“Giving money and power to government is like giving whiskey and car keys to teenage boys.” – P. J. O’Rourke
What we call State-Owned Enterprises (SOEs), Efange, a Nigerian scholar defines as public enterprises or parastatals as institutions or organizations which are owned by the state or in which the state holds a majority interest, whose activities are of business in nature and which provide services or produce goods and have their own distinct management. The basic reason for establishing public enterprises in all economies has been to propel development. Hanson, another noted academic reflecting on Turkey, Mexico, India and Nigeria, noted that the establishment of public enterprises is premised on what he considered as obstacles to economic development in the post-independence states. It is also instructive to note that in Barbados, like many developing countries, public enterprises are used as employers of last resort.
There are many reasons that explain why Barbados and its Caribbean neighbours have created and sustained public enterprises. Institutions and pre-dispositions inherited from our colonial regimes; a tendency to associate liberal capitalism with colonialism and imperialism; the apparent absence or embryonic nature of the indigenous private sector; the conversion of failing private enterprises into public enterprises to forestall increases in employment; the attractiveness of public enterprises to politicians who use them as patronage mechanisms to distribute jobs to both the mighty and the minor – these are but some of the more important historical economic, social and political factors which have led almost every Caribbean state to create large public enterprise sectors.
On the upside, it is noted that state-owned enterprises enable governments to pursue goals of social equity that the market ordinarily ignores. I am equally sure we can all agree that some SOE’s are established for purely political reasons. An admission of the failure of SOEs and the entire public sector to perform like anything resembling a commercial entity was delivered in January 1995 when the Public Sector Reform Programme was launched with a mandate to alter and improve the structures, processes, systems, attitudes and behaviours in the Public Service and to create the appropriate institutional capacity.
This mandate was the catalyst for the creation of the Office of Public Sector Reform in February 1997. Public Sector Reform has been a critical point of national discussion across the Caribbean and the entire Commonwealth for more than three decades. In 2002, the Commonwealth Secretariat created a Handbook of Commonwealth Experiences to help guide countries through the quagmire of public sector reform in developing countries. It’s a reform which, in my opinion, can never be effectively executed by civil servants, thus making it a misnomer in construct.
We note with significant pride that public enterprises or SOEs were established to propel socio-economic development and to guard against the control of the economy from foreign domination and exploitation in a post independent Barbados. This accounts for why a larger proportion of the national budgets over the past 50 years have been for the creation and sustenance of public enterprises. For the better part, we have to admit that public sector enterprise has achieved its stated goal; it has, however, outlived its utility and efficiency and has become the single largest liability in our list of liabilities. Now is the time for an evolution or a significant adaptation as the country has reached developed country status and tops the Human Development Index charts.
There are many examples of poor commercial decision-making emanating from SOEs but I will use the Barbados sugar industry to make this point.
In 2004, the Barbados sugar industry was as it is today, a significant drain on the government’s resources. The country lost US$498 on each tonne of sugar exported. Having exported 34,400 tonnes, the loss was a total of US$17,136,360 that year.
Rather than extracting itself from this industry and having the private sector find a way to navigate it, the government went in deeper with a plan to invest US$150 million in a new multi-purpose sugar factory. This new facility would include a 30-megawatt power plant and a cane processing plant to annually produce 12,000 tonnes of refined sugar for the domestic market, 10,000 tonnes of branded sugar for the export market and a further 5,000 tonnes of branded sugar for the local market. It would also deliver 14 million litres of ethanol for the domestic market.
At this time, all exports of sugar were going to the European Union. Barbados was producing a tonne of sugar at a cost of US$1,181 and selling it for US$683. Barbados was and still is delivering one of the lowest global yields on sugar per acre of sugar cane at 21 tonnes – while Brazil and other countries like Guatemala, Guyana and Venezuela yield an average of 80 tonnes per acre. The plan for the new plant was never shared in detail and the project never materialized. The David Thompson administration also spoke loftily of re-engineering the sugar industry with a similar investment; this too never came to pass.
The gargantuan losses endured over years to support an industry that could only cobble together 500 workers were insane and driven by some misguided emotional attachment. Allow the private sector, especially the rum industry to be the leaders of this industry if it is to be resuscitated as there is no valid economic argument for public sector involvement.
This kind of thinking has permeated political ecosystems for many years and is part of a dilemma leaders must face. The same leader who went this route of investing in a dead industry for posterity we assume, also said there was more money made for the government of Barbados with 20 per cent ownership of a local banking operation than when it had 100 per cent ownership of the same entity.
We, like several other developing countries, have proven time and again that public sector commercial management ends in disaster. We should heed the lesson and simply walk away.
George Connolly is a Finance and Technology professional.