According to the United Nations,a public enterprise is ‘an incorporated or large unincorporated enterprise in which public authorities hold a majority of the shares and/or exercise control over management decisions’.In other words,public enterprises are corporations that are wholly or partly owned,and controlled by the state.The key point here is that management of these organizations is appointed and controlled by the state.In Nigeria,the history of the public enterprise is a tale of woe,inefficiency and corruption.In every sector of the society,state ownership of companies has proved counter-productive.
The main reason is that management appointments are not based on qualification,competence and integrity.Usually,appointments are based on such considerations as loyalty to government and political heavy-hitters or the need to reflect ethnic or religious balance.This results in a management that owes it’s emergence to it’s political connections,rather than it’s qualifications,and knows it.These managers are likely to be loyal to the individuals who facilitated their appointments, rather than to the public.To demonstrate their loyalty,they are likely to run their companies to promote the special interests of their benefactors,to the detriment of the public.
The other reason is to do with regulatory capture.Regulatory capture refers to a situation where a state regulatory agency created to protect the public interest in a given sector,instead promotes the narrow commercial and special interests of the groups dominating that sector.This is worst when the groups dominating the sector are public enterprises.Think about that.State agencies regulating state companies.The state as both principal and regulator.Imagine Barcelona football club bringing their own referees to football matches.With public enterprises owned by the government,you can see how easy it would be for them to secure the policy outcomes they prefer,from the regulators,usually to the benefit of special interests,and the disadvantage of the public.
It should be clear now,that state ownership of companies fosters waste,inefficiency and corruption.On the other hand,privatization,which is the sale of state-owned organizations or the transfer of public services to private sector interests,eliminates some of the drawbacks plaguing public enterprises.Such considerations as ethnic,political or religious leaning would not be the basis,for appointing management in private companies,given that the profit incentive is the reason for their existence.Their main interest being the bottom line,these companies would promote efficiency and merit in order to make profit.This should result in better products and services,to the benefit of the public.To privatize successfully,two conditions must be met.
First,fair market price must be asked.When state are sold cheaply,speculators and other opportunists with little technical know-how or experience in the relevant sector can afford to buy them.A high price is an entry-barrier that eliminates these people,ensuring that only serious and tested investors can purchase these assets.Having paid a steep price for these companies,the owners have to work hard in order to recoup their expenditure.This means emphasis on new technology,new technique and efficiency,leading to improved products and services.Low prices let in speculators who lack the know-how or the motivation for improving productivity:having paid a pittance for the assets,they can still turn a profit without any improvement in the running of these businesses.
Second,these assets should not be sold to government officials as this would lead to regulatory capture,as these owners would use their priviledged positions to extract favourable policy-outcomes from those regulating the sector.Once the regulators get into bed the owners,public interest is sure to be sacrificed on the altar of narrow commercial or special interests.With the ability to manipulate policy in it’s favour,these owners can make a lot of money without necessarily improving or changing the business model underpinning their operations.And if there is no improvement in it’s operations,then products and services will not improve.
The point in this rather long post is that enterprises,whether public or private,exist to provide products and services to the public.When they provide these services,the little guy on the street benefits.When they fail to provide them,the little guy loses.By definition,the little guy has no political connections,and so is unlikely to benefit from a culture of patronage or spoils system,as no one is going to appoint him to the board of some public enterprise.His only chance of benefiting from these enterprises,is if products and services are available and affordable.An outcome that is more likely to be secured through privatization than otherwise.