Directions for State Enterprise
M. Clark and E. Sinclair (eds.) 'Purpose, Performance and Profit: Redefining the Public Sector', 1986
12 Pages Posted: 27 Feb 2013 Last revised: 24 Feb 2015
Date Written: 1986
This paper discusses the commercialisation of state trading activities and, in particular, the Government’s view for future directions for state enterprises. New Zealand over the years has developed many different enterprises owned by the state and which are essentially of a commercial or trading nature. What we have failed to develop is a set of principles which should guide their management. The state owned enterprises policy aims to occupy that policy vacuum.
Spending on state owned enterprises is often more than estimated at the beginning of projects and can wind up being redundant at the completion of a project. Many state owned enterprises require more and more administrative expenditure while production and market share is falling. These performances cannot be swept under the carpet. This poor record had meant that the economy as a whole has experienced lower growth and we are all worse off as a result. These organisations have soaked up resources that could have been used more profitably elsewhere. The taxpayer has, over the last 20 years, poured the equivalent of 10 percent of New Zealand’s income in 1986 into five major state trading organisations. These are commercial investments made by the Government on behalf of taxpayers. The taxpayer is entitled, as of right, to a return on his or her investment.
The problem behind such massive economic waste is largely to do with decisions made by policy makers – the Ministers – which reflect political considerations. Other unfortunate influences at work are: inappropriate and unnecessary bureaucratic controls; lack of managerial autonomy; unclear and conflicting objectives; a lack of proper accountability; and the organisational structure of state trading activities. These factors all focus on the environment within which public servants are expected to work. The reasons for poor performance are not a result of the quality of state servants. They result from the decision making environment. In view of the need for change, it is not too difficult to conclude that we need to alter the environment surrounding state trading enterprises.
The paper sets out and explains a set of key principles created to alter this environment and improve state owned enterprise efficiency. It also discusses how the Government aims to cushion any adverse effects or social impacts of the policy. The Government will focus on two fundamental questions: are SOEs meeting customer needs in a profitable manner; and are SOEs operating as efficiently as possible?
The paper finishes with a set of questions regarding the above, put forward to the author from various commenters, and the author’s response.
Keywords: state owned enterprises, New Zealand, administrative law, public sector, civil servants, SOE
JEL Classification: K19, K39
Suggested Citation: Suggested Citation