Tito Mboweni: Don’t just stand there, ‘undo’ something

Minister of Finance Tito Mboweni. FILE PHOTO: Phando Jikelo/African News Agency(ANA)

ANC’s 2017 policy conference took a firm and instructive resolution on State owned enterprises. In the outcomes of the Strategy and Tactics discussion, the policy conference agreed that SOEs are pillars of transformation and were a potent tool to achieve strategic economic interventions. In order to achieve this, they needed to be technically capacitated and properly orientated. The view was that it is through the State and SOEs that we can deal with what was characterized as ‘racial capitalism’ that remains. Institutionalizing Ethical standards was also agreed to and seen as critical in ensuring the effectiveness of SOEs.

The process that the President has been seized with therefore, since he became ANC president, that of cleaning up SOEs and recapacitating them is the correct one and is exactly what Conference had resolved. Minister Tito Mboweni, in his call for South African Airways to be privatized is therefore out of sync with the ANC’s resolution and the President’s mandate of the last few months and as an NEC member, he should know better.

Mboweni is making his statements of selling SAA when there is a general global rethink on the whole privatization project. In October 1982, then British Prime Minister Margaret Thatcher commissioned an academic, Stephen Littlechild, to design a regulatory framework for a soon to be privatized British Telecoms. 30 years later, after British rail, water, energy, have all been sold to private hands, the country is rethinking the wisdom of letting essential services to be privately runned by private monopolies. There is now a general feeling that these private companies have used every angle to evade the regulatory framework set for them.

The past experience has shown that private owners achieve better results through Financial Engineering and not ‘effort and enterprise’. These now private owned entities have at times increased their borrowing and leveraging, allowing them to achieve savings and short term returns, which have more to do with this financial engineering than ‘providing a better product’. Some people have argued that except for Financial engineering, which is driven by the need to deliver to shareholders, privatized institutions are no more efficient than public institutions.

This is certainly true of SAA. SAA’s service is really compatible with other international airlines like BA. The complaint has really been about the state of SAA’s balance sheets and not its service. SAA seems to have perpetual financial problems but not operational ones. To privatize however you must prove that private owners will on top of being financially better at running the entity, but also operationally outstanding. There is no evidence that private owners would operationally run SAA better. The manner in which SAA has therefore been presented has been that of a complete mess, without separating financial problems from operational ones.

Something is curious however about Tito’s privatization call for SAA. Where are these financial problems coming from which are delinked from operational problems. The American historian and philosopher, Noam Chomsky mockingly defines Privatization as a process of ‘defunding’ a government entity, letting people know its not working, getting sympathy to sell it off to private owners, who then come in and ruin the entity, then government must come back and rescue the who thing and private owners smile all the way to the bank. Things may not have happened this crudely but this certain seems to be the pattern.

Privatization is simply the selling of state owned assets to private companies. The idea behind privatization is that private companies are viewed as more efficient than government because they are profit driven, whilst SOEs are politically driven. As is evident with institutions like the SABC, public institutions can employ more people than it needs resulting in inefficiencies whilst private companies do not allow any excess labor to drive up their costs and inefficiencies to eat at profits.  Firing people is a political nightmare for public institutions whilst private companies have no such pressures.

As the British have seen, despite all these perceived efficiencies of the private sector, the evidence has pointed in a different direction. The first problem with privatization is that SOEs usually operate in a monopolistic or oligopolistic space. Selling these to private owners means government suddenly creates for itself new challenges of regulating a monopoly they use to own. Private monopolies by their very nature will always seek to maximally exploit their monopoly to maximize profits. They begin by charging exorbitant prices or limiting the service (controlling supply) and thereby crowding out huge chunks of society from a critical service. This then forces government to come back and try to ensure that such a service is provided to the underprivileged members of society and this usually happens through subsidies. So the very money government was trying to save by selling state assets must come back through subsidies, ensuring that the private owners smile their way to the bank swimming in pools of tax money.

The madness of a government, letting go of a company it use to own which provided critical service, only to be brought back to battle for that service to be provided by new owners to the public, defies logic and is counter-intuitive.

The experience now tells us that there are some services that are so critical to society they should never be left at the mercy of profit driven private interests. Provision of electricity, transport, health, informing the public, cannot in all consciousness be the preserve of only those who can afford them. Government has a moral duty to provide these services. Run efficiently, these state-owned companies can make money that is reinvested back into the countries fiscus. When it sells these companies, it may get once off payments and improve the counties fiscus but will lose on any future dividends.

Private companies answer to their shareholders. Shareholders want to make as much money in the shortest possible time and this leads to ‘short-termism’ and lack on investments in long-term sustainability of the company (which provides a critical service). This also leads to crass decisions like further splitting the company and, selling it off in pieces, and reducing its capacity and diffusing accountability for troubles that may arise.

Privatization is part of the world that Tito use to know that no longer exist. China has single-handedly held the world’s economic growth using State Owned Enterprises. Why our Minister’s first visits is to the West, which has not seen high levels of economic growth in decades beats me. SOE’s are pillars of both growth and transformation and must be capacitated and orientated to achieve those ends.

Yonela Diko is the ANC Western Cape Spokesperson.