Bongat, Pauline Anne V.

2015-12230-MN-0
BPA 4-FS1N Reflection

Issues on Public Enterprise

In today’s world, we hear different opinions from the people saying that the government
should be run like a business. Growing up, this is something I have heard from the adults but I
have come to realize that the idea itself is self-defeating. Government should not operate like
business because that would mean it has to make profits. The distinction of roles of the private
and public sector would then be more confusing.

Most often, business connotes efficiency because private enterprises have the capacity to
run their operations smoothly. The underlying concept is that private corporations have autonomy
to use their resources the way they want to, and with little to no intervention from other
enterprises. However, we have to understand that government can be efficient too. While there is
no specific standard as to what constitutes efficiency, I think that the government is efficient when
it is able to choose the best decision among its alternatives. On the question that, “Are
governments obliged to maintain the existence of inefficient public enterprise?” the answer would
be no. A government is efficient if it able to decide whether a public enterprise should be
reorganized, merged, streamlined, abolished or privatized.

Failure of state-led corporations can be determined in many ways. Firstly, a public

enterprise can be scrutinized in terms of its inactivity. A period of inactivity that exceeds three
years mean that the enterprise is non-operational. It is no longer working in the way that it should
operate, hence the need to take action. Secondly, a public enterprise can be questioned by the
State if its actual operations are not aligned to its mandated function. The reason behind this is
that mandated functions avoid role confusion between different institutions. If it is not followed,
there might be replication or duplication of tasks leading such institutions to gaining more costs
in its operations. Sure, there is room for collaboration between agencies but there also has to be
a clear delineation of functions to know where there expertise best apply. Thirdly, a GOCC must
be evaluated when its goals are no longer consistent with the national development policy of the
State. GOCCS should strike a balance in using its governmental and proprietary functions. It does
not need to aim for profit but at the same time it should consider using its proprietary functions
only to intervene with excessive operations of private corporations and to provide services which
other market institutions won’t provide for the people. Overall, GOCCS exist because they need
to put forward social and economic benefits to the people. Their nature should be to contribute
to the long term well-being of the people like child protection services, road infrastructure
services, national defense, national park services and many more.

Put it simply, the government is not obliged to maintain inefficient public enterprise but it
is within their hands to decide the fate of these corporations. What the government needs to do
is to rationalize existing corporations, understand what is lacking on them, try to solve its flaws,
and if it still does not work resort to finding the logical choice between the different options
offered by the Governance Commission for GOCCS.
Bongat, Pauline Anne V. 2015-12230-MN-0
BPA 4-FS1N Reflection

Public enterprises are also deemed problematic because of its weak incentive mechanisms.
To incentivize, means to motivate however the nature of work in government-owned and
controlled operations hinder the employees into being truly productive. In our previous
discussion, it has been said that administrators of public enterprises do not have to fear losses or
profits. The inefficiency of this institutions are not highlighted because the government
immediately comes in to infuse capital and continue running these institutions even when they
already are a failure. Employee compensation in public enterprise are not usually linked to the
performance of that employee. The rate of turnover in in public enterprise is high. People usually
transfer to private corporations because in GOCCS, the systems and procedures are rigid. It offers
no freedom for implementation of innovative ideas because the work requires a sense of
continuity. More so, promotions are often based to seniority. Since the nature of GOCCS require
long-term outcomes, the fate of policies are usually seen in the hands of the seniors. Those who
have long worked for GOCCS which in turn prevents younger people from being promoted based
on their performance.

The uncertain financial allocation is also one of the primary source of frustrations for public
enterprises. The functions of GOCCS usually aim to create a long-term impact to the people, one
that can nurture the social values and economic mindset of the public. GOCCS are created to bring
different services to the people like solving unemployment, creating more respectable jobs for
women, helping the disabled persons to find decent jobs, and many more. However these are
social causes that are all costly in reality. The funding in pushing forward different services, all at
the same time can lead to uncertainties in financial allocation of the funds held by GOCCS. While
they are believed to be crucial in long-term investments, they also need to allocate finance
properly or else the GOCC will likely be abolished. That resources must be equitably distributed if
they want to push all these policies simultaneously.

Lastly, many enterprises are affected by politicians. Public enterprises function according
to politicians. It is relatively easy for politicians to put salary levels to those who are working for a
specific GOCC. Their decisions can also be delayed because transactions in these offices need to
pass through many officials first before they can execute decisions. By the time that officials have
come to a decision, the environment for that public enterprise may have undergone quick
changes. There is also evident lack in cost-analysis and planning in public sector enterprises. Since
they have social objectives, they think that such would already apply to everyone. However, the
truth is public sector enterprises rarely take into account in the planning phase what is actually
needed by the public hence additional cost when market demands are not being met. The needs
of consumers should always be taken into account to achieve the right outcome.