete collapse with privatisation. (Lankadeepa newspaper 8.9.2002). He further points out in the same article that the East Asian economic collapse in 1997 - 1998 was caused by Private Banks.

Argentina's banking sector was completely in the hands of the private sector. Yet that did not forestall the economic collapse of that country.

Dr. Kelegama points out that some of the most developed countries of the world have still retained state control over a number of sectors.

He stated that France has over 3000 state enterprises, that all economic activities in Norway is carried out by the Government and that 1/3rd of the total workforce in Norway are government workers, that Japan has 163 state enterprises and that they are all profit making ventures, that Malaysia has 800 state enterprises, Indonesia has 164, South Korea has 141, Thailand has 67, that the ownership of the biggest factories and Banks in Taiwan and Korea are with the government.

He says that 60% of the GDP in Singapore comes from the government and that Singapore Airlines, the most efficiently run airline in the world is managed by the government.

Dr. Kelegama states that a country can be developed not through privatisation but through eliminating political influence from state enterprises by appointing people with proper administrative and management skills to manage them, by giving them action plans and targets to reach within specific periods, taking necessary action against officials not meeting those results on target and by opening up new industries.

This is like applying medication to the back of a person who has filaria (in the leg). If state enterprises are sold off and welfare measures to the poor are cut off as advised by the World Bank and the IMF, then the only possible result is that if people are burdened to some extent now, then it is likely to increase by two to three fold in the future.

http://www.dailynews.lk/2004/02/10/fea03.html