TAKING STOCK : Privatise, with care
Worldwide, privatisation picked up speed during the last 15 years. The World Bank reports that “privatisation is now so widespread that it is hard to find countries not using the approach: North Korea, Cuba and perhaps Myanmar make up the shrunken universe of the resistant.”
This great sale of public enterprises (PEs) took place as evidence kept mounting of net benefits to be obtained from privatisation. As far back as 1992, John Moore, a former finance secretary to the UK Treasury, stated that, “In my view the argument about state versus private industry in the UK is over. Private ownership has won … the reason that the political contest over privatisation came to an end is simply that implementation succeeded. Facts overtook the debate.”
That was 15 years ago. There is now even more evidence of the folly in governments running businesses. Private firms are just more efficient and benefit consumers, taxpayers and the economy. Thus when the government of Nepal stated its intention to privatise eight PEs in the next six months, we cannot but congratulate it on thinking correctly.
However, this does not mean that the government should proceed with its privatisation plan without learning from the world’s experience. All privatisations have not worked well.
One egregious example of bad privatisation has been the former Soviet Union. The failures in Russia arose from extreme political and economic turbulence with the mafia making a mockery of government’s attempts at establishing the rule of law. Insecure property rights and a corrupt privatisation process saw incumbent managements with political connections become owners of PEs.
The new government in Nepal must keep in mind the following keys to a successful privatisation programme.
a) Deregulate before privatising:
Deregulation means if the PE enjoys a monopoly, then that privilege must be abrogated before the sale. If RNAC and Nepal Telecommunication were sold with their monopolies abolished, it would mean more competition, lower prices and better standards of service for all of us who travel by air and make phone calls. This is particularly important for the poor who will find that the new competitive services are suddenly affordable.
(b) The sale should be open to foreign and domestic buyers:
If the sale of a restructured RNAC and other PEs is advertised in international media, such as The Economist, it is likely that a better price, and that too in foreign exchange, would be obtained. Also, this would signify in no uncertain terms to the international investors that Nepal is ‘open’ for business.
Nepal will also get foreign managers and expertise. The gains from improved efficiency are bound to be huge. Without foreign ownership and investment, there would be little hope of getting international quality technical know-how or management. If domestic airlines had been opened up for foreign ownership, it is likely that the safety record would have been better.
For us as the consumers, it does not matter who the owner is as long as great service is provided to us at competitive prices. Allowing international companies to run phone services will immediately improve quality and competition would ensure a huge drop in rates of land and mobile services. Regardless of to whom the sale is made, the assets and jobs remain in Nepal and the government’s power to tax is not affected either.
c) Privatise in a transparent way:
The process which inevitably attracts criticism must be defendable and people in charge of the sale should be known to be competent and honest. The sale must be above politics, transparent, and conducted by people of absolute integrity. If a small coterie of decision-makers, working for their own benefit manages the sale, the whole country loses and privatisation gets a bad name.
d) Ensure resources from privatisation are put to good use If the sale proceeds are used to fund an increase in wasteful government activity, then obviously there is little to gain. If, however, the money generated is used to retire government debt that probably would be a beneficial use of this revenue.
e) Communicate with the public:
This is perhaps the most important aspect. Before the sale, the idea behind it must be sold to the people. The benefits to them must be highlighted and public opinion prepared. If possible, all party consensuses may be forged to put the process above party politics.
The benefits of privatisation are immense and Nepal’s people need to encourage the government to take further steps without delay. ‘Privatise, but with care’, must be the new government’s ‘mantra’.
(The writer can be contacted at: firstname.lastname@example.org)