Wednesday, June 1, 2011

Reevaluate Unjust Pseudo-Privatization

Reevaluate Unjust Pseudo-Privatization
United Daily News editorial (Taipei, Taiwan, ROC)
A Translation
June 1, 2011

CEPD Chairman Christina Liu recently raised a hue and cry. She said that in order to enhance government efficiency, the government must redouble its efforts at privatization, Her appeal shone a spotlight on the matter. In recent years, numerous obstacles have stalled privatization. Privatization may not be the best way to improve the quality of government services. But privatization has gone on for over 20 years. It is not meaningless. The government should respond realistically to future needs. It should sort out the issues and find a new direction. One of the issues most in need of review is unjust pseudo-privatization.

Consider the larger framework of economic policy on Taiwan. The privatization of public enterprises began in 1989, as part of economic liberalization and internationalization. Import controls were lifted. Exchange controls were relaxed. Interest rate controls were abolished. The banking and telecommunications industries were also liberalized accordingly. These major policies laid the foundation for the current economic miracle. Ever since policies promoting privatization were instituted, 68 state owned enterprises have been added to the agenda. Thirty-eight state-owned enterprises, including the Bureau of Engineering Services (BES) will be privatized. Seventeen state-owned enterprises, including the Kaohsiung Ammonium Sulfate Company, will go out of business. Five state-owned enterprises, including the Bank of Taiwan will not privatize. Eight state-owned enterprises, including the Taiwan Power Company, the CPC Corporation, the Aerospace Industrial Development Corporation, the Taiwan Sugar Corporation, the Taiwan Water Corporation, the Taiwan Tobacco & Liquor Corporation, the Taiwan Railway Administration, and the Chunghwa Post, will work toward privatization. But ever since the Engineering Agency was restructured two years ago, no new steps have been taken toward privatization. The aforementioned eight privatization projects are either in limbo or have been suspended. No one bother to ask about them.

The biggest problem with current privatization policy is not with state-owned enterprises yet to be privatized, but with those already privatized. The government still owns a substantial share in these enterprises. According to the government's definition of privatization, any company in which the government controls less than 50% of the shares, is considered a private company. But the chairmen or managing directors of these companies are government appointees. They control these companies' budgets, personnel appointments, and policies. Thye are subject to no legislative oversight whatsoever. The operational effectiveness of the aforementioned eight enterprises is at least subject to criticism. The persons responsible can at least be identified. By contrast, the quasi-official, quasi-public, "pan-public enterprises" pander to the political needs of those in office. They occupy a no man's land. They are subject to neither public nor private oversight. This leads to confusion in business operations and undermines market competition.

Unclear boundaries between the public and private sectors means increased opportunities for corruption. For example, the chairman or general manager of pan-public enterprises are government appointees. These people may be on the receiving end of political patronage. They may be utterly incompetent. Just exactly whose interests are these officials looking after? Theoretically they represent public shareholders. Theoretically their job is to protect public shareholders. But who decides what is in the interest of public shareholders? Nominally that would be the government. But the actual administrator is a government head appointed by the ruling party. This is precisely how channels in the service of political interests are established. The executive branch is unwilling to relinquish control. The ruling party dominated legislature is only too happy to play along. Worse still, pan public enterprises are public in name only. In practice they merely serve whoever wields political authority. The government heads who control these enterprises are presented with opportunities to maximize their personal interests in the name of public service. The immense resources of pan public enterprises are gradually usurped by personal interests. The abuse of power is rampant. President Ma must open his eyes.

The relationship between privatization and liberalization is ever closer. The purpose of privatization is to ensure fair competition. It also provides greater room for the private sector to grow, and enhances overall competitiveness. But non public, non private, half-baked privatization is pseudo privatization. It negates privatization. It undercuts the effectiveness of industry liberalization. Consider banking liberalization. The government authorized the establishment of new banks. But the privatization of public banks was incomplete. They constituted unfair competition against private financial institutions. The inefficiency of public financial institutions is also due to half-baked privatization. They may even lack supervision. Unclear lines between the public and private sectors lead to finger-pointing that hinders competition. Consider last year's numbers. The total assets of nine pan-public banks accounted for 52% of all domestic banks. But their pre-tax profits accounted for only 36% of the overall profits. This proves that their performance was inferior to private sector banks. In recent years, the financial and insurance industries have accounted for less and less of the gross domestic product. This shows that the financial industry as whole has grown less than the rest of the economy. The connection is obvious. The scale of Taiwan's economy is small. It is subject to special factors relating to cross-Strait relations. We genuinely need public financial institutions. But must the proportion be so high?

The Annual Competitiveness Report issued by the international Institute for Management Development in Lausanne, Switzerland has received a great deal of attention. The ROC's competitiveness rating this year rose to 6th place. But its "government efficiency" rating fell. Its "public interference in corporate activity" rating also fell. Chairman Liu took advantage of the opportunity to enhance competitiveness. She used the issuance of the Presidential Office monthly fiscal report to restart privatization. Pseudo-privatization has led to more and more problems in recent years. President Ma may not have noticed. But Chairman Liu has said she will invite cross-ministry discussions. We look forward to the restarting of privatization.

【聯合報╱社論】 2011.06.01







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