ENHANCING GOOD GOVERNMENT THROUGH PUBLIC ENTERPRISE

(PRIVATIZATION)

By: LEILANI MARIANA G. CASTELO

Issues in Privatization

• What is privatization?

• What are the modes of privatization?

• What are the reasons for privatization?

• What are the problems of privatization

What is privatization?

• The transfer of the delivery of public services to the initiative and control of the private sector

• Transfer of management of an enterprise from the public to private sector.

What is privatization?

• Whenever a public sector sells out government-owned corporation to the private sector, it then becomes a public enterprise management or a management of innovations.

• Public Enterprise Management is “a form of human activity operated and managed by the state government or any public authority. It is an undertaking where the investment is owned and controlled by any government organization whether national or local.”

• Part of the economy not controlled by the state but that segment of the economy which is managed and operated by varying individuals or business organizations

• It is a profit – oriented organizations that sells competitive goods and services for the consumers/beneficiaries.

• They are potent conduits of the government in managing the overall economy of the state.

The Private Sector

• Its role in a free enterprise economy has always been highly organized.

• It is a management organization known for efficiency (least cost with great returns) and effectiveness (attainment of the desired outputs).

• One acceptable and viable way in dealing with the private sector is through privatization of public goods, utilities, and services.

Reasons for Privatization• Rising costs of doing business

• Field or area of expertise to operate a service

• A privately contracted company may deliver a service more efficiently

• The private sector has better human resource management approach

“the desire to do with less made the public sector an eye for the viability of the private entities as alternative service provider”

Modes of Privatization

1) Contracting Out Serviceswhile the government is still responsible for the service it has someone else (contractor) who provides the actual service

Invitation to Bid - open competition among contractors to post the lowest or highest bid

Request for Proposal – inviting groups to present a proposal to the government that provides how they would perform the service at the least cost (for the govt) but with maximum efficiency (for the group)

Modes of Privatization

2) Public-Private Collaborationa cooperative agreement between a government and a private organization may be formed in which both parties assume some degree of mutual responsibility in operating a program or a service like the Build-operate-Transfer (BOT) scheme where one party builds an infrastructure like roads or markets, and the other entity operates.

Modes of Privatization

3) Franchisingthe right of the government sector to grant a program or service on an exclusive basis to private individuals or groups in the locality

non-exclusive franchise could also be extended to some contractors to supply services like sanitation services for a district or city

Modes of Privatization

4) Load or Asset Sheddingwhen a government sells out a facility or equipment or simply discontinues the provision of a public service

private entities may step in to cover a particular service delivery

Modes of Privatization

5) Volunteerisma local government may hand down the provision of a service to volunteers to operate a particular public service such as public safety services and recreational services

“the use of volunteers is highest in the operation of culture and arts programs and museum operations”

Regulatory Functions•When services are contracted out, they do not set aside or diminished the government’s supervisory functions, the more they should stay on guard and the more the government should set performance standards and monitoring evaluation only to guarantee that the contracted services are made available, and people behind the service provision are held accountable.

•The reduction of State’s control and involvement in some key sectors of the economy makes a government a regulatory one in theory and in practice.

Regulatory Agencyrefer to organizations that are charged (normally by statute) with regulating not just newly privatized sectors but also any aspect of social life where a public interest is held to be at stake such as natural monopoly like electrical supply, water provision, broadcasting and so forth.when a public service has been assigned to business contractors, the function of regulation on the part of the government becomes increasingly necessary. Governmental regulations may set operation standards, limit business action, restrict property rights, and affect incomes. Such regulations are imposed to protect and promote the public interest.

Roles of Public Administrationin an organizational and administrative setup, managerial control helps us organize better public administration. Hence, we should organize public administration in a manner that would maximize some desirable traits

1) Honest, accurate translation of political leaders’ decisions into more specifically designed policies.

2) Flexibility in dealing with special cases at the point of delivery.

3) But this flexibility should not be used arbitrarily.

4) Feedback of expert advices, active imagination, and assertive inquiry on the part of the administrators.

5) Efficiency.

Aim of Privatization

The aim of privatization is :

To achieve higher micro-economic efficiency and foster economic growth, as well as reduce public sector borrowing requirements through the elimination of unnecessary subsidies.

Privatization Issues in the Philippines

• Job separation - The “reengineering the bureaucracy” program of the Ramos resulted to

massive reorganization which in turn resulted to mass lay-off of government employees

• Pricing or utility rates of a service provided by a business sector

- Monopoly pricing may be liberally condoned because there exists no competition of said service like electric and water supply hence minimizing the benefits of privatization

Privatization Issues in the Philippines

• Presence of political pressure

- “tend to retain for the public sector functions where privatization would make sense and to privatize tasks that would be better left to government”

- privatization leads to corruption because of its susceptibility to political influence

It is important then that the government conduct a thorough analysis of the services to be contracted out to the private. A committee should be formed to analyze and determine the level of efficiency and effectiveness of the service when privatized.

THANK YOU