This week I’m breaking a 25-year-old tradition of fortnightly columns, so I don’t let the topic of Public Enterprises (PE) introduced in my previous installment cool down.
The basic concept for answering what to do with PEs is “State Participation”, i.e., the way in which the State intervenes directly in the economy. In a country like Bolivia, it is impossible and risky to exclude the state from the economy, at least as long as it is based on the use of natural resources.
The first step is to classify the PEs. Not all of them are the same or necessary. I simplify with three categories: service, commercial and extractive sector PEs.
Some basic service businesses are needed to the extent that they convert taxes, national or local, into subsidies and incentives for transportation, health, education, and housing. The condition is that they remain within the budget ceilings and that they control the natural deficit through periodic increases in tariffs.
On the contrary, commercial PEs – the “xxx.bo” – are indefensible, especially if they are loss-making and uncompetitive, as they tend to be. They have emerged like mushrooms lately, sometimes for no clear reason, and bring with them the consequences of a bad birth. I am thinking of agencies of all kinds, companies, state financial institutions that do not stand out precisely for transparency, competitiveness and excellence.
Productive PEs tend to produce more deficits than profits, but they are anchored in one of the national myths, “strategic resources”, which has disoriented the national economy since colonial times. In principle, there is no reason to oppose the participation of the state in the exploitation of natural resources, because of the greater profits that these could generate and the advantages that the presence of the state represents in international trade. But you have to know how to do it, and do it well.
In the Presidential Delegation under my responsibility, between 2004 and 2005, we reflected, for example, on how to relaunch YPFB without falling back into the defects that led it to be capitalized a few years earlier. In search of experiences of successful state holdings, we looked at the French model (similar to the Spanish and Italian ones).
The model basically consists of having joint ventures, where “corporate governance” prevails. The Board of Directors reflects the company’s policies, however the management, i.e., the execution of these policies, falls under the private shareholder, with full freedom of action, guaranteeing, in theory, the autonomy and continuity of the executive authorities. Transparency and excellence are, in this case, non-negotiable requirements, which imply listing on the stock exchange, the presentation of public budgets, accountability, the evaluation of managers and directors, respect for workers’ rights, etc.
Alternatively, PEs could exist on their own, but without incentives and with the ability to compete on equal terms (and obligations) with private enterprise. In the case of YPFB, since it is a “reborn” PE, we suggested giving it a “dowry”, i.e., some oil areas that could be the subject of tenders to gradually re-enter the exploration business.
The question remains to be answered: how to select the directors and managers of these companies? Without going into details, the suggestion is a medium-term solution: create a national ranking of career professionals to occupy positions of responsibility in the PEs, chosen and evaluated on the basis of merit, experience and performance.
My critics will say that this proposal for state holdings is acceptable “from the waist up”, but I think that, properly drafted, it also fits the needs of the “belt down”.