& çâÌæÚUæð´ ·¤è ¥ôÚU Îð¹Ùæ ÁæÚUè ÚU¹ð´ ¥ÍæüÌ ¥ÂÙð ÜÿØ ÂÚU ŠØæÙ ÚU¹ð´Ð ãæÚU Ù ×æÙð´, €UØô´ç·¤ ·¤æ× ·¤ÚUÙð âð ¥æÂ·¤ô ©gðàØ ·¤è Âýæç# ãôÌè ãñ ¥õÚU ÁèßÙ ·¤æ ¹æÜèÂÙ ÎêÚU ãôÌæ ãñÐ ÖÜð ãè ÁèßÙ ×ð´ ç·¤ÌÙè Öè ·¤çÆÙæ§ü €UØô´ Ù ¥æ°, çÁ™ææâæ ¥õÚU ©ˆâæã ÕÙæ° ÚU¹ð´Ð ŠØæÙ ÚU¹ð´, ÜÿØ ã×ðàææ ¥æÂ·Ô¤ Âæâ ãôÌð ãñ´ çÁ‹ãð´ ÂæÙð ·Ô¤ çÜ° ÂýØæâ ¥æÂ ·¤Öè Öè àæéM¤ ·¤ÚU â·¤Ìð ãñ´Ð

INVITATION TO A DIALOGUE

Public sector, private sector fundamentally different

Private firms tend to be maximisers of profits. Public firms have more complex objectives, which incorporate political and distributional ends — often in conflict with one another. This fundamental difference between the objectives of private and public enterprises has profound implications on economic efficiency.

Syed S Kaiser Kabir
It is our god fortune that an academic of the standing of Professor Rehman Sobhan has moved away from taking a purely adversarial position on the concept of private ownership to assuming a positive and constructive role. True, the Professor by his own admission has not become a convert to free market principles, but in a sense, that does not matter.
What is relevant Is that Professor Sobhan, through his recent contributions in The Daily Star has demonstrated that his understanding of market economies Is far superior than what his critics have given him credit for.
Professor Sobhan has made several noteworthy points In his two-part article • The Public and Private Sectoral Two Sides of Same Coin" (DS Nov 22 & 23). I would like to discuss two of those points.
These are: (1) There is little difference between a public and private enterprise, and that if the operational environment Is right, even public firms can do well; and (it) Better governance Is essential for industry to succeed.
Ownership
!• do not agree with the proposition that there Is little difference between a private and a public enterprise, and ♦hat given the correct envi-
ronment both enterprises can do well. Professor Sobhan contends that, "when we get down to basics, a public enterprise is lust another institution, with a building, some machines, managers and workers In the same way as a private sector". In my opinion the similarity ends there. Private firms tend to be maximisers of profits. Public firms have more complex objectives, which Incorporate political and distributional ends often in conflict with one another. This fundamental difference between the objectives of private and public enterprises has profound Implications on economic efficiency. The arguments are well known and there is no need for their regurgitation in this brief article.
I would venture, however, to suggest that Professor Sobhan is indulging tn pure utopia when he claims that appropriate policies would Improve the health of the public enterprises. The issue is not whether good policies can be used to Improve the public sector, the point is whether good policies for the public sector can be Introduced at all. It Is extremely difficult to In-
troduce the "carrot and stick" approach, which is essential for good management, on a wide scale. In public enterprises anywhere in the world. The case of Bangladesh is no different.
To Introduce the "carrot", for example, In BTMC mills would mean inter alia, performance related pay in line with that of in the private sector. Imagine, a spinning master at a BTMC mill earning Tk 60,000 a month, while the earnings of a senior civil servant being only a third of that. The political uproar would be debilitating for most governments. Similarly, to Introduce the "stick in the government textile mills would Imply among other things, that about a third of the work-force would have to be laid-off tn the interests of economic efficiency. No government since 1972 has had the courage to take such a bold step.
The point is that to make the public sector efficient, there must be a complete overhauling in the way governments have traditionally functioned In Bangladesh. While, this may be a long-run goal, the fundamental nature of
government will not change (n the foreseeable future. We must look for more realistic and plausible solutions.
It must therefore be a goal to eventually privatise all the government enterprises. Some industries are easier to privatise than others. For example, on the one hand, BTMC can . readily be privatised because the competitive nature of the market ensures consumer welfare. On the other hand, the privatisation of a natural
monopoly such as power transmission, or for that matter any monopoly must be accompanied by a complex set of regulations. The details can be worked out later and it Is not necessary to address them In this article.
Privatisation will however not automatically improve the fortunes of the mills as Professor Sobhan has rightly
said. However, the relevant point is that the divestiture of the public enterprises would, eliminate the burden on the national exchequer and the nationalised commercial banks which have been financing their losses. The freed funds could then be used for investment In health, education, and physical Infrastructure.
There is another compelling reason for divesting the public enterprises. Many of the Jute and textile mills have been
kept alive through transfusions of public funds on a regular basis. Apart from being a drain on the treasury, these transfusions cause sickness among healthy firms. The reason is that the artificially sustained public firms continue to produce output instead of closing down, and this excess output dampens the market price, forcing all other firms to lower
their prices.
In competitive markets, where profit margins are low. this dampening effect on prices can cause healthy firms to experience cash flow problems. Thus for example, some loss making BTMC mills which by and large produce inferior quality yarn, are causing problems for some private spinning mills which are competing In that quality niche of the market. If the loss making BTMC were Justifiably closed down, the private mills could get a bigger share of the market and improve their profit position. Perhaps cotton textiles could be a more vibrant industrial sector tn the absence of the loss-making BTMC mills. (Of - course some private mills have been kept alive artificially as well, 1 deal with thia issue later).
Before moving to the second issue, l.e„ of governance, I must make a brief detour. I was horrified at Professor Sobhan's Insinuation that there is no conceptual difference be twee.n a government hospital or school and public enterprises such as those tn BTMC True, all of the above are pub licly owned, but that does not
mean that bpilding a case against BTMC must Imply that one Is also opposed to government hospitals and zilla schools.
There is a very good reason for government participation tn fields such as health and education. Consider education: every child who learns the three Rs, confers a benefit not only upon Itself, but on the community as a whole. Yet, private pricing of education, which is likely to be based only on a mark-up over costs would ignore the benefits to the community. Consequently education under complete private ownership would become too dear for many to the detriment of the nation. For this reason free or subsidised government schools are to be welcomed.
The same line of reasoning may be applied In support for Cvernment participation In alth. On the other hand, no such case can be made for ssy, the BTMC mills It Is not nec essary to have BTMC mills In order to get good quality yarn at low prices. Private partlclpa Don In a competitive market can ensure that Consequently. It does not seem to be a ten-
able position that If one supports government hospitals and schools, one must also be sympathetic towards the public enterprises.
Governance *-
I now turn to the second Issue. i.e., that of good governance and industrial efficiency. I will relate the Issue for the private sector only. Having outlined my views on the public sector, this restriction of the discussion to Include only private firms Is perhaps self-evident.
ft Is clear that private ownership does not automatically Karantee economic efficiency
e evidence provided by Professor Sobhan that over fifty per cent of the denationalised firms have closed down Is a case in point. Of course, some of these closures may be Indicative of sound business de cisIons, other closures may have nothing to do with the competence of the entrepreneurs. However, this is not the place to quibble about economic or statistical methodology. The point made by Professor Sobhan is well taken. (Concluding part tomor row)
The writer works as an economist tn the Financial Sector Reform Prefect IFSHP). Bangladesh Bank.
The views expressed in this paper do not necessarily represent those of FSHP