Colombo Telegraph

When State Enterprises Are Run At A Loss Who Benefits?

By 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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