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Monday, April 5, 2010

Govt should not run business

OUR Prime Minister recently announced that our next generation economy will be driven by private initiatives. These should be the main driver of our economy into the next decade.

This is indeed a wise move as the role of government is to administer, supervise and regulate and leave the actual business to the private sector, apart from areas of national importance such as water and utilities where I think the ownership should always remain in government hands, although supply and distribution can be farmed out to the private sector.

Government involvement in business crowds out the opportunity to private enterprise as well as reduces the supervisory and regulatory capability of the government. The left side of the government which is regulating can’t possibly scold the right side which is undertaking business.

When businesses are undertaken by the government there is no trickle down economic effect, as profits flow back to the government. On the other hand with private companies, it trickles down to family and workers, and only the tax portion flows back to the government.

So many government projects are bid and won by government-controlled companies, but there is no economic advancement multiplier from that.

On the other hand there has been much inefficiency and losses associated with state-controlled enterprises and federal ministries-controlled companies. Many have had to be nursed back to health.

However, private initiative can’t be done in the old way. It cannot and should not be a monopoly and it cannot be given to individuals as that also defeats the purpose.

The best example of how competition has generally reduced prices and increased quality is our mobile phone services. Competition has kept the three main players on their toes to the benefit of consumers. The companies have done well also with the competition.

The government should watch private enterprises like a hawk. Anti-consumer behaviour should be knocked down quickly, and eventually everyone will get the picture and behave.

While restructuring the economy, merge all the government-linked corporations and government-owned companies into a mega entity. The many construction companies can be merged into one. All the state corporations should be hived off to the highest bidder.

Merge all the government-owned banks into one mega bank, and that will save millions in operation costs and improve service.


Kuala Lumpur.

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