4 December, 2020

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When State Enterprises Are Run At A Loss Who Benefits?

By R.M.B Senanayake

R.M.B. Senanayake

R.M.B. Senanayake

Mr. Mohan Samaranayake and some University Professors who participated in the election campaign debates on Sirasa TV echoed the President’s claim that he had not privatized a single State Enterprise but instead had taken back to the State the enterprises like the Sugar Corporations which were privatized by previous regimes. All this is said as if the interests of the people were furthered thereby. Since most of these speakers had a Marxist orientation they have to be reminded that the Marxists see the State Enterprises as instruments to accumulate capital which is prior necessity for development. They say such capital accumulation unlike similar capital accumulation by the Capitalists will be invested thereafter in the interests of the people instead of the interests of the Capitalists. But destruction of Capital instead of its accumulation was never contemplated by the Marxists and vitiates the rationale for the State running business enterprises.

The previous generation of Marxists like Dr N.M Perera, the economist was committed to this task. He realized that when State Enterprises are run at a loss they bleed the people since such losses have to be funded either by more taxes or higher inflation due to borrowing from the Central Bank and the commercial banks (money printing); both causing higher prices and a higher cost of living for the people. They are really destroying capital instead of accumulating capital. Capital is a particularly scarce resource in developing countries and arises from the savings of the people. Most of the State Enterprises are being run at a loss. Who benefits from such enterprises? Those who head these enterprises and their employees who are close relations or supporters of the regime. Why are these SOEs running at a loss? Because of corruption, excessive perks to the Directors and downright wasteful expenditure. These decisions arise from the need to give jobs and contracts to favorites of the regime at prices above market prices. Tenders are not followed or if they are followed they do not select the best tenderer but the highest bribe giver outside the tendered price. If the contractor has quoted too low he has a way out through extra-contractual payments given to them on the basis of influence or corruption. The World Bank in their publication “Bureaucrats in Business” have given reasons why SOEs cannot be run profitably by bureaucrats who have no exposure to business in the best of circumstances. Of course corruption is not one of such reasons since corruption is nothing but plunder of the funds of the people. It is corruption that seems to be the major cause of the losses in State Enterprises under the regime.

To make matters worse several SOEs are monopolies. Economists consider all monopolies are harmful to the public. The CPC after fifty years of experience imports inferior petrol? How come? Plain corruption through giving contracts of supply to unreliable and dishonest suppliers for those in power to make money corruptly. The consuming public suffers in two ways: through inferior petrol which damages their vehicles as well as through the consequential losses which have to be forked out by taxpayers. Sri Lankan Airlines, Mihin Air, the CPC are leading in destroying capital. So where is the rationale or justification for State ownership unless one accepts that the ill gotten gains of the powers that be, are in the interests of the people?

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Latest comments

  • 3
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    Hence the coming elections are a major IQ test for the Sinhalese. Will they manage to pass it – or are they still sucking up those endless lies MR is feeding them through multiple channels.

    Putin – Rajapaksa. The only difference is that Sri Lanka is not yet facing sanctions but believe me, they will come and they will cut all access for Sri Lanka to really become part of the world.

  • 1
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    Mahinda Rajapaksha and his siblings are those vested interest people who want to plunder the resources of the state enterprises by having to keep them with the state claiming to prevent corruption whereas it is purely for the purposes of corruption of the highest magnitude. As state by Mohan Samarasinghe, CPC, Srilankan Airlines and Mihin Lanka are the cases of examples.

    The general public especially the voting populations are very intelligent; no politician can ever attempt to them as was in the past. January 8th will be the D-Day, come what may.

    Corrupt governments and those who are part and parcel of such governments and responsible for such corruption cannot continue long forever to be in power because their continued stay in the corrupt governments and in such state-run enterprises is shortlived, no matter how strong and powerful they may seem to be.

  • 0
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    Mr. Senanayake,I am in agreement with your main argument.However, you have missed few salient facets of the SOEs running at a loss and the loss of revenue to the state. Your ilk welcomed some of the privatizations (i) to wit the privatization of the Distilleries Corporation.Let us leave the personalities involved but consider whether it did any good for the country. That was a bottomless pit for funds for the Govt. What does the govt get today only the Taxes, the bulk of the profits go to individuals who hold shares in the privatized company. I was disgusted of Mohan Samaranayake’s performance, but this has to be said.The Sugar Corporation used to report profits in the range of 25% before JRJ came in.Those accounts were not fudged, but subject to audit by the Govt Audit.It was ruined by president JRJ. I know how it was milked of each of it’s income lines by that regime.He was so mean that he interfered with even the distribution set up and handed over that arm to his party people. You refer to the CPC, what happened to the many subsidiaries that contributed to it’s profitability? They had an arm to assist the fishining net manufacture, what happened to it? What happened to the Fertlizer Manufacturing Corporation which took over some of the produce of the CPC and turned into fertilizer. That was the first unit to be destroyed by the JRJ_Ronnie combo.The import of fertilizer, according to President Premadasa went to two parties aligned with JRJ’s Presidential secretariat.Of the 145+ SOEs privatised how many are in operation? ABOUT 5 to 7. What happened to the Ceremic factory, what happened to the factory manufacturing toilet ware?

    In the private sector, with all the back scratching and other perversions, an employee has the chance of rising upto the Directorate? What are the prospects in the SOEs.There had been Tailors, Cigarette salesmen,PImps,karawadu salesmen, astrologers and one reported male consort of a male minister.What contribution can these jokers make to the running of the SOEs. At best what they have done is to appoint officers from the Administrative Service. Except a few most of them run to the Minister / MP of the area for decisions,decisions by them are not based on the exegencies of service.

    Why not consider the promotions within?

    You have also referred to Monopolies.Is it not a fact that Sri lankan Market is now dominated by about five monopolies – whose activity cover a broad section of the country’s economy.Do not you think that an anti monopolies act is a grave necessity?

    Over to you. Please don not ignore this comment, you response I await eagerly

  • 0
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    I wish to comment on monopolies. They are dangerous in a small economy unless they are exposed to foreign competition on a level playing field with the same taxes for both groups.
    Since we are a small economy we cannot obtain economies of scale in domestic production. The present trend is for regionalism and the smallest supply costs arise in our exports to South India. Let us capitalize on access to the large Indian economy through close economic relations but not political relationships to which most people object. As long as the world economy is open with free trade it is not as important but free trade is too much to expect when economic conditions turn adverse in the world economy. Economic growth is not an upward slopiong straight line but full of ups and downs and more circular.

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