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1、Public entities & political control By Ishrat Husain Monday, 19 Oct, 2009 | 12:44 AM PST A SERIOUS concern expressed in the media these days pertains to the losses, inefficiency and corruption of public-sector corporations. The dissatisfaction with their performance is attributed to political contro
2、l. This article demonstrates that these corporations can be turned around and at the same time political control over them can be effectively exercised. The only difference in the present situation and the proposed solution is that control is shifted from whimsical politicians to a collective system
3、 of checks and balances by parliament and the executive. According to a survey carried out in 2007, the federal government had more than 411 organisational entities of all types under the control of various ministries. A hundred of these entities, i.e. public corporations, are running businesses or
4、supplying services. They include some large money-guzzlers like the Water and Power Development Authority, the Oil & Gas Development Company, Pakistan Electric Power Company, Pakistan Steel, the Trading Corporation of Pakistan, PIA, National Bank, State Life Insurance, etc. Most news stories about a
5、lleged losses, nepotism and favouritism, etc. are coincidentally focused on this group of corporations. Some of them are utilities and enjoy monopolies. Despite the existence of regulatory agencies in Pakistan it would not be advisable to transform public monopolies into private monopolies. However,
6、 for some, such as Pakistan Steel, there is no reason to retain them in the public sector. The construction and the automobile industries have not been able to take off because of the size of our steel mill and its inefficiency. A different governance structure for these 100 corporations has to be d
7、esigned to maximise their economic value for the benefit of the general population. The government spends three to four per cent of the GDP to bail out or subsidise the losses of these corporations. The origin and persistence of the circular debt that surfaces from time to time to destabilise the ec
8、onomy is a clear manifestation of the non-businesslike and unprofessional behaviour of those who have been entrusted with the affairs of these entities. The underlying principle for guiding public-sector corporations should be the separation of policy control and operational and financial control. T
9、o illustrate this point, let us assume that Pakistan Steel would continue to remain within the public sector. The ministry of industries should then exercise policy control over Pakistan Steel by (a) appointing a board of directors and a chairman of the board; (b) assigning policy objectives or prod
10、uction targets to be achieved during the year; (c) appointing the chief executive of the corporation for a fixed tenure; and (d) holding the board accountable for the results. The ministry should specify the qualifications and eligibility criteria for the post of chief executive, invite both nominat
11、ions and applications to fill in these positions, appoint a search committee of eminent individuals to shortlist and interview candidates and recommend a panel of three persons to the prime minister for the choice of chief executive. The selected person would then be asked to appear at an open heari
12、ng of the joint National Assembly/Senate committee. The candidate would either be approved by the joint committee or rejected. Once appointed through this process the appointee would not be removed from office until the completion of the tenure of five years. Only in cases of proven corruption or ma
13、lfeasance, mental incapacitation or consistent shortfalls in meeting performance targets or voluntary resignations could the chief executive be removed. This process would apply to the other corporations. Only persons of integrity with an excellent track record in a particular field and meeting the
14、qualifications and eligibility criteria would be considered for the position. Proper criteria would be developed and notified. This practice is followed by banks. The board would be responsible for setting the direction and implementing government policy, approving strategies, internal policies and
15、procedures, annual business plans and budgets and monitoring performance. The board would enter into a performance contract at the beginning of each financial year with the chief executive. An annual report would be presented on whether the guidelines or targets were achieved and the reasons for a s
16、hortfall if they were not. This report would be submitted to the ministry which would study similar reports from the corporations under its control and prepare a comprehensive report for parliament. The chief executive of the corporation would be responsible for recruitment of regular staff, hiring
17、and firing of contract employees, training, promotion, performance evaluation, compensation and benefit packages and disciplinary actions within the budgetary ceilings and the HR policies approved by the board. This separation of policy and financial/operational control would clarify responsibilitie
18、s, authority and accountability and introduce a system of checks and balances. The personalised, whimsical system of appointments of chief executives of corporations have always raised questions about the transparency of the system and the associated pecuniary damage caused by incompetent or corrupt
19、 individuals. The proposed system, if implemented faithfully, would minimise the financial losses of our corporations, stop the haemorrhaging of our public finances, permit higher budgetary allocations for education and healthcare and extract maximum economic value from the investment of trillions m
20、ade in these publicly owned businesses. At the same time firm political control and oversight would be exercised over their affairs. However, the nature and quality of this control would be transferred from the individual politician to the executive and parliament. Of course, there is no guarantee t
21、hat the proposed system would not be misused, but at least it would be less amenable to misuse because the individual interests of so many parliamentarians would have given way to collective control No doubt this is all easier said than done and perhaps that is why it was not accepted by the previou
22、s government. However, moaning about poor governance will get us nowhere until selective measures are taken to put things right. It is hypocritical on our part to pay lip service to good governance but shirk from taking corrective action that could ensure this. A better planned, action-oriented path must be followed.The writer was formerly governor of the State Bank of Pakistan.
