The series on profit was started more than a year ago with the humble objective of aggrandising the need to churn a profit at the national level. At inception, it was never envisaged that this journey will confront so many entanglements, after all how difficult can it be to justify the need for profit? Post reflections on various tangents, and surmounting many complications, it now transpires that motivation is the singular characteristic generally lacking in the quest for public sector profit.
Copyright Business Recorder, 2013
Private ownership is however only part of the puzzle, what requires elucidation is why the very resources, which performed miserably under public sector umbrella, suddenly become profitable upon migrating to private control.
While the ultimate question might have been framed, there is a need to recollect previous conclusions, before any attempt to formulate the solution. Fundamentally, the mercantilist had it right, the bullion must come home. The singular diversion from this perspective is that government control should be limited to national interests and assets only. But once again the write-up jumps the gun.
A panoptic summary follows:
It was, it is and it will always be, all about profit at all levels, individual, corporate and national. Rich nations are either themselves in business or are dictated to by their country's businesses. Taxation is not profit; net positive external revenues are the only true national profit. Minus tangible gains, all else equals zero.
GDP is not an indicator of the net wealth of a nation; in fact it is not even an annual profitability statement. Quick to criticise business, pundits have yet to identify an economic balance sheet and profit and loss methodology.
Control over national assets should vest with entities capable of enhancing profitability, public or private. The Chinese experience comprehensively mollifies all concerns associated with state ownership including growth and innovation. But what matter is profit and if the private sector does a better job, so be it.
Anything exploitable within a nation's territorial right, including its people, savings, and skies, are national assets. Protectionism, through any means, is necessary to protect national interests. Additionally, for optimum utilisation of resources, profit-makers are indispensable. Profit is complicated, which is why everyone cannot generate it.
Profit-making skills can neither be taught, nor can they be learnt from observation, nor are they hereditary. Profit-makers are born, either you have it or you don't! Behind every motivated person, there is someone trying to make a buck, and they are the ones that matter. While profit-makers can be profiled, science has yet to invent a methodology to inject these qualities in mere mortals. Profit-makers are intelligent, hardworking, focused, perceptive, visionary, risk-taker, fearless, confident and austere. Every nation has them they just need to be spotlighted based on their achievements. To elaborate, the philosophy being expounded is not that profit-makers be entrusted with governance, it is simply that they be vested with national assets and allowed to operate in an enabling environment in the best interest of the nation.
It is important for state businesses that they are completely divorced from political and/or bureaucratic influence, especially when operated by profit-makers. This does not imply that their stewardship is not vested with the government, simply segregation of monitoring and managing functions is desirable. The probable framework, perhaps a Ministry of Profit, can always be imitated from existing models around the globe. If the West had remained unable to tackle political interference why should developing nations throw in the towel?
Free markets, foreign investment, taxation, and privatisation are all double edged policies. The cardinal rule is to weight the pros and cons in each individual scenario rather than adopting policies on the advice of others with conflicting interests.
The fittest monopolise survival by controlling scarce resources. Even in the realm of entertainment, love of Monopoly comes natural to mankind. If perfect competition, which we are told is good, eventually leads to an evil monopoly, then either good is evil or vice versa. Left their own free markets are like a bull in a China shop, so why is monopoly unacceptable? The need of the hour is not unproductive criticism of state monopolies; it is to restructure them on profitable basis. Where is the logic in selling them and paying dearly for the services or goods they provide? At the end of the day there is no thumb rule when comparing public or private profits, the guiding factor is solely what is right in the best interest of the nation.
The critics will quickly point out that the public sector is fraught with corruption and political appointees. But does a robust private sector ensure the demise of corruption? As modern global history documents, hardly! Morality and profits is an odd couple.
Additionally, the challenges faced by the public sector have more to do with lobbying, subsidies, nepotism and painfully bureaucratic processes than with over-employment. In any case since provision of employment is a key function of governments, over employment is just application of profits towards government's primary directive!
In substance, a nation should be indifferent on how it makes profit, and ever nation is blessed with its unique resources to earn profit. Nonetheless, a strong manufacturing base is necessary for the growth of any developing nation. In terms of employment, unskilled labour can be better used in manufacturing and manufacturing cannot just pack up and leave to follow the money. But for developing a strong manufacturing sector, protectionist policies need to be implemented and complied with in earnest. On the other hand even services sectors falling under national interests need to be protected.
The abstraction that interest rates and money supply are the panacea for a nation's financial perils is rather optimistic. Realistically speaking trading surplus is revenue enhancing strategy while managing currency exposure is a cost control strategy. Of the two, increasing revenue through positive trade, the mercantilist approach is forward looking, since there are obvious limits to any cost control initiative with associated negative outcomes. Trade should only be profitable, and profits should first be applied through paying past debts under an austerity programmes, wasting profits is a loss too!
"The code is more what you'd call guidelines, than actual rules..." from the movie The Pirates of the Caribbean.
And that is exactly what the above summary is, a guideline. A lot of brainstorming is needed to develop a framework which captures the spirit of these guidelines and much, much more commitment will be needed to implement them, thereafter. In the meanwhile, the concluding article will attempt to tackle the puzzle of employing private sector resources effectively in the public sector, Insha Allah.