WHY GOVERNMENTS ARE INHERENTLY BAD AT BUSINESS

There is an older generation that looks back to pre-independence Uganda and the 1960s with nostalgia. They yearn for the good times when things worked, people behaved themselves in office and on the street and life was good generally.

A lot of this longing for bygone days revolves around the return of government to business sector. When government retained control of the commanding heights of the economy, with monopolies in utilities, produce marketing, transportation and heavy manufacturing.

The collapse of these industries in Uganda is coloured by the Amin era when the economy ground to a halt, allowing critics of our more liberal economy to argue that no business thrived during the time, but now we have better managers who in this more vibrant economy can make business work.

They have it backwards. An economy works because of the activity of its economic actors and not the other way around.

I remember in the heat of the privatisation process some people would argue that the companies we were flogging, would have done well if only capital was injected into them. Thankfully, government did not buy that argument and even if it wished to it didn’t have the money to recapitalise them. 

The failure of these companies was not for lack of capital, many of these companies collapsed for lack of proper management. And this was not entirely the fault of the managers, many of whom had high sounding academic credentials but more because of the incentive regime they operated under as laid down by their owner – the Government of the Republic of Uganda.

The incentives that drive governments often come into conflict with the profit motive that drives businesses.

Profit is what keeps businesses alive. Profit is basically the net after expenses are netted off the sales. In order to achieve profit your revenues have to exceed your expenditure. The best companies work at increasing revenues and keeping expenditures to the bare minimum. It is in manipulating this equation that businesses have often got a bad name. Either inflating prices or paying labour slave wages, both unpopular moves in the eyes of the wider public.

A government owned company can seem more benevolent, keeping the prices of its products unrealistically low while keeping the wage bill high, either by paying workers more than the company’s productivity allows or by having a bloated workforce. A scenario like this leads to low growth of the company at best or loss making black hole. Its losses ofcourse are plugged by the people’s taxes, money which would have to be diverted from social services and infrastructure development.

The nature of politics is that for a government, any government in the world, to hang on to power it has to dole out patronage. Inevitably these companies serve as the avenues through which favours are distributed. Politicians really cannot help themselves. Their raison d’etre is diametrically opposed to what it takes to run a sustainable business.

Recently the champions of greater state intervention in the economy smugly pointed to how the US had to nationalise private companies to save the economy. In hindsight the bailouts had political patronage written all over them and people are beginning to reconsider whether it was necessarily to funnel hundreds of billions of dollars at these companies instead of let them go belly up. They argue that it would have been cheaper had they folded.

Of course there are dangers in allowing businesses to go around unfettered chasing profit whichever way they can and that is where governments and civil society come in, to the extent that they can given their respective constituencies.

The free market or capitalism has suffered a bad name. It is not a perfect system, but man is yet to create an alternative system that is as efficient in manipulating the factors of production to generate wealth. 

Capitalism though is the worst distributor of the created wealth, concentrating it in the hands of a few, the entrepreneurs and financiers, often to the detriment of the rest. That maybe a discussion for another day.

 Our motives for clamouring for a return to state owned enterprises is not dictated by a desire for a greater efficiency by existing companies but more by our desire for the easy pickings that come with government enterprises.

ARE OUR MPS SELLING US DOWN THE RIVER?

Imagine you have a house in dire need of repair – it is in sore need of a paint job, the doors are hanging off the hinges, you have plywood and cardboard in some window panes, tiles are cracked, missing or sliding off the roof every so often. You don’t have the funds to repair and you daren’t sell your children’s inheritance. 

You get a willing tenant and outline your demands.

You expect to rent, you agree that some repairs are required and you also agree a breach of contract clause, which among other thing says you will refund your tenant the cost of the renovations and expected future income he may have derived from the property according to an agreed formula.

So you shake on the deal and with the 12 months, say $12,000, down payment you are off.

Your tenant goes in and finds that a major overhaul is required. You agree on the new cost of repairs say $50,000 compared to the original $25,000.

So the tenant renovates the property and rents out the house at $5,000 a month or $60,000 a year.

Your spouse hears of this and starts muttering under his breath how you have been ripped off and how you don’t have business acumen.

Your darling husband does not stop at that but starts actively pushing for a return of the house barely a year into the contract.

The tenant while inconvenienced, agrees and computes the cost you will have to refund – the cost of renovation, plus a percentage of anticipated income into the future, less the rent he has already paid you. It comes up to almost the value of the property.

"When your husband hears of the terms of termination he calls, your tenant a day light robber, you the stupidest spouse in Singapore, swears he will nullify the contract and throw your tenant out on his behind with not a penny more...

But what hardens his resolve even more is the sneaking suspicion he holds that you are actually earning more from the house than you are declaring and “wasting” it on dresses, handbags and ghastly pedicures.

He even threatens you with divorce, as well as acquiring the said property as a settlement.

Ridiculous! Preposterous! Outrageous!

This is exactly what the honourable members of parliament seating on the adhoc committee on the performance of the electricity sub-sector are proposing in suggesting that we cancel our contracts with power generator Eskom, who manage Owen Falls Dam complex and Umeme, who are the distributors of the power generated.

They blame Eskom, for not generating enough power and therefore in breach of contract and yet during the period under question water levels on Lake Victoria were low and their generating capacity was diminished. Things have changed since with the entrance of Bujagali dam and several other small hydro-power dams.

They blame Umeme for the persistent blackouts that were happening at the time – never mind the above challenges Eskom faced, and also charge that the $130m Umeme claims it has laid out on rehabilitating the  distribution networks is over exaggerated.

In a nutshell like the aforementioned jealous hubby, shocked at how much Umeme is making and wanting more, no, all the money, they are suggesting that we throw out these companies and take back the generation and distribution functions.

Failing to find any breach of contract by these companies the MPs have called for a cancellation of the contracts all together arguing they were badly negotiated in favour of the new concessionaires.

And for full measure are baying for the blood of this and the other government official for the heck of it.

In 1997 then Uganda Electricity Board (UEB) boss Simon D’Ujanga took a team of journalists around the company’s installations and showed that at the then rate of uptake of power with no new power generation capacity coming on line, a daily loadshedding schedule was imminent.

It was front page news the following day.

"The government owned UEB failed to run the growing network and meet generation demands, and now these MPs in their infinite wisdom are suggesting a return to government of a working system...

I have my suspicion that none of these MPs lived in Kampala – after all it was only the capital city that had electricity, during those horrendous days and therefore are not averse to throwing around their opinions willy nilly.

On a more universal level this attempted reneging on contracts is being watched keenly by anyone who wants to invest in this country, including local investors. What’s the point of committing millions of dollars or even shillings over 10-, 20- even 50-years when I know that a schizophrenic government can wake up one morning and dispossess me of my investment? 

The same way you may never get another tenant in your new house once your hubby has got rid of your old one.

"Honourable MPs, with your sh20m salaries, hundred million shilling four wheel drive guzzlers and billion shilling car park, you make us – the down trodden of the earth, wonder whether you are  irredeemably stupid or that you have ulterior, self-serving motives that we are not privy to, that motivate your actions....

Tell us which is it? Because clearly you are not representing us.

LUKWAGO’S ORDEAL AS ONE STEP FOR DEMOCRACY

At the beginning of last week, Erias Lukwago lost his seat as the Lord Mayor of Kampala following his impeachment by the city council.

This was the culmination of two and a half years of uneasy peace at city hall during which time Lukwago protested the ceremonial role allowed him according to a new law, which created the Kampala Capital City Authority (KCCA). Under the new law the everyday running of the city was turned over to the KCCA executive director. Jennifer Musisi is the KCCA boss.

The drama inside and outside the council hall will probably be the highlight of the day’s proceedings but what was lost on many people is that the institutions of democracy and governance – the courts, the police, the council, were once again tested. Whether they passed the test only time will tell, the benefits are that whatever happened, happened and will inform processes going into the future.

We may have wondered at minster of the presidency Frank Tumwebaze’s timing of the impeachment process. Our jaws hit the floor at the kamikaze jump of councillor Alan Sewanyana over his colleagues to get to the centre of the hall in the heat of proceedings. We were left aghast at how Lukwago’s lawyer Abdallah Kiwanuka was stripped to within an inch of his underwear and bundled unceremoniously onto a police pick up. We may have been silenced by the near unanimous decision to eject Lukwago 29-to3 with two abstentions and the question of the interim injunction by the high court stopping the impeachment vote lingers.

Lukwago has 21 days from Monday to appeal the decision in the high court.

The government’s critics lament the high handedness of its agents, the perceived sneakiness of the impeachment process and are quick to prophesy doom for this nation in the future as long as the NRM stays in power.

The Government’s supporters on the other hand may go around with smug smiles, engage in congratulatory back slapping and toast to the apparent vanquishing of one of the opposition’s leading lights. 

In the zero sum game that is politics, these reactions are unsurprising.

For the rest of us mere mortals it is within our rights to take one side or the other, however if we are to take a step back and look dispassionately at the events that led up to Monday’s circus, we may see a silver lining on this dark cloud.

Democracy cannot be written or copy-and-pasted or imposed on one people or another. The basic freedoms that form the principles of democracy may remain constant but the institutions that underpin the observance of these develop according to the context in which they are situated. So whereas the US and Canada, bordering states, are democracies they are not identical. Similarly France and Germany. Or Sweden and Denmark.

The differences come from their own unique evolutionary political paths, driven by the interaction between various political forces, at varying times and with varying ferocity.

Seen against this light, the events leading up to and surrounding Monday’s events are but a single step in the long march to democracy.

The process can be helped along by Lukwago and his team appealing the process and laying his fate at the feet of the high court and by the government participating in the process, allowing its actions to be examined.

Like it or not a process was set in motion at independence, the turbulent 70s and 80s while not the best of times, have served to colour our view of the democracy we want. So too do events unfolding before our eyes. 

Human nature is such that all progress only comes from resolution of disagreements or contradictions. Politicians who are in the business of acquiring power and holding on to it, never relinquish their advantage out of the goodness of their hearts but often through compulsion.

There will be more muscle flexing in future and that is as it should be. We may see movement towards or away from greater democracy but in the greater scheme of things, if it is any consolation to the battered bodies and bruised egos of the  contesting politicians, it’s all for the greater good.