Wed, May 02, 2012 - Page 8 News List

State firms’ evaluations need to be re-evaluated

By Lin Chia-cheng 林嘉誠

Fuel prices are up and people are angry. State-owned enterprises CPC Corp, Taiwan, and Taiwan Power Co (Taipower) have been criticized from all quarters for their conduct. The government has indicated that it intends to address these ills.

Privatization has been mooted as a solution, although it may be reconsidered in time. The debate on whether a company is run best by the state or by the private sector, about how privatization should be implemented and how performance quantified, has been going on for almost half a century.

The Cabinet, the legislature and government departments have all undertaken exhaustive studies and submitted reports with recommendations, and there are numerous pieces of legislation devoted to the problem, including the Administrative Act of State-Owned Enterprises (國營事業管理法), the Company Act (公司法), the Banking Act of the Republic of China (銀行法), the Petroleum Administration Act (石油管理法) and the Electricity Act (電業法).

I served for four years on the Executive Yuan’s Research, Development and Evaluation Commission’s (RDEC) Department of Supervision and Evaluation. This department had a section responsible for evaluating state-owned enterprises, with a staff of 10 people. The Ministry of Economic Affairs, which is in charge of most of the enterprises, has its own commission for managing them. The state-owned enterprise evaluation is carried out on three levels: self-evaluation, review by the supervising department and a final review by departments convened by the RDEC and reporting to the Cabinet.

Privatized former state-owned firms such as Chunghwa Telecom and China Steel are no longer subject to this procedure, and neither are companies CPC and Taipower invested in.

My experience is that the self-evaluation and the supervisory department reviews tend to be forgiving and unwilling to reveal problems. However, the final Cabinet review is sometimes also ineffective, due to unclear evaluation benchmarks, understaffing, the confusion of short-term interests with long-term objectives and the inability to meet policy objectives, annual evaluations or budgetary limits.

The problems with state-owned enterprises are well-known: ill-defined roles for chairmen and chief executive officers, iron rice-bowl positions for staff, low turnover resulting in an aging work force and management, strong unions, a hollow board of directors and excessive external interference.

Board chairmen who are parachuted in are powerless, ministers and department heads have no job security, the president and premier are preoccupied with running the country, and the RDEC — responsible for the performance evaluations — lacks the legal clout to deal with enterprises that underperform.

Much has been written on why state-owned enterprises are needed, when the government should sell shares or privatize or retain control. There have also been many different theories and studies on how large-scale enterprises are related to the public good, and how their part in an oligopoly — such as CPC or Taipower — can be improved, given various possible scenarios of national development.

What can be done to improve state-owned enterprises? The public is angry, but this situation can be turned into an opportunity to change things for the better. The Cabinet and the Department of Supervision and Evaluation have to come clean and structure a timetable to deal with the issue; otherwise there will be no end to the problem and the country will continue paying the price.

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