The recent increases in fuel and electricity prices have not only upset the public, they have also brought the problems of long-standing irregularities and lack of efficiency in public enterprises to its attention.
We have all seen the many problems of operation, investment, management, finances and personnel that exist within public enterprises. The employees’ attempts to enrich themselves and others, lack of efficiency and corruption have left people dumbfounded and the public has to pick up the tab for all these problems.
A source of even more public anger and frustration is that public enterprise reform has been promised for years. President Ma Ying-jeou (馬英九) has now said he will give everyone an answer on this issue before the end of June. However, judging from the government’s actions, not a lot is being done to reform public enterprises and all that talk is just a way to try to deflect attention and stop public outrage.
The existence of public enterprises may have been defensible in the early stages of the nation’s post-war economic reconstruction. Back then, not only were private enterprises very few in number, but the former authoritarian regime that kept talking about “the people’s livelihoods” also had to take control of key industries. This, coupled with the fact that the regime also took over industries left behind by Japanese, meant that public enterprises for many years played a major role in the country.
Today, public enterprises still have a relatively strong standing in industries like finance, water and electricity, energy and mining, and account for approximately 5 percent of total industrial output.
However, after private enterprise started to develop and the tide of economic liberalization advanced, the government had no reason to be directly involved in business anymore. The experience of other advanced countries has shown us that privatization normally increases efficiency and lowers costs. The government should act only as a monitor and create the environment required for liberalized economic activity and fair competition.
However, after taking steps to promote privatization, only limited progress has been made on reforming public enterprises in recent years. Together with the interference of vested interests, this has created all the problems that we have seen in connection with the increases in fuel and electricity prices.
There are too many problems in public enterprises to enumerate. These companies operate using other people’s money: the taxpayer’s. They suffer from a lack of profit motive and are not too concerned with business performance.
In countries the world over, public enterprises have become synonymous with inefficiency because of this basic attribute. In such a corporate culture, senior members of the government give their friends high-ranking positions, and employees enjoy the “iron rice bowl” guarantee. They end up becoming lax and lazy, and waste and corruption hold sway.
In addition, the operation of public enterprises is plagued by many restraints, and attempts to pursue profits are restrained. Public enterprises must sometimes also take on policy-related tasks, such as suppressing prices, because the government needs it for electoral concerns, which of course affects business performance.
Of all the people interfering with public enterprises, elected representatives are the worst. In the past, special loans from state-run banks, guarantees to win construction bids, personnel lobbying and representatives asking for money in the name of goodwill to local communities have all hurt public enterprises.
After many years of this, there are a lot of strong vested interests in these companies. While chanting slogans of reform is easy, taking effective action is fraught with difficulties, such as protecting the interests of public enterprises’ employees. Just as Minister of Economic Affairs Shih Yen-shiang (施顏祥) said a few days ago, although privatization requires the approval of trade unions, the unions still have their doubts.
Additionally, the state authorities view these employees as “iron votes,” making privatization very difficult. There has hardly been any progress on this in recent years, and future progress also seems unlikely.
Given the widespread public dissatisfaction with the fuel and electricity price hikes, the government does not have to keep raving on about privatization, but it must clearly explain the existing problems and implement reform. In the view of the public, CPC Corp, Taiwan, and Taipower suffer from a few obvious irregularities.
The most basic of these irregularities is that operations and investments are devoid of any concept of cost, which results in sloppy internal management, idle equipment and opportunities for manipulation. In addition, they set prices by adding profit to cost, which transfers both corruption and inefficiency to the tax-paying public.
Second, although their procurement expenses are large, they have never been transparent or effectively monitored, resulting in lots of inside deals and widespread corruption that no one ever hears or asks about.
A clear example is the many irregularities in Taipower’s procurements from private power plants and the conflicts of interest that occur when senior managers retire, only to take up another post in the company. At the same time, the financial structure of public enterprises is unstable and reinvestment in subsidiaries lacks thorough monitoring, which is yet another source of irregularity. The public has been most disappointed that, regardless of how a public enterprise is doing, employees enjoy high salaries, bonuses and other benefits that eat away at profits.
Because it is so difficult to reverse the irregularities in the state-owned CPC Corp, Taiwan, the privately owned Formosa Plastics Group took advantage of the situation and enjoyed much greater profits because of CPC’s higher pricing. This is yet another abnormal situation.
It is not that fuel and electricity prices cannot be changed, but rather their increase by so much in such an unreasonable situation was the main source of recent public dissatisfaction. To quell this dissatisfaction, the government should demand that public enterprises bite the bullet and show the determination needed to correct the situation.
The public should not have to suffer the results of poor management or be subjected to price increases before these problems and irregularities are fixed.
Translated by Drew Cameron
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