WHY UGANDA SHOULD NOT REVERT TO PARASTATALS

Some people in government and in sections of society are hell bent on resuscitating the era of the state enterprise.

In a nutshell they argue that nearly 30 years of neo-liberal, Bretton Woods Consensus, market driven economics has only created jobless growth, promoted speculation and widened incomes and wealth disparities.

On this basis they say that government needs to take back the "commanding heights of the economy" (sounds so sanctimonious) by setting up strategic industries that, while critical to long term development, are currently unattractive to private sector investors.

In so doing they see the government creating jobs, jumpstarting these critical industries and beating a path for the eventual entrance of private players.

"There are many reasons why this argument is flawed, not least of all because its proponents seem not to have learnt the lessons of the past or are ignoring them conveniently for their own motives....

Allowing for the benefit of doubt, the end to which all economic engineering is aimed at, is development, which unlike growth — the quantitative improvement in the size of an economy, development goes a step further to mean an improvement in the living standards of the people.

While we are still at it, there can be no development without growth. Development is the distribution of the fruits of growth. 

The most effective and maybe even efficient creators of growth in an economy are the private sector or business or the market, terms which are used interchangeably.

The market has two things going for it in this regard.

One, it feeds off the desire of every individual to better themselves. Some call this greed but this falls short of the actual driver because in order for businessmen to make more and more money they need to to serve more and more people, which seems contrary to being greedy.

So for instance the most successful bank or telecom or fuel companies are those that serve the most people, if success is measured by the profits they make.

Another thing going for markets is that it takes advantage of the laws of evolution, that its not the strongest or the swiftest but the most adaptable of the species that survive. Those that survive benefit from the lessons of the multitude of experiments of trying to survive in the market, by themselves or their colleagues, past and present.

This is the most important argument against centralised economies. 

"There is no one person or group of people intelligent enough to simulate the thousands, even millions of experiments that occur in the market, needed to choose the market winners . Attempts in history to do so have failed dismally....

The USSR for instance, while it developed into a nuclear power, at the height of its “power” breadlines were a regular feature of its citizens’ lives!

These two features of market economies means the market is the most effective system to generate economic growth or create wealth, the human race has ever conjured.

That being said, it is no secret too that the market is the worst possible distributor of the growth or wealth it creates. Markets left to their own devices will give to those who have more and more and to those who have little even the little they have will be taken away.

So once consistent growth has been achieved how is this translated into development?

The distributor of this growth is supposed to be the government.

"First of all the government has to create a conducive environment for businesses to flourish and create this wealth. Alongside that government through the budget, distribute this wealth to the people by paying for social services, infrastructure and other public goods like security, social and environmental protection with revenues from taxation. In doing so across the population it ensures there is an improved standard of living, development for all...

It is clear that government has to partner business not subvert it, if it wants to foster development. If there is growth and no development it is a failure of government not the market, because the market has done its part.

Uganda's economy last contracted in 1985, it has otherwise seen more than 30 years of uninterrupted growth. the growing inequality in society is therefore an indictment on government as the private sector is wildly successful.

Which brings us around to why a reversion to parastatals is a bad idea and should be nipped in the bud.

The privatisation of the 1990s happened because the companies we had, gutted and mismanaged since the 1970s, had become a drain on the treasury, diverting much needed resources from service delivery.

To kill two birds with one stone – increase productivity and revenues while at the same time rid ourselves of these financial black holes, government decided to sell them off to private players who could fulfil the above conditions.

It is true that the initial impetus for this policy initiative came from the donors, who made it a condition of opening up the financial taps. But the logic was hard to refute. To get these companies to a point where they would produce enough revenues would require resources which the country did not have at the time.

So we had three choices. 

Either we could continue to soldier on with these ailing institutions, hoping they would turn around without much capital injection from government (hope is not a strategy); strip them of their assets and use the money to keep government running until the money run out or sell them as going concerns, which would not only continue to operate but increase their productivity, create jobs and pay more and more revenue over the years that would allow government to carry out its basic functions.

Thankfully government chose the last option. We are much better for it.

"The promoters of the return to the past base their thinking on the wrong analysis that the companies failed for lack of money. The truth is they failed for lack of proper management. More accurately, the management of these companies did not have the right support, which goes beyond finances, to include insulation from the politics of the day....

Management is key, because money follows good management. And we are not talking about the people alone– we have MBAs flowing out of our ears, there are the governance issues, policies and compliance to regulations and best practice. You can have the “best” managers but no systems and the business will fail.

And after all that, why is it a bad idea for our government or any government for that matter to go into business?

Governments’ sole preoccupation is how to stay in power. Everything they do is aimed at that goal. Government do this by doling out goodies to their support bases. 

In more advanced economies that may be industry supporting infrastructure or slanting policy to ensure industries are set up in their areas.

In pre-industrial societies like Uganda, the needs of the people are more basic than the self-esteem that comes with a job and the ensuing self-sufficiency. We just want something now to keep us and our families going.

It’s bad enough that the US government can’t do business, now imagine our government which has to pander to our base needs and instincts? You cannot run a business where you are donating stock, employing constituents despite their qualifications or allowing massive fraud go unabated because it’s being perpetuated by your supporters.

It is as simple as that. It’s not rocket science.

"

What government should do, which it has not been doing well, given the widening income and wealth disparities existing today, is work on improving the business environment – we are ranked 127 out of 190 people in a World Bank’s “Ease of doing Business” index, collect all taxes due to it and use that money effectively and efficiently to provide public goods....

These social services and public good ensure that the people's productivity improves and therefore earn more and their standard of living rises.

It is counterintuitive to think that if you cannot create a conducive business environment for the private sector, somehow the government companies will operate profitably.

That is another thing, the promoters of this return of the parastatals seem to think, that government companies need not be profitable.

What they don’t say is who is going to pay for the losses. 

They sidestep this issue because they know that we the citizens, shall have to pay for the losses with poor social services, derelict infrastructure and bad security. In fact if government is failing to pay its suppliers now – to the tune of sh1.4 trillion, now imagine what will happen when its companies owe hundreds more businessmen.

"In fact a return to parastatals will not only widen income and wealth disparities, as a fraction of the society will be sponging off the state, but will also jeopardise the economic growth we have been achieved over the last three decades....

While growth has not been equitably spread --- and we know why, it at least gives us a springboard for the future.