Should government still be in business?

At a recent roundtable on business climate organised by The Financial Express, the vice chairman of the Export Promotion Bureau has posed a pertinent question: should the government be doing business at all? The question is as old as the state-owned enterprises themselves and is more relevant today than ever before, but it seldom received the attention it deserves.

In the current era of hyper-competition when technology is going through a revolutionary change and the demand for managerial excellence is increasing, government-owned enterprises are mostly being led by general-cadre administrative officials who lack business operation skill and integrity. So, what happened was inevitable. The government continues to carry the burden of state-run enterprises that, in most cases, fail to justify their existence.

The state-owned businesses of the country reflect a legacy inherited from the philosophy shaped during the early years of independence, when the state took upon itself the responsibility of producing and distributing essential goods. Over time, the global and local economic landscape changed massively and private sector entrepreneurship began to flourish. New players arrived with better managerial skills, innovative ideas, adaptive strategies and improved financial discipline. They outperformed state-owned enterprises in efficiency, strategies, innovation, and sustainability. But state-owned enterprises continued to operate with persistent inefficiencies, outdated technology and at chronic losses.

The cadre-service officials, who are entrusted with the tasks of leading public enterprises, may be highly capable in administrative or bureaucratic tasks, but running a business needs an entirely different skill set. Managing production and supply chains, driving profit strategies, tackling financial risks, maintaining competitiveness and protecting shareholder interests are not the tasks that bureaucratic training prepares one for. The mismatch between business requirements and administrative training inevitably produces inefficiencies.

A lack of accountability, transparency and integrity are a few major issues that most state-owned enterprises face. While the private sector is governed by discipline and accountability, public enterprises show the opposite trend. The governance structure in most state-owned enterprises is weak, with little internal oversight and almost no consequences for poor performance. Audit observations accumulate year after year with almost no corrective action. Boards are often constituted with people without expertise to ensure good governance. Political considerations sometimes influence key decisions -- from procurement to recruitment. On the other hand, those appointed to lead these businesses often serve short stints - they come from other assignments and again are transferred to some other posts. Such short tenures work as a deterrent to the development of a sense of ownership among the leadership as well as to making meaningful changes. So public enterprises keep making losses and are protected by taxpayers' money. The same scenario prevails in public enterprises in diverse sectors - from jute to textile, sugar to medicine, postal to telecom, transport to engineering.

On the contrary, private enterprises cannot afford making losses. Market pressures force them to innovate, adapt, and manage resources efficiently. If any private enterprise fails to keep up and make losses for a long period, it risks defaulting on loan repayment. Once anyone becomes a defaulter, s/he becomes ineligible for fresh loan, running public office and even risk imprisonment.

Now a question remains -- should the government completely withdraw from all sorts of commercial activities? Global experience suggests that governments need not be completely absent from such activities, but their involvement must be strategic. Sectors related to national security, essential public services, utilities, or large-scale infrastructure like railways require state ownership. But in such cases, professional management is necessary, not administrative control. Many countries have corporatised state-owned enterprises, choosing performance-based appointment models, constituting professional boards, and adopting international reporting standards. China is a bright example of running public enterprises viably. Bangladesh has made attempts for reforms in public enterprises, particularly state-owned banks, progress remains slow. The country should no longer carry the burden of loss-making state enterprises in non-strategic sectors where the private sector has demonstrated clear superiority. If the enterprises in strategic sectors are to survive and make meaningful contributions, they must be restructured with a strong emphasis on professional management, transparency and strict performance metrics.

rahmansrdk@gmail.com