The role of Government in business | Sunday Observer

The role of Government in business

9 April, 2023

The question of whether governments should involve themselves in business is contentious. The answer largely depends on the country’s political ideologies, economic outlook, and, more importantly, the public’s perception.

On one hand, some argue that governments should play a role in business, particularly in industries that are critical to a nation’s economic and social well-being. On the other hand, others believe that governments should not interfere in business and that market forces should be allowed to determine the success or failure of an industry.

The proponents argue that the Government must involve itself in providing essential services such as healthcare, education, infrastructure, and other public welfare matters. The argument, quite rightly, is that the private sector will not provide such services without a considerable profit.

Obviously, these services are critical to a nation and can help improve the quality of life for its citizens. By providing these services, governments can ensure that all citizens have access to basic necessities, regardless of their socioeconomic status.

Also, the Government can also help regulate critically important sectors that have a significant impact on public welfare, health, and safety if it has control over certain areas of services.

For example, governments can set and enforce safety standards for food and drug manufacturers, as well as transportation and construction companies. By doing so, they can protect consumers from harm and prevent accidents and injuries.

However, the opponents of Government involvement in business, on the other hand, argue that it can lead to inefficiency and mass-scale corruption. When governments are involved in business, they may be more concerned with political considerations than economic efficiency, which can lead to wasteful spending and poor decision-making.

In the Sri Lankan context, the citizenry has witnessed staggering amounts of funds being wasted through political manipulations directly targeted at elections through the funds allocated for State enterprises. This was common practice for all governments for the past few decades.

The biggest amusement is that the same politicians who misuse public funds through State-owned businesses accuse their opponents when they are in the Opposition after a regime change. Additionally, when governments have a stake in certain industries, they may be more susceptible to corruption, as officials may be tempted to use their power for personal gain.

Some critics who oppose the Government’s engagement in business argue that the Government’s involvement in business can lead to a lack of competition, which can harm consumers and stifle innovation. When governments provide subsidies or other forms of support to certain companies, it can create an uneven playing field that benefits those companies at the expense of their competitors. This can lead to reduced competition and higher prices for consumers.

Public finances

One of the major challenges facing loss-making SOEs in Sri Lanka is the lack of financial sustainability. Many SOEs have been heavily subsidised by the Government, which has led to a significant drain on public finances.

For example, the Petroleum Corporation has been operating at an enormous loss for years, with the Government providing subsidies to cover its operational costs until recently. This has contributed to a growing public debt burden and limited the government’s ability to invest in other areas of the economy. Similarly, Sri Lanka Railways, the Sri Lanka Transport Board, and many other institutions fall into this category.

Apart from the political abuse, the clearly visible managerial and operational inefficiency has been a major setback for SOEs for decades. Many of them have been criticised for being poorly managed with outdated physical resources and inefficient and obsolete processes and procedures.

For example, Sri Lanka’s national carrier, SriLankan Airlines, has been plagued by financial losses that are said to be running up to a staggering 302 billion rupees and has been criticised for its management practices. In addition to this, many SOEs have been burdened by high levels of debt, which has severely limited their ability to invest in modernisation and innovation.

Amidst severe criticism by a section of the Opposition, the Government has undertaken a program of privatisation and restructuring of SOEs. For example, the Government recently announced plans to sell a 49 percent stake in Sri Lanka Telecom, the country’s largest telecommunications provider.

This move is expected to bring in much-needed foreign investment and help modernise the company’s operations. Similarly, the government has also announced plans to restructure Sri Lanka Railways, with the aim of improving its operational efficiency and reducing its dependence on Government subsidies.

However, the process of reforming SOEs in Sri Lanka has not been without its challenges. Critics argue that the government’s privatisation and restructuring plans have been too slow and inefficient, and that more needs to be done to address the underlying causes of inefficiency and loss-making. Additionally, there have been concerns about the potential social and economic impact of privatisation on workers and consumers.

More importantly, the Government must convince the citizenry that the restructuring plans are in the public’s interest. The message sent to the masses by the Government on this pressing issue so far is grossly insufficient. Naturally, the general public has stopped trusting politicians who were in consecutive governments and try to justify the restructuring or selling Government shares to the private sector.

Traditionally, the biggest obstacle to restructuring SOEs in Sri Lanka has been the trade unions that are controlled and manipulated by some of the political parties.

Whenever there is a proposal to develop an SOE, these dubious elements, with the support of insiders with vested interests, organise protest campaigns or strikes to disrupt such attempts. This has been going on for decades, and most governments have been forced to abandon their efforts.

Privatisation, as it has arisen in public debate, is not a single, definitive economic concept. Rather, it encompasses a wide range of activities that all indicate a shift in the supply of goods and services from the public to the private sector.

Privatisation, for example, includes the selling of public assets to private owners, the mere discontinuation of Government activities, and the contracting out of services previously supplied by State entities to private firms.

Unless the Government comes up with an extremely valid and justifiable explanation, the resistance to these attempts will increase over time with foul play accusations triggered by Opposition politicians. Some of them have already claimed that the proposals put forward thus far are suspicious. Until the Government clarifies its stance, the public is likely to believe these accusations. The reason is that the public simply does not trust any politician.

According to the Reason Foundation, the American libertarian think tank, the benefits of privatisation are obvious and practically universal; there appear to be no restrictions on the types of Government activity that might benefit from privatisation. According to them, shifting ownership or management from public to private hands will inevitably result in lower-cost, higher-quality services for citizens.

Service providers

The Sri Lankan citizenry needs lower cost and higher quality service from the service providers, regardless of whether they are public or private. However, almost the entire society is heavily critical of public service and embraces the entire private sector when it comes to service delivery.

In conclusion, the question of whether governments should get involved in business is a complex one, with valid arguments on both sides. While there are benefits to Government involvement in certain areas, it is also important to consider the potential drawbacks, such as inefficiency, corruption, and reduced competition.

Ultimately, the decision of whether or not to involve Government in business should be based on careful consideration of the specific industry and its impact on society, as well as an assessment of the potential benefits and drawbacks of Government involvement.

However, the more common public opinion in Sri Lanka is that the Government must consider restructuring or total closure of most of the loss-making State-owned enterprises that waste an enormous amount of public funds incessantly.