Funding Our Economy “The Government at present depends mainly on taxes and dues to raise revenue for development. Under our socialist planned economy, we intended to embark on development financed more and more from production and less and less from taxes and due.” This quote is part of a speech delivered in 1962 by Mr Kofi Baako, and I daresay it is as valid today as it was then. Recognising the burden of taxation on the citizenry, the government then planned a progressive departure from an economy funded by taxes to one that is funded by receipts from production. This goal, among others like accelerated industrialisation and job creation were some of the goals that influenced establishment of Public Enterprises in the country. The ordinary Ghanaian then, and to date, did not possess the kind of Capital needed to fund the establishment of the kind of enterprises needed to garner us in our development strides. A move towards private enterprise then would have implied selling our productive capacity to foreigners, as is happening today. So the government set up businesses like the Ghana Water and Sewerage Corporation, Electricity Corporation of Ghana, Ghana Airways, GNTC, Ghana Insurance Corporation among others. In some respects, what was being practised was akin to the Ghanaian tradition of communal ownership, where the Chief holds property in trust for the people. Progressively, we were envisaging a Ghana where the factors of production are vested in the community for the good of all, and where development is financed not from taxing the people, but from profits realised by the people from the commercial activities of their enterprises. Privatisation in Ghana Perhaps, we could add charity and globe begging to taxes and dues today as the Ghanaian government’s major sources of revenue. Successive governments have relinquished their hold on factors of production, and sold our public corporations to foreigners under the guise of ERP, SAP, FINSAP, and several other such failed programmes supposedly aimed at reducing poverty. According to the US Library of Congress, Ghana had 235 state enterprises in 1984.By 1990, seventy-six had been put up for sale. By December 1990, thirty-four enterprises had been either partially or totally divested. Four were sold outright, a further eight were partially sold through share issues, and twenty-two were liquidated. Divestiture of fifteen additional enterprises was also underway, and by 1992, plans were afoot to privatize some of the nation's banks. The Africa Recovery magazine reports that by the end of 1995, the DIC had approved 195 divestitures. Some 79 sales had been completed, 31 firms were taken over and partly paid for, and 85 were still awaiting purchase. Another 24 small and medium enterprises were due for sale by the end of 1997, 20 more in 1998 and a further 20 by 1999. Even our most prized assets, AGC and Ghana Airways are now private properties. How much did we sell off these corporations for? According to the Africa Recovery Magazine, “The first round of divestitures in 1988-93 raised only C64bn, with 55 SOEs going into private ownership or management, while another 31 firms were liquidated” and in 1994, “The year's divestments netted C447bn, including C379bn from AGC alone”. And what prize did we pay? According to the same magazine, privatisation “put over 45,000 people out of work in the 1988-95 period”. Majority of the workers of Ghana Airways are today jobless, and just recently, it was in the news that another batch of Ghanaian were about to lose their jobs to privatisation. Clearly, the Ghanaian has been handed a raw deal. But perhaps the preachers of privatisation have a point, so let us enumerate their arguments. The Arguments In looking at the theoretical framework of their argument, they state the Productive Efficiency theories (Property Right and Agency theories) and Allocative Efficiency theory to justify calls for privatisation. In brief, this is what they say. The Property Right theory asserts that managers strive towards cost minimisation if their rewards are directly linked to economic performance. In other words, if workers and managers expect big bonuses when their company posts impressive profits, then they would strive to minimise costs in order to get hold of the fat bonuses. This profit maximisation drive results in a maximisation also of the value of property rights. They argue that private ownership is more likely to achieve this since there is a direct link between ownership and management control, and thus there is someone in charge, unlike the situation with public enterprises where the incentive to do this is not very much. This leads us to the Agency Theory where they tell us that “Agents acts self-interestedly therefore principals must structure incentives to make them act in congruence with their aims.” The argument further is that since the principal - agent relationship is simpler in private enterprises, shareholders are able to monitor more effectively and thus put in place appropriate measures (incentives and sanctions). The quest for efficient income distribution and resource allocation is facilitated more by competition, which is enhanced by private ownership, the proponents of privatisation argue. They contend thus that the goal of policy makers to improve resource distribution through public enterprise can be better served by private enterprise. What do we, the opposition to privatisation have to say to these. Very simple. What happens during privatisation is a change in the ownership of the business. The size and scope of private enterprises today does not allow for that simple principal – agent relationship that is so touted. In fact, in today’s world of cartels and syndication, the private ownership could be more elaborate and the principal – agent relationship more embroiling. Did the change in ownership of Ghana Telecom, AGC, and ECG among others make the organogram for these companies any simpler? Does shedding some of government’s stake in Public Enterprises on the stock market reduce the complexities of ownership? And for the assertion that private enterprise induces competition, is Ghana Broadcasting Corporation not facing stiff competition today although it is a Public Corporation? Is Ghana Commercial Bank not being overtaken by competition? Perhaps what should be realised is that competition is a product of policy, and not ownership. Some would also tell you that according to the Public Choice approach, privatisation is necessary because self-interested bureaucrats staff the public sector. If the public sector is full of such self-interested greedy bureaucrats, then how do we expect them to carry out privatisation in a non self-interested way? The problem with the Divestiture of GREL, monies paid out to Goldshields Contact Services Ltd and Goldcity Communications Group (GCGL) by the DIC, all highlight this point. What Privatisation has been able to achieve in Ghana is that it has enormously contributed to redeployment, retrenchment, high cost of goods and foreign ownership. Public Sector Inefficiencies and the Solution Of course, the inefficiencies in the public corporations need to be acknowledged, and an urgent measure to arrest the situation be sought. However, the solution is not privatisation. This is what Kate Bayliss, a Research Fellow for Public Services International Research Unit (PSIRU) at the University of Greenwich, London, UK, has to say about privatisation in her paper “The World Bank and Privatisation: a flawed development tool”: “Rather than improving the fiscal position and developing the private sector, the above analysis shows that privatisation may have less positive outcomes. The process is costly, may be slow due to limited investor interest, may increase prices (to generate a commercial return), is likely to be a source of corruption, will probably be uncompetitive without effective regulation. This is not the stuff of poverty eradication or of private sector development. Privatisation of small competitive enterprises is relatively straightforward. However the ‘one-size fits all’ attitude to policy designs is wearing thin and as, we have shown, is inappropriate in low income countries. For years, privatisation has been promoted on the basis of over-optimistic expectations. What is needed is a realistic assessment of what privatisation (as opposed to alternative measures for public sector reform) can provide.” We must investigate these alternative measures. In this respect, I am tempted to say we should make common sense, and not elaborate theories rule. That is why after studying a paper on private enterprises in Nigeria and enlightening discourse with some Nkrumaist comrades, I arrived at the conclusion: “it is the organisational structuring of Public Corporations that decides its success or failure” Public Corporations in Ghana have been put under the oversight of different government organs and ministries at different times in a bid to improve efficiency. They all, like private enterprises, have Board of Directors. Members of the board are in many cases appointed based not necessarily on their competence, but on their loyalty and contributions to the ruling party. Coupled with the fact that they have no personal stake in the businesses of which they are directors, the motivation to work towards a viable business is mostly absent. Since it is the very same Ministers that appoint these their friends, who are also responsible for holding these people accountable, control is almost nil. The new structure that is thus proposed is this: All the public enterprises be taken from the control of Ministries and placed under a body that we would call State Enterprise Control. This body will be responsible not for policy and business direction of the Public Corporations, but will be responsible only for control and allocating monies voted for the Public Corporations by government through parliament. The fact that the State Enterprise Control is not involved in policy and management would make them more willing to expose the failures of the corporations. In any case, their job would be to find fault, and if there is no fault to be found, then they have no business existing. To carry out its functions effectively, the body will carry out periodic audits of the Public Corporations and present a report to parliament. Reporting to parliament would ensure that the whims of the ruling party do not unduly affect the business of the public corporations. A back up check would involve having a private auditor also audit the Public Corporations. To ensure that the State Enterprises Control is also held accountable, the auditor General, and a reputable private audit firm at different times will audit the SEC. Parliament would also have an audit committee look into activities of the SEC each year. What these structures ensure is that there is effective control at the macro level of the SEC and that the effect of government and party whims and caprices on the operations of public enterprises are minimised. The Public Corporations will have no board. The management, headed by the General Manager, will decide all policy issues. The management will thus be directly responsible for any decisions made. In this way, management could make a decision for higher remuneration if they are making good profits, and justify it to the SEC. To ensure control at the micro level, each Public Corporation, apart from the other departments that may be required, will have an Internal Control and Audit Unit and a Financial Control Unit, and the heads of these units will be part of management. It is my belief that if Ghanaians, put these suggestion to debate, we would emerge with a home made solution that would see us solving our own problems our own way. Let us not forget that we live in our peculiar world, and what is successful somewhere may not necessarily fit us. Let us find our own solutions and make common sense guide us. The government being in business will be to our common good, and we need to find ways of making this possible. Credit: Abdul-Nasser Alidu [aalidu2010@kellogg.northwestern.edu]