Tuesday, November 3, 2015

Should governments own and run all companies?

ussr lenin sandeep manudhane PT education SM sir blog contact guitar indore youth

You have nothing to lose but your chains!

This question lies right at the heart of the historical socialism and communism versus capitalism debate. Ownership and management of assets is the key issue here. 

The idea initially sounds completely credible, only to the point when you start executing it.

  1. The USSR tried to do it. Failed completely.
  2. Mao Tse-tung's China tried to do it. Ended in disaster.
  3. North Korea does it today. Citizens are ruined.
  4. Venezuela under Hugo Chavez leaned towards it. A bad idea it proved to be.
Why does it have to be so? Why can't governments, the official representatives of people, own all assets, production and distribution?

Top reasons why it's a bad idea:

  1. Business is not the business of governments: So what is the business of any government? To govern. To provide basic services that make civilisation possible (healthcare, education, access to food, safety, security, cleanliness, mass transportation etc.) To collect taxes and use it to run these services. To ensure that a fair deal is given to one and all.
  2. An invisible owner is no owner at all: Governments as owners are abstract creations. They are a concept. Professionals and workers working for such an entity may feel the absence of an owner, and lose motivation. A private company has a distinct owner, or a set of owners, who are physically visible and can motivate everyone.
  3. The diversity is too much to handle: Any modern economy is so complex and diverse, that to expect a government to be able to muster all resources required to run profitable ventures is like living in a fool's paradise. So some companies will earn handsomely (the Cows), and some will fail (the Dogs). The problem is that the cows will end up feeding the dogs. And eventually even the cows will wither and die. In India, this can happen through steady funding of even dud PSUs through annual budgetary allocations or recapitalisation.
  4. Corruption can destroy even otherwise good govt. companies: In countries where a majority government is difficult to form, a coalition partner in a government can ask for plum ministries, and the Minister can then run riot with the PSUs under his/her direct control by appointing cronies, siphoning off funds and ordering assets that are extravagant.
  5. You can't be the judge, jury and police all at the same time: When a private company pays taxes, it does so in a certain framework, and has access to redressal of grievances through a legal framework. For a government company, policy making and policy implementation for business purposes are being done by the same entity. A very bad idea.
So how come some government organisations / companies do so well? Simple.No one recommends that ALL companies should be privately held. Companies (or organisations / departments) in strategic fields like defence, aerospace, space research, oil and gas etc. can always be under government control. Some sterling examples are India's  ISRO and DRDO that have helped India stay ahead on the curve (to be clear, there are hundreds of private sector vendor companies that supply components to these sarkari companies). Even the Indian Railways is a great example of a well-managed corporation (I know some will doubt it, but given the social reality, I consider our Railways a magical entity).

As an example, recall that Indira Gandhi nationalised all major banks, but 35 years after that, only 35% of Indian adults had bank accounts (something the present NDA government is trying to change through the Jan-Dhan Yojana).

Overall, a healthy mix where checks-and-balances are inbuilt, is good for any country.



Hitesh said...

Such amazing and insightful articles. Your lectures are also great. You are probably one of the best teachers in the world.

Unknown said...

In our country, providing basic requirements to everyone is a difficult task for govt. as it seems till now. And entering and controlling the bussiness which is very competitive today is something next to impossible for govt. If govt. own all companies then economy will collapse because it will be too hard to handle. Disinvestment was the part of the economic reforms(1991).In india, IT sector and Bollywood are the two best examples where govt. never inteferes and they expand very fast.