Friday, April 16, 2010

Public bodies and their roles

The Government must be commended for placing before the parliament, and by extension the people of Jamaica, the revenues and expenditure estimates for public bodies. This is significant as the expenditure estimates for these bodies amount to approximately 72 per cent of the central government expenditure and, importantly also, these public bodies expect to commit taxpayers to an additional J$36 billion in loans for fiscal year 2010/11.

This should accelerate the steps towards International Public Sector Accounting Standards (IPSAS), the public sector equivalent to IFRS. If we are to properly assess and address our economic challenges we must be fully aware of all government commitments, both cash and accrued expenses. This will force governments to put all the cards on the table and cease the long-standing practice of meeting fiscal deficit targets by just not paying bills, which in the end harms the economy more than not having known what the true deficit position is.

Myopic views
I am constantly amazed at the myopic view taken of public bodies by elements of our public and private sector leadership, as well as those professing to be knights in shining armour who come flying in on one of the many airlines to prescribe what is "good for us" and fly back home to watch the events unfold on CNN in the luxury of their homes.

The view put forward is that public bodies are costing the Government a lot of money so we need to just cut them out totally, and given the chance, they would do so immediately without any regard for the immediate negative effect on the economic and social conditions of the country. I will agree that some public bodies should be divested and the Government is making the right moves to deal with these bodies.

For example, the Government has either taken steps or stated its intention to divest itself of Air Jamaica, the Sugar Company, Wallenford Coffee and Caymanas Track Limited, among others. And the Government is spot on about the need to get its tentacles out of these businesses, as by their very definition, bureaucracies should not be involved in trying to compete in the market economy. They will always lose.

On the other hand, there are certain bodies which are critical to the economy and the public infrastructure. One such is the JUTC. These bodies should not be targeted to reduce losses without considering the opportunity cost of such an action. So when people say to me that the JUTC costs too much money and we should just do away with it, I have to ask myself what banned substance were they just partaking in, or is it that they are so blinkered in their views that border on being ignorant.

It is very important not to approach the operation of public bodies, or the fiscal deficit, with a narrow- minded approach. This dangerous way of thinking could lead us to not have any proper public infrastructure a few years down the line if we approach it in this way. The purpose of public bodies, and fiscal policy for that matter, should be to target economic and social growth and development. One of the reasons why we have failed to develop as a country is that we have had this long-standing obsession with monetary policy and applying fiscal policy with a view to increasing government revenues rather than addressing it to macroeconomic objectives we lay out year after year without being successful in meeting them. The bottom line is that if we intend to go down road X but we take the path that leads us down road Y, then how can we expect to reach to the end of road X, unless it runs into road Y? Similarly, the approach that we take to fiscal policy will only lead us to our macroeconomic objectives by what Jamaicans call "buck up". Targeting the fiscal deficit as a policy decision, for example, ignores the need for development in the economic and social environment.

Questions to ask
So while the Government is totally on the right path of not wanting to compete with private sector interests in coffee, air transport, and horse racing (can you believe government is involved in this?), there are some public bodies that are critical to an efficient economy. Another argument for government not competing in the industries mentioned is, how fair is it for Government to own interest in a sector that it also regulates? This seems like a serious conflict of interest and one that the private sector should be concerned about.

On the other hand, places like the JUTC should not be assessed according to profit or loss, but rather the following questions need to be asked:

1. What need is the public body fulfilling?

2. What would be the effect on the economy and public order if the body fails to deliver service, or not provide service at a certain minimum standard?

3. How can implementing the service bring efficiency to the economy or save the country much-needed foreign exchange?

4. How can I improve the movement of persons throughout the country, and what is the expected benefit to productivity?

5. What is the most efficient cost structure for carrying out the needed operation?

These are just some general questions that must be asked when assessing the need for a public body, and the question about cost should always be after determining the expected benefit to the economy. So, for example, if we were to have an efficient and safe public transportation system, then we could save billions of dollars from (1) oil imports; (2) productivity increases; (3) freeing up of traffic; and (4) implementing access charges to business districts, just as in Manhattan or London. Before this can be properly implemented, however, we need to have a well-run, and very importantly, safe public transportation system. In the end all of our misfortunes come back to the crime monster.

There are also some public bodies that should be merged, as they provide basically the same function. Some of these include (1) the Betting, Gaming, and Lotteries and Racing commissions; (2) JIS and PBCJ; (3) MIDA and the Self-Start Fund; (4) DBJ and EXIM Bank, and there are many others. This move may not only save the Government hundreds of millions in expenditure but would also create a more efficient service delivery to the market.

While we are going through these necessary consolidations and eliminating what needs to be removed, we must recognise the importance of some public bodies to growth and development. For example, if the JUTC even cost $2 billion to run per annum, if it was saving us 50 per cent of the oil bill related to transportation and getting people to work in a more productive state of mind, or easing the traffic congestion leading to less need for road development and repair, then it would have been $2 billion well spent, as opposed to spending $500 million and not maximising on the benefits of such a public body.

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