STATE INCORPORATED AND PRIVATISATION POLICY Dr. Chee Kim Loy (Associate Professor) Faculty of...
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Transcript of STATE INCORPORATED AND PRIVATISATION POLICY Dr. Chee Kim Loy (Associate Professor) Faculty of...
STATE INCORPORATED AND PRIVATISATION POLICY
Dr. Chee Kim Loy(Associate Professor)Faculty of Business,
Economics and Policy Studies, (FBEPS)
UBD
OUTLINE OF PRESENTATION
State Inc and Privatisation Policy: A Development Management’s Perspective
A Framework for Managing
Privatisation (national level)
A Case Study of Malaysia’s Experiences
Global recovery, though still fragile, is now underway, and developing countries are likely to grow faster than rich countries.
The Doha Agenda has the potential to speed growth, raise incomes, and reduce poverty, and all countries have an interest in its success.
But to realize this potential, governments have to tackle inequities in the world trading system – and to forge an agreement than benefits the poor.
Main messages…Main messages…
0
1
2
3
4
5
1981 82 83 84 85 86 87 88 89
1990 91 92 93 94 95 96 97 98 99
2000 1 2 3 4
2005
Early 1990s recession
East Asia financial crisis
2001 downturn
The rich countries: a moderate The rich countries: a moderate recovery...recovery...
Real GDP, percent changeReal GDP, percent change
Early 1980s recession
High income countriesHigh income countries
ForecastForecast
The rich countries: investment now The rich countries: investment now rising....rising....
Global prospectsGlobal prospects
Real fixed investment, percent change at annual ratesReal fixed investment, percent change at annual rates
-16
-12
-8
-4
0
4
8
Q2 01 Q3 01 Q4 01 Q1 02 Q2 02 Q3 02 Q4 02 Q1 03 Q2 03
Euro Area
United States
Japan
0
1
2
3
4
5
1981 82 83 84 85 86 87 88 89
1990 91 92 93 94 95 96 97 98 99
2000 1 2 3 4
2005
Early 1980s debt crisis
1990s recession Transition countries
East Asia financial crisis
2001 Global downturn
Real GDP, percent change for developing countriesReal GDP, percent change for developing countriesForecastForecast
The developing countries: a robust The developing countries: a robust outlook outlook
CONCEPTS AND PERSPECTIVE
Concept of State IncConcept of Privatisation
Development Management’s
Perspective1
State Incorporated: A Definition
It is a national development strategy to accelerate economic (esp. industrial)
development through formal and informal cooperation and collaboration
between the government and the private business sector.
The private sector is believed to be the main generator of economic growth; the close alliance is to facilitate the
expansion of the private sector.
MALAYSIA INCORPORATED“The Malaysia Inc concept, therefore, requires
that the private and public sectors see themselves as sharing the same fate and
destiny as partners, shareholders and workers within the same ‘corporation’, which in this case is the Nation. The ‘corporation’ will prosper if its
commercial and economic arm, that is the private sector does its best... while optimizing
its returns on investment. The service arm …the Government will provide all the support it
needed.” Dr, Mahathir, PM of Malaysia, 1984.
PRIVATISATION: DEFINITIONS
Narrow Definition The sale of public assets to
private shareholders ( i.e. 100% or at least majority share)
Broader Definition Changing the status of a
business, service or industry from state, government or public to private ownership or control
THREE MAIN APPROACHES TO PRIVATISATION
Change in ownership of an enterprise (or part of it) from public to the private sector
Liberalisation or deregulation, of entry into activities previously restricted to public sector
Provision of a good/service is transferred from public to private sector, while retaining ultimate responsibility for supplying it
GOALS OF DEVELOPMENT POLICY IN DEVELOPING COUNTRIES
Economic Growth Political Stability Social Welfare Cultural Values Sustainable Development
DEVELOPMENT POLICY’S PERSPECTIVE Economics’ Perspective
Market based Political Perspective
State based Development
Management’s Perspective ‘Strategic Pragmatism’ based
STATE vs MARKET DEBATE IN DEVELOPMENT POLICY
“The consequences of an overzealous rejection of government have shifted attention from the sterile debate state vs market to a more fundamental crisis in state effectiveness……
“State-dominated development has failed, but so will stateless development. Development without an effective state is impossible” World Development Report, 1997
THE CONTEXT OF DEVELOPMENT MANAGEMENT
POLITICAL IDEOLOGYGLOBALISATION IMPACTS FISCAL CRISISSOCIO- CULTURAL VALUESICT TRANSFORMATION
TRADITIONAL PUBLIC /DEVELOPMENT ADMINISTRATION
TENSION
PARADIGM SHIFT IN DEVELOPMENTPARADIGM SHIFT IN DEVELOPMENT MANAGEMENTMANAGEMENT ( e.g. ( e.g. STATE INCORPORATED)STATE INCORPORATED)
ECONOMIC /ORGANIZATIONTHEORY
MANAGERIALISM
MANAGING GOVERNMENT ACTIVITIES FOR DEVELOPMENT
PRIVATISATION
VOLUNTARY / NON- PROFIT ORGANISATIONS
CONTRACTING FOR SERVICES
ORG. NETWORKS/PARTNERSHIPS
DE-REGULATIONS /RE-REGULATIONS
IMPROVING BUREAU--CRATIC MANAGEMENT
‘Market-Friendly’ Development Model: (World Bank- IMF) Emphasis on the virtue of market
with minimal intervention by the state
Market conforming economic policies of the government
Focusing on closer integration with the world economy
Stress on ‘state effectiveness’ in the role of the government in development
TWO-PART STRATEGY OF AN EFFECTIVE STATE
Matching state’s role to its capabilities
Reinvigorating the state’s capability
EAST ASIAN DEVELOPMENT MODEL
AN EXAMPLE OF A REGION WITH ‘EFFECTIVE STATES’ ’ IN ACHIEVING RELATIVELY HIGH LEVEL OF ECONOMIC AND SOCIAL DEVELOPMENT IN RECENT DECADES (1960-2000) AMONG THE LESS DEVELOPING COUNTRIES OF THE WORLD.
The ‘Strategic Pragmatism’ Development Perspective Period: 1970s-1997 The East Asian development
‘miracles’ Vigorous economic roles and
selective state interventions Strategic but not total integration
with the world economy Industrial policy to guide the market
towards planned structural change (e.g.State Inc and privatisation
policy)
What is Industrial Policy?
“It means the initiation and coordination of government activities to leverage upward the productivity and competitiveness of the whole economy and of particular industries in it.
Above all, positive industrial policy means the infusion of goal-oriented, strategic thinking into public economic policy….it is the logical outgrowth of the changing concept of comparative advantage” Johnson, 1984
State Inc: Various Examples Japan Inc Korea Inc Taiwan Inc Singapore Inc (GLC) Malaysia Inc China Inc (?)
END OF PART I
A FRAMEWORK FOR MANAGING PRIVATISATION
A FRAMEWORK FOR MANAGING PRIVATISATION
Planning and Goal Setting
Programme Development
Structural Reforms Implementation
FRAMEWORK FOR PLANNING AND IMPLEMENTING
PRIVATISATION
PLANNING & GOAL SETTINGPLANNING &
GOAL SETTING
PROGRAM DEVELOPMENT
PROGRAM DEVELOPMENT
STRUCTURAL REFORMS
STRUCTURAL REFORMS
IMPLEMENTATIONIMPLEMENTATION
SET SCOPE OF PRIVATISATION
DEFINE PRIVATISATION
CHOOSE ORGANISATIONAL
STRUCTURE
CREATE CONDITIONS FOR PRIVATISATION
AGENCY SUCCESS
ASSESS POTENTIAL ADVANTAGES &
ADVERSE IMPACTS
DEVELOP STRATEGIC
MANAGEMENT PLAN
CHOOSE APPROPRIATE
METHODS
INSTITUTIONAL REFORMS
MarketPrivate SectorCivil Society
DEVELOP MANAGEMENT REQUIREMENT
S AND PROCEDURES
MACROPOLICY REFORMSEconomicPolitical
Governmental
ASSESSMENT AND FEEDBACK
Planning and Goal Setting
Defining privatisation Determining the scope of privatisation Choosing the organizational structure Creating the conditions for agency
success Assessing potential advantages Assessing potential adverse impacts
Programme Development
Developing a Strategic Management Plan
Choosing appropriate methods of privatisation
Structural Reforms
Enacting Economic and Political Reforms
Developing Institutional Capacity
Implementation
Management Requirements
Management Procedures
Management of Social Issues
A Final Quote on Privatisation
“Although privatisation is an essential instrument for transforming government-controlled economies into market-oriented systems and for making established market economies more efficient, it is neither a panacea for all government’s ill nor sufficient to ensure economic progress. Privatisation is most effective when it is part of a broader programme of economic policy reforms and institutional development”
D.Rondinelli (1996)
END OF PART 2
MALAYSIA INC AND
PRIVATISATION POLICY ( a Case Study )
Malaysia Inc and Privatisation Policy: Presentation Outline
The Political Development Context
The Growth and Performance of State Owned Enterprises (SOEs)
The Formulation of Malaysia Inc ‘Privatising’ Malaysia
Political Context of Malaysia Inc and Privatisation Policy
1957-69 ‘Bargain of 1957’: The Alliance laissez-
faire Policy 1970-81
‘NEP: The First Decade-The Public Enterprises Era’
1982-91 ‘NEP: The Second Decade- The Era of
Privatisation - First Phase’ 1991-97
Mahathir’s Vision 2020: The Era of Privatisation -Second Phase
Post-1997 Adaptation to New Realities of
Globalisation
Size and Structure of SOE Sector in Malaysia-1990
1,158 SOEs -Total Paid-up Capital $23 billion About 25% of GDP 396 (or 34%) were 100% Government-owned 429 (or 37%) were majority owned 333 (or 30%) were minority equity stake Government equity share was 70.3% ($16.7 billion) About equal share between Federal and State Governments Debt-equity ratio of 180% as compare with 100% for private sector
Relative Performance of SOEs 1980-1988
Year ‘80 81 82 83 84 85 86 87 88 (%)
Profitable 61 60 54 58 58 52 52 53 60
Unprofitable 39 40 46 42 42 48 50 47 40
About 12-19% of these SOEs were ‘sick’ companies i.e. with negative shareholders’ fund and 24-30% were not making profits at all!
Major Reasons for Poor Performance
Internal microeconomic weaknesses in the sector rather than the failure of the macroeconomic environment Management weaknesses Poor or non-existing shareholder
discipline Poorly designed incentives structures Easy access to soft finances, poor
resource allocation Operational inflexibility
Malaysia Inc: 1984-1990 –Phase I
Use the concept to formulate an effective framework for carrying out administrative reforms in the Malaysian public service. It enabled the public sector to identify the private sector as their main
client and to zoom in on specific components of the private sector that required specialised support
to earmark improvements to their own administrative systems and processes used in the interface wit the private sector.
Malaysia Inc : 1991- 2001 Phase II
New Mechanisms and Structures Malaysian Business Council (MBC),1991
PM as Chairman Members from public, private and NGOs
Development Administrative Circular No 9 ,1991 Formalise a comprehensive /integrated approach The Malaysian Incorporated Officials Committee(MIOC)
Chaired by the Chief Secretary Members from public, private sectors and NGOs
Agency-based Consultation Panels Dialogue Sessions
Some Encouraging Results 1998 Survey by the Political and
Economic Risk Consultancy Ltd (PERC) placed Malaysian public service as the 3rd most business-friendly in Asia
1997 World Competitiveness Report by the Geneva-based International Institute for Management ranked Malaysia Government as the 4th most competitive in the world
PRIVATISATION POLICY of
MALAYSIA
PRIVATISATION POLICY Concept and Methods of Privatisation Key Success Factors of Privatisation Privatisation Policy and Practices in
Malaysia A Brief Profile Malaysia Privatisation Master Plan
( 1991) Privatisation Achievements Key Success Factors Criticisms
Privatisation in Malaysia: A Brief Profile
Started in 1983: Guidelines on Privatisation 1991: Privatisation Masterplan (PMP) By late 1990s
More than 400 projects implemented Saving in capital expenditure - about $130
billion Proceeds from sales of assets/equities - $22
billion Reduction of about 105,000 public servants
After 1997 Additional features of privatisation Potential of more projects from Multimedia
Super Corridor (MSC)
Malaysia’s Privatisation Masterplan (PMP)
FIVE OBJECTIVES FOUR MAIN MODES OF
IMPLEMENTATION SIX RECOMMENDATIONS
Five Objectives of PMP
Relieving the financial/administrative burden of the government
Improving efficiency and productivity Facilitating economic growth Reducing the size and presence of the
public sector Helping to meet the National
Development Policy
Six Recommendations Privatisation should be part of a
comprehensive process of economic liberalisation reform;
Privatisation strategies have to be more carefully tailored to meet national objectives;
The machinery for policy implementation has to be improved;
Appropriate reforms to the legal framework are needed;
Enhance official and public support for the programme;
Careful management of staff sensitivities.
Four Main Modes of Implementation Sale of assets or equity Lease of assets Management contract Built-operate-transfer (“BOT”)
Built-operate-own (“BOO”) for new infrastructure
Built-transfer(“BT”)
Arguments for Privatisation Policy in Malaysia Reduce financial/administrative burden of
the government Promote competition, improve efficiency
and increase productivity Stimulate private entrepreneurship and
investment Reduce the presence and size of the
public sector, with its monopolistic tendencies and bureaucratic support
Help to achieve NEP/NDP objectives
Privatisation Achievements
NOTE Privatisation is only one major
component of a broad structural reform programme
Economic success of a country cannot be attributed to privatisation alone.
Reducing Financial and Administrative Burden Saving in capital expenditure $130
billion Sales of Assets/equity $ 22
billion Lease rentals Reduction in public service payroll
105,000 persons
(Telecoms, Electricity, Postal – 65% of total)
Efficiency/Productivity Gains: Some Cases
Telekom Malaysia Bhd Before After Return on Assets(%) 4.0 9.3 Speed of Access (services) 35 60
Projek Lebehraya Utara Selatan Revenue per employee ($)77.7 217.6 Traveling Time(hours) 15.4 7.5
Penang Port Sdn Bhd Gross Annual Profit 24.14 41.48 Av. Container Throughput 331 386
(in 1000’s TEU)
Promoting Competition Monopoly status to limited
competition Fixed telephony services and
cellular phone (5 companies) Independent power producers (11
companies) Innovative services from Pos
Malaysia Bhd.
Facilitate Economic Growth
Corporate expansion and greater utilisation of growth opportunities through private sector motivation Efficiency gains release resources for
corporate expansion and multiplier effects in the economy
Reduce public sector budget and reduce infrastructure bottlenecks The 882 km North-South Highway was
completed 14 months earlier Effect on the capital market
Improvement in KL Stock Exchange
Meeting National Development Policy Targets
Enhance role and participation of the Bumiputra community
Benefit other Malaysians through collaboration and joint-venture projects
Create new class of entrepreneurs e.g. in infrastructure projects and automobile manufacturing
Distinctiveness of Malaysia Privatisation Policy
Balance between NEP interventionism and against the laissez-faire ideals of privatisation
UMNO (and allies)/ has become a key player as a party through corporate ownership and holding companies
Encouraging FDI-led development, allowed for rapid emergence of shorter term capital flows/portfolio type rather than longer term productive investment
Key Success Factors Strong commitments and realistic
approach Adoption of new administrative
procedures Systematic and coordinated policy
implementation General acceptance by Malaysian public
through effective communication Private sector capacity and enthusiastic
support
Implementation Issues Increase in Tariff Rates or
Service Charges Regulatory System Bumiputra Participation Legislation: Amended or New Greater Transparency Economic Downturn
Economic Crisis: Additional Measures
Special focus on projects which contribute to economic recovery
Implementation of contracts in phases
Use of more local contents - building materials and equipments
Financing from local banks and financial institutions for new projects
Criticisms of Malaysia Inc and Privatisation
Malaysia Inc viewed as ‘Crony Capitalism’ Dominance of Partial Divestiture – a reflection
of Malaysia Inc Policies Best of both worlds or worst of both worlds!
Privatisation has been most successful with regard to Bumiputra wealth acquisition but not to other aspects of NEP’s equity objectives
Criticisms of Malaysia Inc and Privatisation…con’t
Privatisation has encouraged rent-seeking behaviour associated with political involvement by government in business affecting investment priorities and activities
Criticism….con’t
May undermine public welfare as a result of the strengthening of private monopolistic interests
Alternatives to privatisation policy have not been critically examined Competition and enterprise
reforms are the key to economic efficiencies not ownership per se
CHALLENGES AHEAD What further lessons can we learn
from the East Asian development in recent years (1997-2001)? From ‘miracles’’ to ‘mirage’?
What lessons can Brunei learn from these East Asian countries to manage her development agenda effectively?
THANK YOU