Privatization of PSUs

Deregulation, Liberalization, Privatization was offered as a solution by World bank for gaining access to credit. 

PSUs weakened in many countries primarily due to 

1) Lack of performance incentives: Being PSUs, they are least motivated to respond to competition. The managers do not have the presssure that private companies have to achieve targets. There are no performance incentives thus. 

2) Monopolies leading to low competition: Most PSUs are monopolies leading to low competition. They are mostly the largest in the region/nation. 

3) Incompetent managers: Management is rife with political intervention filling the companies with nepotism,incompetence and unqualified talent. These incompetent staff who are there due to their connections rather than competence cannot meet the standards demanded of their jobs yet hold on to their posts due to their influence.

4) Lack of focus on profitability: The govt needs the psu to fulfill its social responsibility rather than being profitable. so even if turnover is high, unnecessary expenditures/new ventures are piled up defeating bottomline

5) Administrative burden of government: Government directors on the board are hard pressed with other works & hence do not contribute with creative&understanding inputs for functioning of the company. 

Privatization intended to reduce thus the burden of government, force the company to face competition& increased operational efficiency by ridding the company of unqualified staff & cleaning the management stables of nepotism&incompetence.  Privatization led to private entities controlling several industries/services hitherto managed by government. Private entities exist only to maximize profit. Hence while they do lead the firm to profitability by leveraging their mutual connections with politicians, yet they do not take into consideration the needs of the nation. In short, public interest is superceded by private interest. Hence nepotism does not decrease. It actually increases.

Every PSU has a social connection with its employees, the surroundings it is located in. The social responsibility of the PSU is sacrificed for privatization. Every product/service offered is now commercialized instead of being a public responsibility. This reduces jobs of workers. 

We have seen Singapore, City of Canton, Taiwan, South Korea,etc where the public sector has thrived & government owned companies are also investors in several global companies., Every country that courted meritocracy in every aspect of governance has brilliantly succeeded.  

PSUs need to reflect transparency and accountability in their working. While privatization will certainly help the government close temporary fiscal deficits, in the long run, it will find that the deficit financing made them to lose profitable psus & the income spent on unproductive welfare activities. The fiscal deficits continue as long as the income is spent on non-returns welfare state. A welfare state is a path to perdition since it will keep growing with rising political goals. A stage will come when it will become too large to manage & the country's economy will collapse. 

Privatization of large psus lead to the ecosystem surrounding the psu into related enterprises reducing chances of third parties to provide services to the PSU. There is no further chance of tender participation. Infact political intervention will rise with privatization if the PSU has been privatized to known business concern. 

A greater challenge is to run the PSU with meritocratic management allowing no chance of nepotism.