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It's no bad word

Since government signalled its intention in June to sell a 30 per cent stake of the Grantley Adams International Airport Inc., the Barbados National Oil Company and the Bridgetown Port Inc. to the public, the Opposition has also outlined a privatisation platform.

I am pleased that a healthy public debate on the subject of privatisation is now in full flight. Though I have written on this important issue recently, I will proffer another two cents of my perspective for the public’s benefit.

Privatisation should not be seen as a bad word; it needs not be viewed as a sell-out or an abandonment of family silver. Like many other pursuits, what is paramount is the motivation behind it, the methods employed and ultimately the objectives and consequences. I am not a neo-classical economist. I do not subscribe to the mantra that in all cases private economic agents manage enterprise better than government. I would like to think of myself as more of an idealistic pragmatist.

As most of you could appreciate, for a few years now, Barbados has been grappling with a large fiscal deficit and rapid debt accumulation. Government’s spending far exceeds what it collects in revenue which has made it extremely challenging to honour its financial obligations. Though the deficit has been worsened by the 2008-2009 global economic recession, the larger deficits are largely due to weaknesses in the structure of government. This is unsustainable. Transfers and Subsidies account for a substantial portion of public expenditure, absorbing just over 50 per cent of government’s revenue in fiscal year 2010/11. Money spent under this category of expenditure funds healthcare (QEH), education (UWI), sanitation (SSA), public broadcasting (CBC), water (BWA), public transportation, tourism marketing and investment (BTA and BTI), and many other important and not so essential services.

A well thought out privatisation programme is likely to contribute to deficit reduction through expenditure cuts and short-term revenue windfalls. That seems to be the primary motivation for the present political consensus on privatisation in Barbados. However a secondary motivation may be economic enfranchisement and better corporate governance. The Stuart Administration has cited the promotion of economic democracy and stock market liquidity as two of the goals of its partial privatisation agenda. The Opposition’s stated goals for privatisation are good corporate governance and broader ownership in Barbadian enterprise. Regardless of the goals and objectives, ultimately the success of any privatisation programme will depend on its timing and implementation. The consequences of this type of policy will depend in part on which institutions the next Administration chooses as candidates for privatisation.

It is easy to understand why a nation with a dark colonial past, a dominant minority economic class and a growing intensity of foreign commercial ownership harbours misgivings about privatisation. A sense of pride and nationhood is closely intertwined with the collective ownership of state institutions and crown land. After all, many Barbadian taxpayers see themselves as vicarious owners of government’s assets and rightly so. These assets are symbols of national development, instruments of progress and emblems of generational patrimony. Despite my support for privatisation of some of government’s institutions, I believe that government has a duty to attend to the concerns of its citizens. One of the ways that reservations about privatisation could be addressed is to create a legislative framework that will either protect divested state-owned corporations from future foreign takeover, or give government the ability to block mergers/acquisitions that are not likely to result in the net national interest. A carefully designed regulatory regime could ensure that vital Barbadian institutions remain in the hands of Barbadians, for the benefit of Barbadians. Government ownership is not the only way to skin that cat.

That being said, any privatisation effort in Barbados at this juncture in our history should be pursued as part of a programme of fundamental restructuring of the public service. The main goal of this endeavour would be the creation of a public administrative machinery that is fit for purpose. Government should always strive to become more nimble and more efficient. It also needs to become a more consistent provider of high quality goods and services. A programme of systematic government restructuring at this time is an essential platform for growth and prosperity. Apart from deficit reduction, another goal of this initiative would be the elimination of the implementation deficit disorder that plagues the Barbados public service.

The method of privatisation and the institutions cited for divestment should be consistent with the following principles – privatised entities should result in: (i) higher quality goods and services; (ii) better value for money for customers; (iii) higher customer satisfaction; (iv) improved corporate performance; (v) better corporate governance and (vi) economic enfranchisement and broader corporate participation. In terms of necessary but insufficient criteria, the government must benefit either by way of the elimination of short-term or long-term public financial support or, a gain on the sale of assets – i.e. a financial boon which reduces that deficit in the short-term.

Given the foregoing, examples of state owned corporations which are prime candidates for privatisation are CBC, GEMS, BWA, GAIA, the Bridgetown Port Inc, among others. CBC in particular is a drain on public finances which could be better managed by an eager private sector. Its cultural and broadcasting mandates are far more likely to be pursued to the satisfaction of its customers if it is liberated from partisan influence. Appropriate regulation could protect the public’s interests as well as prescribe suitable domestic content requirements, which could be a catalyst for local film production. As it relates to our ports of entry, I support the partial divestment approach that is being pursued by the government. I think it is a more strategic approach. As I have said before, I do not support the privatisation of the Transport Board. The world does not have a good track record of privately provided mass transit. Public transportation should pass the test of reliability, affordability and convenience. Reliable and affordable public transportation is a cornerstone of economic growth and productivity. It is a greener mode of transit and it reduces traffic congestion but public subsidies are invariably a feature of the system. One of the problems we have with public transportation in Barbados is poor coverage and deteriorating reliability while the operational deficit balloons precipitously. This state of affairs is untenable. What is needed is comprehensive restructuring and rationalisation of the public transportation system in Barbados.

Privatisation is not always the answer but in some cases it could be. I have no philosophical opposition to governments managing commercial operations. As a matter of fact, there are numerous examples across the world of governments that successfully operate commercially viable and efficient state-owned enterprises. In many cases it simply requires the resolve to utilise the appropriate governance models.

*Carlos R. Forte is a Commonwealth Scholar and Barbadian economist with local and international experience.

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