2.2 Democratic Public Ownership for the 21st Century

Status quo
Sri Lanka has a long list of state-owned enterprises. Some of the larger ones are very important public utilities which are natural monopolies. The large losses incurred by state-owned enterprises over several decades have been a major drag on the development prospects of the country.

These losses have affected the general population by a number of ways. To name a few:

  • The losses incurred impact directly on the government budget. This means that the government has to find tax revenues to finance these losses. If the revenue base is not sufficient, which has been the case for long number of years in Sri Lanka, the government has to borrow the money domestically and from abroad. One way or another, the people have to bear the cost of financing these losses. This is manifestly unfair.

  • These losses that constrained development involves state banks financing these institutions and carrying their accumulated losses on their balance sheets for long periods. This leads to an increase in the interest rate spreads in the state banks making them uncompetitive with commercial banks.

  • When the public owned utility companies are running at a loss there is always a tendency to increase the cost of services. This is unjustifiable.

  • There are frequent industrial relations disputes as employees do not have the sense of ownership.

It is no secret that government is looking at handing over the state-owned enterprises to the private sector. To avoid a potential public backlash the government may be considering Public Private Partnerships; i.e. privatisation by stealth. In some cases, in the longer-term Public Private Partnerships are a bigger drag on the public purse than direct privatisation. In Public Private Partnership arrangements invariably, governments have to invest public money and set up an environment attractive enough for the private operator to take over and milk the profits.

The idea that, privately owned enterprises will be delivering the best outcomes for anyone except private shareholders is a minority view. There is a growing consensus in places like United Kingdom where they had the bitter experiences of privatisation that action is needed to curb excess profits and deliver a better deal for customers and employees.

Governments across the world use Public Private Partnerships as a political ploy. This is a good way to show the people before the next election, the government is investing on public infrastructure and they are superior to that of their competitors. In reality, it comes with a heavy cost burden not just for us but also for future generations.

Ownership matters. Who owns a business dictates in whose interest it is run, who has a say when decisions are made, and who benefits from its success. We agree that the status quo of the state-owned enterprises in Sri Lanka is unsustainable. In fact, it is a daunting task to maintain the status quo in present Sri Lanka where currently there is widespread corruption not just at the helm but across all levels of the public sector.

Democratic & Accountable Public Ownership
We believe the full potential of public ownership can only be achieved through the use of democratic, accountable and inclusive models.

This approach puts decision-making closer to the people who are affected by those decisions, giving bill payers and employees a democratic voice. When workers have a say in how their workplace is run and a stake in its success, productivity goes up. When consumers participate, they can ensure the services they rely on are invested in properly and run in everybody’s interest. Decision-making is transparent, and decision-makers are accountable for the decisions they make in all our interests.

We will work towards creating an economy where power and wealth are shared. Just as political institutions are measured by the extent to which they give the ordinary citizen the fullest opportunity of exercising political power, public ownership must be judged by the test whether it gives economic suffrage to ordinary citizens too. Public utilities and transport will be designed using co-operating values and principles that would democratise key aspects of our economy.

We believe that the utilities and transport should be run in the public interest. Distant and difficult to understand regulatory processes do not empower the consumer to challenge mismanagement and give employees a voice in their workplaces or communities the ability to decide how the profits are redistributed.

We believe that political democracy has to be buttressed by economic democracy. Therefore, in all utility markets characterised by monopolistic structures, we should pursue opportunities to convert them to a democratic public ownership, accountable to their stakeholders.

A lack of government investment can cause serious harm to the services and infrastructure we rely on. Democratic public ownership can provide protection against this. By virtue of the collective strength of the customers, the interests of workers and communities having a powerful and meaningful voice cannot be side-lined.

The co-operative model challenges us to think beyond the old paradigms of market versus the state; beyond the divisions between owners and customers; and to think creatively about new ownership and management models. This is the kind of creative thinking our public services will need for the future.

This transition would be achieved by changing the state-owned enterprises into organisations limited by guarantee. Our model ensures democratic public ownership and decision-making through a consumer trust and an employee trust. For each organisation, these two trusts would be run along mutual lines – where every consumer has equal membership of consumer trust, and every employee of the organisation has equal membership of an employee trust.

Every member would have an equal say and vote. Their participation would be encouraged and enabled so that their voice can be heard both at consumer and company level.

The industry regulator will always oversee the operations of the enterprise. The regulator will also work with stakeholders and these companies to deliver trust and confidence in services among customers, investors and society as a whole.

Once the regulator has been set up properly and new consumer and employee trusts formed, it is possible to take the next steps necessary to create democratic, not-for-profit companies. The three main areas to focus would be changing the way the industry’s finance, changing the corporate form of companies so that they are accountable and not-for-profit and introducing robust mechanisms for customer and employee participation.

This futuristic approach that can face up to the challenges posed by technological advancement and automation is in line with the arguments of the progressive movement in United Kingdom, most parts of Europe and New Zealand and other political and community organisations across the world.

However, public utilities whether monopolistic or otherwise and other state-owned enterprises are unique by their nature. Some can be national organisations and others are best suited to run by the provincial or even local government councils.

Therefore, it is important to do a thorough study of each enterprise and determine the appropriate structural arrangements that are needed. It is therefore necessary, to commission a group of people from all walks of life suitable to carry out a thorough study and provide reports on every state-owned enterprise. The priority will be given to public utilities. The terms of reference for the study have to be laid out very clearly.

Company Limited by Guarantee
A Company Limited by Guarantee does not usually have a share capital or shareholders. Instead, it has members who act as guarantors. The guarantors give an undertaking to contribute a nominal amount in the event of winding up the company.

Until the employee and community trusts are financially sound, the government can provide a guarantee on behalf of them if it is necessary to raise funds for those public companies where employee and customer trusts are stakeholders.

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