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Economic policy and parastatals

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The news that President Peter Mutharika has accepted the proposed reforms and granted state enterprises or parastatals autonomy has been received with approval by media commentators.

It requires sound education to understand or envisage the consequences of this. More people will respond in future when the reforms are not only implemented but start to bear fruits.

Economic theories and economic policies arise out of what is happening in the economy; they reflect experiences. Take for instance: if it is inappropriate for the state to operate businesses why did it launch them in the first place?

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In a free market or capitalist economy a government finds it necessary to set up a corporation to provide goods and services which private entrepreneurs are not providing. The goods or services may be necessary for growth and progress of the economy but private business persons may shun them because they require the amount of capital which individuals do not have. Some businesses may involve too lengthy gestation period.

Many people in a developing country like Malawi prefer to start business which sooner than later generates income. Hence someone wishing to sell textiles would prefer to travel all the way to Dar-es-alaam or Johannesburg, buy stock there, and then bring it here for resale rather than to set up a textile factory and wait several years before the output is available for marketing.

In Malawi the government, more than half a century ago, undertook afforestration schemes like Chikangawa in Mzimba because no business person was prepared to sink his capital into a project that might take 20 or 30 years before maturing.

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In other words the government launched what are now called parastatals because it saw a need that was not being catered for. Why is it now virtually diverting itself from the responsibility of operating these entities?

A new situation has risen which has made it impossible for the state to keep on subsidising the parastatals. For many years they have been operating at losses and have been going to the Treasury hat in hand to ask for subventions. The Treasury has been responding favourably because the government of Malawi itself has been receiving subventions from different foreign governments and international organisations. These subventions have ceased, hence the Treasury being no longer able to resuscitate ailing enterprises.

In what manner will virtually privatising the parastatals enable them to exist as a going concern? They will operate with the same freedom as private companies, motivated by profit maximisation. To earn maximum profits companies try to minimise costs. One way to minimise costs is to employ more workers than the enterprise needs and if necessary to substitute machines for human labour.

That is, with the reforms we should expect the downsizing of the parastatals by declaring some employees as redundant or at least not hiring extra employees. Either way, those who are retrenched or failed to get jobs will grumble. Success comes through sacrifices of something or somebody.

Management will have to imbibe the entrepreneurial spirit which states that you make money first before you decide how to spend it. If they keep on paying themselves princely salaries and perks, the parastatals will head for the bankruptcy court. The relationship between the state and the reformed parastatals should be pragamatic. First the state should be clear with what it expects the parastatals now freed of state guidance to achieve. Once the objective is crystallised the government should refrain from interfering in the management of the parastatals. This does not mean it should not take interest in the manner they are being managed.

This is the age of developmental or entrepreneurial states. To be developmental does not mean that the state should be engaged in the production of all types of goods and services. It should just see that those goods and services which can be provided by the private sector are being provided. If those expected to provide a particular service are not doing so or are bungling along, the state should take remedial action.

The government should be guided by two recent events, one on the domestic and another on the international scene. On the domestic scene we have noted that men and women entrusted with top positions in civil service are capable of behaving like brigands, hence the cashgate scandals.

Those entrusted with managing the parastatals under the new system are neither devils nor angels but ordinary people. As ordinary humans they can have shortcomings. There is a saying: ‘Do not expect what you do not inspect.’

On the international scene President Ronald Reagan of the United States and Prime Minister Margaret Thatcher of Great Britain inaugurated the new era of privatisation and deregulation. The private sector on both sides of the Atlantic enjoyed unpreceded liberties from the late 1990’s to the first decade of the 21st century.

Then there came the financial meltdown in 2007 and 2008 which were largely due to the abuses and short comings on the part of the private sector.

Lesson: let us not assume that with these reforms everything will be plain sailing thereafter. It is better to keep awake.

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