The annual bonus for employees at state-run CPC Corp, Taiwan (CPC) was originally set at 4.6 months, but was cut to two months after the company’s poor performance last year. In response, CPC’s trade union joined forces with the unions at five other state-run enterprises to organize a protest involving more than 1,000 members outside the Ministry of Economic Affairs (MOEA), saying it was wrong to punish CPC employees as the company only lost money because it followed government policy.
This is a decades-old problem. Economic ministers have never resolved the issue by applying a simple and clear cut set of assessment standards because their lust for power leaves them wanting to make their own decisions. This has perpetuated the problem. If the Control Yuan wanted to shoulder its responsibilities, it would deal with the issue instead of procrastinating and wasting resources.
The problem is quite easy to solve. As state-run enterprises often bear political responsibilities, it is difficult to assess their results based on normal profitability standards, and a different approach is needed. Applying economic theory, the four main production factors are land, labor, capital and entrepreneurship. Using the production capacity of these production factors we can evaluate the efficiency of state-run enterprises by, on one hand, disregarding profits, and, on the other, stimulating more efficient use of resources.
Using this approach, we can create a formula by which the annual production of a state-run company is divided by land, capital and labor — entrepreneurship can be excluded because it doesn’t change, and capital can be replaced by assets. This gives us three types of productivity which — by calculating the simple or weighted average — give us total factor productivity.
If it is difficult to determine which kind of average is better, the value of the three productivity factors can be calculated and directly divided by aggregate production. This allows a comparison between this year’s and last year’s productivity, which will show the growth rate. If it exceeds past economic growth, the results are good, which could justify a higher annual bonus. If not, the bonus would be smaller or witheld. This would make state-run enterprises value the use of land, capital and labor while avoiding the problem of redundant staff or idle land or assets.
One problem is whether aggregated production should be calculated using total market value or total production. As total market value is affected by government policy, it should be total production.
The company may produce many kinds of products, but they can be added together. A related problem is that calculating production effectivity using total production could result in state-run enterprises boosting production to improve their “effectivity” and maybe even sell their production surplus overseas at low prices. This requires complimentary measures to guarantee that such behavior does not affect profits.
With the help of a few accountants and economic experts, I could give the ministry a clear set of regulations for this simple and feasible method — I first suggested this kind of method 18 years ago. It offers a way to objectively evaluate the results of state-run enterprises and offer reasonable annual bonuses, and it creates incentives for improving efficiency. Twenty years later, the problem with employee bonuses at state-run enterprises rumbles on.
If this is what the MOEA’s administrative efficiency amounts to, how can we hope for government efficiency? The government is always talking about how ready it is, so let’s see the ministry follow suit.
Tu Jenn-hwa is an associate professor at National Taiwan University’s Graduate Institute of National Development.
TRANSLATED BY PERRY SVENSSON
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