‘What is lasting is not what resists time,
But what wisely changes with it.’ – Peter Muller

Economic growth is vital for any country. The existing systems, whether political, economic or social, in India are collapsing and destroying the very talent and potential of the people. If governments wish to reduce poverty, they need to improve the environment in which private institutions operate. Creating efficient, dynamic, and growing private sectors seem the only way to increase the rate of economic growth. The capability is there, just needs a little push from the right sources and in the right direction. That is possible only when the right infrastructure, environment and management are available.

Government-run institutions and business are poorly operated and managed. This is due to the poor quality of government institutions, the high level of corruption, influence of special interest groups, lack of competition, dedication, competence and sincerity on the part of all who hold powerful positions. They may become interested in improving them only if they are politically sensitive. They are also prone to corruption; employees may be selected for political reasons and on the basis of recommendations rather than for commercial purposes or merit basis. The government may at times run a company for social goals rather than commercial ones. Then public or nationalized industries can be prone to interference from politicians. This breeds inefficiency and incompetence.

‘No one ever planned to fail.
They simply failed to plan.’

Privatization means transfer of risk by the government or public sector to the private sector by giving up management control and usually ownership (at least majority shares) in an enterprise. It differs from commercialization as in this case the government retains business risk and ownership but makes changes in the way the company operates so that it runs on business principles. Privatization or de-nationalization helps to establish a capitalist economic system, competition, readily available products and services, high quality, more exports, better services, more opportunities, growth, etc. The primary objective of privatization should be to find the private owner who is most likely to improve the performance of the company.

Due to the poor performances of our government-be it in the field of political governance, education, industry, etc., it becomes very important to resort to privatization of these institutions and systems. An example to support would be privatization of many companies producing consumer goods. People had to queue, sometimes for days, to get cement, rice, sugar, milk, etc. Now it’s readily available and at times maybe cheaper where competition prevails. Many of the improvements we take for granted now are the result of privatization.

‘Perfection may be impossible to achieve.
Excellence isn’t.’

The issue starts with education. It is said that the first step, which one makes in the world, is the one on which depends the rest of our days. The educational standards in developing nations are pathetic, not only in the government institutions but also in the numerous insignificant private institutions. The teachers in the government schools are at times more qualified that their counterparts in the private ones but they do not give their best to the students admitted in the government institutions. Also, there is lack of job satisfaction among them, which makes them shirk their responsibility. Academics are protected from competition and face little pressure to improve.

 As rightly said by Ayn Rand, “Men are an anti-climax to their own talents”.

The government and the bureaucracy do not allow the speeding up of the educational standard of our institutions. It is thus essential to establish high quality educational institutions, with brilliant management and standards. Privatizing this sector would revolutionize the very concept of education. It could change the very thought process of the teacher and the taught.

The next critical area is the business. The business environment includes all those institutions, policies, laws, and regulations that affect the performance of private firms especially the quality of infrastructure such as roads, power, telecommunications, water supply, sewers, and ports; and the health and education of the workforce. Inefficient state-owned or public companies often dominate the economies of poor countries thus reducing economic growth. Such is the case of our nation too. Recent studies have revealed that many companies are poorly managed and inefficient in poor countries because they are protected from competition and face little pressure to improve. There is a growing consensus that such companies should be transferred to private ownership, i.e. privatized. The so-called efforts of the government to develop these public or even the private sectors seem useless. Even while resorting to expert recommendations regarding the economic uplift in the poor states, these are no better than policies and institutions that exist in the rich countries. But the problem is that the ability of our governments is different than that of the rich ones. Government’s monopolistic, procedural and bureaucratic tendencies are well known to each citizen of our country!

In his book, Just Get Out of the Way, Robert E. Anderson argues that ‘a good business environment will encourage private companies to be more productive, offer better products and services at lower prices, export more, expand and invest in new capacity, hire more workers, and above all else increase wages and salaries’. The main conclusion of his book is that many government programs and policies which are apparently or in theory designed to help the private sector actually impede its development. He regards that the ‘Government is the Problem, Not the Solution’. Though politicians and government officials say that they support the private sector, many still favor policies to control them rather. What he mentions very aptly applies to our nation or state. According to him, the only way out is privatization in its real essence. His suggested method is ‘to sell 100 percent of the company to the highest cash bidder in an international competition open to all investors. The investor willing to pay the highest price is the one most likely to have the best plan for improving company performance. In addition, this method will maximize the revenue to the government from the sale’. The state can also allow foreign investment to upgrade and modernize the enterprises and institutions, making them internationally competitive.

Next target could be the banking sector. Competitive and efficient banks can be a major force for economic growth as they can transfer the public's savings to those businesses that need capital for productive investments. Unfortunately, many banks in poor countries are inefficient, non-performing, or insolvent. However, as long as deposits are growing, they are able to pay their interests and thus remain liquid. Such banks can continue to operate sometimes for decades until deposits decline. Even the much hyped about J&K Bank is not excellent in terms of the customer service in Kashmir though it can claim to be the best bank in the country. But the fact remains that the service it provides to our people is nowhere as compared to other states; the obvious reason being lack of competition in the banking sector in Kashmir. Like in education, banks are also protected from competition and face little pressure to improve. Foreign and private banks should be allowed to enter the local market. If depositors don't trust domestic banks, they can switch to other options. This will also increase competition and make the owners and decision-makers more aware and sensitive.

The telecom industry could be another target. Our telecommunications industry no longer meets national or international standards for efficiency and responsiveness to customer needs. Again, total lack of competition has shielded it from market pressures and allowed it to grow at an impressive rate. The example is BSNL’s CellOne Mobile services. Once private companies like Reliance or AirTel entered the scenario, they have geared-up a bit! Privatization of government telecom monopolies has been a feature of the 1980s and 1990s. The results have been real good. Mobile telephones and Internet growth has been explosive and shows no sign of slowing down. Considering the fact that 70% of US corporations are on-line compared to 1% in Asia, the potential for further growth becomes obvious. Internet will prove a stimulus for telecom companies. In other places, e-commerce and video-conferencing has taken off, which is again good for phone or fax companies. Telecom companies can derive huge income from this growth. They will provide the infrastructure, security, consulting services and even what is popular as ‘one-stop-total-service-shops’, earning huge profits.

Other targets can be the little thought about prisons, detention centers, hospitals, agriculture, health, sanitation, etc. All these areas lack proper administration. Our medical, psychiatric and dental hospitals are in shambles. Though private hospitals have emerged but then they too have degraded their services due to lack of proper competition. As long as patients come to them, there is no need for further improvement or even required maintenance.

‘Circumstances cannot be changed.
But your response can be.’

In a set up or environment with a strong tradition of socialism and bureaucracy, the government's privatization program has always had its impediments. Generally, the government adopts, if it does, a very complicated privatization policy. They then use complicated procedure for selecting the owner, impose conditions on the management of the company, sell only part of the company to retain partial control or to intervene in management, restrict or prohibit foreign investment, sell the company shares to small domestic investors who have little ability to manage and so on. Special interest groups such as wealthy businessmen and ruling politicians usually pressure the government to keep the undertakings running that ought to be liquidated. Thus a large share of the State’s productive assets and work force remains locked up in inefficient and unprofitable companies. The reviving and awakening of the governmental units and institutions to the modern practices and modus operandi seems difficult or impossible. Efforts to improve the functioning of these institutions by the government may not be effective for many years. The point that even the private organizations in this State are not very well established or performing is genuine. But the blame can be placed mostly on the political governance- laws, policies, and institutions created by governments.

What is needed is a change in the administration and management of the sick and bad-performing units. The reins should be handed over to the private organizations or individuals with competent and ethical management skills. A fresh approach is required- enterprise restructuring, privatization, and liquidation of non-performing and sick units or even commercialization for a start. What is important is that they should deal with competition and quality issues. The non-performing or sick companies can either be restructured or commercialized. However, at times selling organizational assets can be a better decision and hence liquidation can be resorted to. The best way to improve the performance of private business is to eliminate government barriers to competition like tariffs, licensing, legalities, and other restrictions. With the initiative to start up privatization in all government sectors, it will start a drive towards quality, competitiveness and high standards.

‘The great are great only because we are on our knees.
Let us rise.’  

May 13, 2007

Image under license with Gettyimages.com

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