Mon, Jan 24, 2000 - Page 8 News List

Government business should not be business

By Chen Po-Chih

The seriousness of business-politician conspiracies is not the only thing to come to light with the recent row over legislators pressuring banks to invest in certain venture capital companies. The incident also shows the unwholesome side-effects of undue government intervention in economic activities.

For this kind of pressure to succeed, there has to be at least two factors closely related to inappropriate government intervention in economic activities. One is the government's management style over state-owned banks, or banks where the government holds a large portion of shares. The other factor is the intervention of government authorities in bank operations.

For historical reasons, Taiwan has a large number of state-owned enterprises (SOEs). Even though Taiwan has been following the global privatization trend, there are still a large number of SOEs and the government remains the biggest shareholder in several companies that are nominally privatized.

The government has yet to establish a reasonable system to manage these businesses. As a result, many enterprises seem to be private and therefore not subject to government intervention and the supervision of elected officials. In reality, these companies still have to follow the orders of government authorities and lawmakers.

It is quite possible that this situation can lead to even more political intervention and consequent irregularities than in the past, when the companies were plain SOEs and thus everything followed government rules.

Under the current circum-stances, government authorities hold important personnel appointment powers at these companies and so have influence over policymaking. This kind of influence is not defined by law. It is wielded and peddled in private. The influence also makes it easier for lawmakers to pressure these businesses indirectly through interpellations, budget reviews and the government authorities concerned.

Therefore, if the government cannot effect genuine privatization soon, then it should quickly set up regulations to free companies in which it has a controlling stake from political influences. The current "let's pretend privatization" approach no longer works.

Another key lies in the rule authorizing government agencies to review banks' investments. While the original purpose may have been to prevent banks from making bad investments, the rule could become an excuse for banks to shirk responsibility. In state-owned banks and banks in which government shares account for the majority of the stock, government authorities are the big boss. For projects conducted under pressure from -- and reviewed by -- the big boss, it is easy for those following orders to shirk their responsibilities. As a result, it is easier for them to succumb to pressure from government agencies or elected representatives.

Much remains to be debated over whether or not the government should intervene in economic activities. Many scholars believe that the government should intervene in situations where market mechanisms have failed and that the government should set up and maintain various systems to safeguard economic competition.

But most scholars do not support direct government intervention in business because it will lead to inefficiency and irregularities. The uproar over legislators pressuring banks is just the latest incentive for the government to speed up improvements in the privatization of SOEs and the liberalization of financial management.

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