Restructuring the SoEs

The World Bank is to lend US $300 million for the golden handshake under its development support programme. By FY06, 75,000 to 100,000 employees will be jettisoned from amongst a total of 200,000 staff members in 96 state-owned manufacturing units which have been earmarked for privatisation. The process began last fiscal with 40,633 employees being retrenched from 22 SoEs at a severance cost of Tk 718 crore.

Most of the SoEs are white elephants. They have been a constant drag on national resources, time and energy. These have caused budget deficits year after year. The fact that they are not efficient, productive and viable reflected adversely on the economic part of governance by any ruling party. Governments have had to borrow hugely from the banking sector to keep the elephantine corporations afloat with the result that the private sector suffered a credit squeeze while the default loan figures of the SoEs accumulated.

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In this context, it is good to learn that whatever number of SoEs remain in the field would be 'put on hard budget constraints and well-designed performance contract will be in operation with an appropriate system of rewards' to prove themselves. All this is very good, but wouldn't by itself be enough to ensure their efficiency. Two important elements are missing: they do not have competent management; and they are devoid of autonomy in their functioning. Unless we enhance the managerial abilities and give them functional autonomy as distinguished from the cosmetic variety, they will never be viable corporations or manufacturing units.

One more point, a highly valid one at that. Much as we want the bloated and wasteful institutions trimmed of their flab, we must go all out for new employment generation and skill creation. The downsizing should go hand in hand with new capacity building. Without that happening, the gain from job cuts will be just one-off.