TWO LEADING ECONOMISTS, who are, by the way, contemporaries, recently agreed that Government should go to the International Monetary Fund (IMF).
However, they differed on whether privatisation should be on the table for negotiation.
Former Prime Minister Owen Arthur said Government should enter a full-fledged IMF programme as there was no point implementing IMF polices without access to funding to cushion the resultant negative effects.
Arthur also said he favoured a carefully conceived and managed programme of privatisation of enterprises owned and operated by the state (SOEs), adding that any such changeover should have employee shareholder options.
Retired UWI economist Professor Michael Howard, while he agreed with Arthur’s call (which supported his own October 2013 suggestion), however, does not support the privatisation of certain social services as the possible solution to the fiscal problem.
Howard had warned: “If the Government postpones going to the IMF until only after the international reserves have declined to extremely critical low levels, the conditionalities faced by Barbados in getting IMF funds will be severe and cause widespread suffering on the population. It is better for the Government to contemplate going to the IMF sooner rather than later.”
But he wanted Arthur to spell out the specifics of his proposed “careful privatisation”.
This is a typical case of the public becoming confused by the differing opinions of economists.
In this circumstance, the confusion comes not only from the differing opinions on privatisation, but the different professional pursuits undertaken by the two. Typically, one would have expected the opinion proffered by former Prime Minister Owen Arthur to be that of Professor Michael Howard and vice versa. A politician is more likely to shun the issue of privatisation than an academic.
In his text on Public Sector Economics, Howard describes privatisation as “the process in which state-owned assets are sold to investors in the private sector”. He further notes that the process starts at the government selling 51 per cent or more of the asset. It is an attempt to “reduce the size of government, relieve the public sector of burdensome enterprises and stimulate competition in the market”.
The process admits of Government failure. This is based on the inefficiency in public enterprises. It is suggested that the inefficiency may be the result of political interference in the day-to-day decision making in the enterprise that comes with an inappropriate organisational culture.
One would, therefore, expect an academic to be more in favour of getting rid of such an enterprise, while the politician would favour its retention.
While the replacement of a public enterprise by a private enterprise is not necessarily expected to lead to significant efficiency gains, the expectation is for reduced political interference and enhanced quality of management. The major political concern is that of reduced employment.
Howard notes in the same text that “one must, therefore address the political economy of privatisation, rather than confine the analysis mainly to economic efficiency arguments”. In this sense, it appears that the politician Owen Arthur is the economist; while the economist Michael Howard is the politician. Herein is the real confusion in the differing opinions on whether privatisation should be put on the table with the IMF.
The trade unionists and socialists are not expected to support privatisation, given its potential impact on employment and the masses. Further, it reduces the political influence of the two types of socialists.
Government is sufficiently concerned about the performances of public enterprises to have solicited a study promised by Minister of Finance Chris Sinckler that is reportedly now in its hands. The minister of finance has referred to the need to act to make the enterprises more efficient but has not followed through on that need.
Of the 64 SOEs (of about 200 public “agencies”) cited in the August Article IV Consultation, he mentioned the need to merge the Urban Development Commission (UDC) and the Rural Development Commission (RDC). These two institutions are as political as they come.
Granted, it is not possible to privatise the UDC and RDC, but it is indeed possible to improve their efficiency.
Howard certainly cannot be opposed to doing something about them in an effort to improve the Government’s fiscal condition. In the current circumstances confronting the country, every dollar counts.
Both post-Independence administrations have pursued a form of privatisation with some success. So why is it now difficult to do, at a time when all have agreed that Government’s fiscal condition is horrible?
The IMF’s prescription: stronger efforts to reform SOEs and the potential divestment and consolidation.
Albert Brandford is an independent political correspondent. Email: albertbrandford@nationnews.com