This article is a slightly-revised version of my publication with the same title in the May 19, 21 and 22, 2014, issues of the Daily Graphic. Overall, the article (whose Part One could be found by clicking here) seeks to provide a counterweight to the oft-sung cliche that “government has no business doing business.” Specifically, this second part of the article will show that the State-driven approach to development has recorded tremendous achievements elsewhere; and has, contrary to the cliche, transformed underdeveloped economies into players on the global stage. It will begin with a brief descriptive of the the World Bank/IMF divestiture program and how Ghana’s economy is yet to benefit from it. The Part will, then, end with several questions which are meant to signal a reassessment by the Ghana anti-State movement of their position.
The Coming of the Structural Adjustment Programs
The mismanagement of SEOs in late 1960s and the debt crisis of the 1970 went into a full-blown manifestation in the early 1980. By 1983, the World Bank and IMF have happily secured the reluctant invitation of the PNDC military government. They came with the Structural Adjustment Programs (SAPs). Ghana’s version of the SAPs was christened the Economic Recovery Programs (ERPs). The ERPs contained a series of prescriptions – trade liberalization, price deregulation in industry and agriculture, currency devaluation, drastic cutbacks on government expenditure on health, education, etc, financial liberalization, and privatization/divestiture, etc.
Of relevance to us here, however, is the divestiture programme. The divestiture program was intended to shrink the public sector and to improve the performance of enterprises by mobilizing private sector management and capital. The program, thus, comprises of privatization – that prescription which requires the government to offloads its interest in SOEs to the general public. It also consists of liquidation of SOEs. In 1987, the State Enterprise Commission was established under State Enterprises Commission Law (PNDC LAW 170) to supervise the SOE reform program. The divestiture program however formally took off in 1988 under the State-owned Enterprise Reform Programme which in itself was a part of the broader ERP.
The record shows that there were more than 350 SOEs when the reform program took off. By 1993, the first round of the program had seen some 55 SOEs privatised. Then came the second round which was implemented by another government agency, the Divestiture Implementation Committee (DIC). The DIC was established by the Divestiture of State Interests (Implementation) Act, 1993. Just into its second year of work, the DIC saw some 195 more SOEs privatised.
How did the Divested SOEs fare?
The ‘casualties’ of the divestiture programs included the Ashanti Goldfields Corporation, 30% of whose stock was floated on the London Stock Exchange in 1993. Others include the Ghana Commercial Bank, Accra Brewery Limited, Ghana Telecom, State Insurance Corporation, Cocoa Processing Corporation and Ghana National Manganese Corporation. Ironically, it is the same DIC that granted the ‘takeover’ bid to the DIHOC, a State enterprise, to revive Kumasi Shoe Factory.
Serious research into the life of the divested SOEs is wanting. It is however observed that a good number of them either died out in private hands or are not performing any better than they actually were under State-control.
What is true however is that the privatisation did not prevent Ghana from becoming more indebted. Barely 10 years later, Ghana would find itself among the group of Highly Indebted Poor Countries (HIPC). It is equally true that Ghana is more indebted now than it was during the 1970 debt crisis. In fact, we are currently considering an IMF bailout package, even after the discovery of oil over 5 years ago.
Further, all we are told is the number of SOEs that are not performing. No one seems to be taking stock of the number of private companies that have collapsed since independence. Had we, we would have, perhaps, realized that the SOEs are even more durable than the private companies. This raises the question whether the poor performance of SOEs is due, simply, to the fact that they are owned or controlled by the State; or whether there is a third factor somewhere, say, the prevalence of poor corporate governance in the polity generally, that accounts for the poor performance of both private enterprises and SOEs.
Be that as it may, this morbid story of Ghana’s SOEs is not the case everywhere. Once we are able show this two consequences follow as a matter of course. First, then, we can no longer use Ghana’s situation as basis for our conclusion that SOEs are a waste of public money. Second, then, the argument of the Ghana anti-State movement that ownership, whether private or State, is the sole or main determining factor of firm performance begin to show fatal cracks. And, this is exactly where the difficulties of the Ghana anti-State movement begins.
A slightly broader consideration of the modern development trends would reveal that the concerns of the Ghana anti-State movement, though genuine, is a little too much misdirected. This is because some countries have refused to swallow the World Bank and the IMF prescriptions. Others, too, quickly spat them out soon after tasting. These countries have rather employed development paradigms that retained the State as the principal actor in their economies.
Particularly, the paradigms of ‘developmentalism,’ ‘state capitalism’ and the framework of ‘embedded autonomy,’ have been invariably explored to breed what has become known in development circles as the ‘rising economies.’ This development paradigms, where the State plays a leading role, are found to be on the ascendency since the 1980s, when Ghana was vigorously romancing with the SAPs. The Economist, for instance, reports as recently as 2012 that “they [States] have become the most powerful shareholders across much of the developing world from China to Thailand and from Russia to Saudi Arabia.”
A more specific example will, perhaps, drive the point home better. Brazil, China and India are considered as the leading ‘rising economies.’ It is projected by the UNDP in its 2013 Human Development Report that these three economies will contribute more than 40% of global economic output by 2050. The three economies together with the whole of the developing world (Latin America, Asia and Africa, included) did not contribute more than 30% of the global economic output in just less than 3 decades ago. This rate of growth is unprecedented.
Other developmentalist states include the East Asian dragons and tigers – Taiwan, Singapore, Malaysia, South Korea, etc.
These economies have one common denominator – States own or control the leading corporations in their economies. It is found that this common denominator accounts, significantly, for their current status as competitive figures in the global economy.
This role by the state – owning shares in or having control over public corporations – is not limited to developing countries. Governments in industrialized economies too do intervene, albeit intermittently, to bail out corporations from financial distress. They do not do this by simply supplying money and creating ‘conducive environments.’ They do this by acquiring controlling shares, equity, in the distressed companies.
During the recent global economic crisis, for instance, the governments of the industrialised West stepped in and took control by acquiring equity in the corporations that were considered as ‘national champions.’ The US for instance injected huge capital into Citigroup, AIG, GM, Chrysler, etc. in exchange of equity and control. The UK, too, did same by taking equity in Royal Bank of Scotland (RBS), Lloyds, Northern Rock, Bradford & Bingley, etc. Other Western powers, Canada, Germany, France, etc. followed.
The 2008 takeovers were merely a repeat of history. During the Great Depression, for instance, the governments of the industrialised west took control of the major corporations of the time. As a matter of fact, development history tells us that none of the western States took the backstage in commerce until they acquired a commanding stature in the global market. Alexander Hammilton’s 1791 Report to Congress on Manufactures speaks directly to the role of the State in the foundation of the United States’ economy. Most European countries remained largely welfare States even into the middle of the 20th century. For instance, it would take Margaret Thatcher to knock capitalism deep into the British economy in the 1980s. The results of Thatcherism is itself mixed at best.
Quite apart from these intermittent bailout programs and the historic accounts, other industrialized countries, like Norway, currently run SOEs as the backbone of their economies.
Some More Questions
The facts above do not support the claim that State ownership is any worse than private ownership for developing economies. They rather make it doubtful that State-participation in equity per se was the actual cause of the failure of the SOEs and debt crisis in Ghana. In this regard, several questions may be asked:
Could it be the case that there are some third factors that are responsible for the failure of Ghana’s post-independence SOEs? If so, are these third factors inextricably linked with State-ownership? If not, how do we hive off this third factors from State-ownership in order to make State-ownership better, as it is done elsewhere?
Is it the case that post-independent Ghana did not have the requisite skills or competences for managing huge public corporations? This question is very legitimate, considering the fact that the huge corporations that operated in the Gold Coast were not managed from within the country coupled with the fact that our institutions of training produced only middle management personnel until, at best, after independence.
Derivatively, one may also ask whether the problem is simply one of poor corporate governance in the country generally. Could it be that post-independent Ghana lacked the institutions, namely, stock exchange, banks, insurance companies, pension funds, securities and exchange regulatory bodies, etc. that are needed to ensure good corporate governance? This question becomes even more important in light of the following facts: Banking was not democratised in Ghana until after the year 2000. The Ghana Stock Exchange, which has been on the drawing board since 1969 when the Pearl report by Commonwealth Development Finance Co. Ltd. recommended that a stock exchange be established in Ghana, did not trade until November, 1990. The Securities and Exchange Commission, without which a financial market cannot command integrity or woo the confidence of investors, would not be established before 1993. Same (if not similar) may be said of insurance and other financial market institutions.
Another branch of query regards the role that was played by external economic forces in weakening the SOEs.
In other words, what amount of investigation have the Ghana anti-State movement conducted into these matters to warrant the rather stubborn latching on to the belief that there is nothing good about SOEs, even in the teeth of all this evidence? Is it just a matter flowery expression of ideological preferences at the expense of practical approach to development?
This article does not, and should not be taken to, argue that State-owned enterprise is without flaws. In fact, it does not even argue that it is the best development model for all economies at all times. What the article does, principally, is to subject the views of those persons who still hold on to the belief that SOEs are in and of themselves a bane to economic growth and development. It only draws the attention of those who still hang on to the hard-line culture of wholesale condemnation of SOEs to the fact that so much water has passed under the bridge since the Cold War.
The literature on SOEs has long changed. The trending approach is to deconstruct the political economy within which SOEs operate, identify the flaws, design or borrow from others’ successes to correct the flaws and, then, reconstruct the political economy to make State-ownership more viable. For, if the State of underdeveloped countries cannot find a footing on the global stage, it is very doubtful if a private person from these countries could.
In all this, the Ghana anti-State movement owe us a primary duty, a duty to point to a country that was able to make it out of underdevelopment by excluding the State from playing a direct role in business.