Today there is a worldwide consensus that the government has no business in business. Even traditional activities thought to belong to the realm of government, like building roads, providing water supply and running jails are not considered untouchable anymore.

These enterprises are being increasingly privatised, especially in the US. As success stories mount, governments worldwide are assessing the feasibility of a much greater role for private enterprises than had been earlier envisaged.

Since 1990, over $1 trillion in government assets in commercial enterprises worldwide have been privatised. Twenty five years ago there was little practical evidence of whether PEs worked better or private companies were more efficient. Today we have overwhelming evidence to conclude that:

- Private firms are more efficient than their counterpart, state-owned firms, especially in competitive industries.

- Privatisation of PEs is likely to result in more open and competitive product markets. The benefits accrue to consumers, taxpayers and the nation’s economy.

Does it mean that private companies will always outperform PEs? No. The evidence merely points out what usually happens. PEs can sometimes do better, but that is an exception. When government policy is for privatisation, the odds are that it will do good for all of us.

Change from public to private ownership makes a crucial difference. There is no great motivation to improve efficiency when an enterprise belongs to all of us. There is a great incentive to improve performance when the benefit goes to one or some of us. This is the rationale behind success of private companies.

An enterprise running as a separate, for profit, company has to work in the interest of its investors and shareholders. A government department has no such obligations.

Losses may drive a private company into bankruptcy, whereas losses in government usually result in a higher budget allocation the next time around. The government has a wonderful way of ignoring losses.

It has the ability to print notes. Private companies do not have this option. Isn’t that the reason for this country bearing the huge burden of RNAC and Rastriya Banijya Bank’s losses year after year?

It is high time to do away with this foolishness. Selling half of all PEs in the next one year would be a good start. Achieving this target would lead Nepal to one day get rid of all its PEs and thus eliminate the huge drag, which these exert over its growth.

There are other benefits of privatisation. The government of Nepal, after getting rid of PEs, would be better able to focus on what are its essential public functions, such as maintaining law, order and justice.

I once attended a superb presentation on privatisation by Ruth Richardson, ex-finance minister of New Zealand.

She said that the first thing for a government to do is to get an all-party consensus regarding privatisation. Why do the state and political parties have to take the blame for badly managed airlines and post offices? Don’t they have enough on their plates already? Why indeed.

These days Richardson advises countries on privatisation and her services are in great demand. She also talked about how not to privatise. If privatisation is poorly designed and executed it stinks, she says. There are no benefits and the entire process gets a bad name. This must be guarded against.

An example of a wrong way to privatise would be to go from a PE monopoly to a private monopoly. For example, while privatising RNAC, care must be taken to see that no monopoly privileges fall to the new private airline, otherwise benefits to consumers will be dissipated.

Private monopolies behave no better than public monopolies and problems of high prices and low-grade services may remain.

The evidence is clearly out. Privatisation, if carried out properly and in a transparent manner, holds great promise. It should be an integral part of Nepal’s blueprint for a freer, more prosperous nation.

(The writer can be contacted at: everest@mos.com.np)