Wall St. and Business Wednesdays: E-Letter To The Trinidad Express Re: "State CEOs must give value for money"

I could not agree more with your editorial, this morning, "State CEOs must give value for money". Your concise and balanced argument gets to the heart of the very controversial and misunderstood subject of state-owned enterprises (SOE). Too, often, in my view, the subject of state-owned enterprises is discussed within the seductive but very narrow lens of "profitability". Certainly, there may be instances where SOEs should be judged primarily on that criteria but the history indicates that SOEs are usually established, or emerge, in order to secure some very important goals that are broader than a monetary profit. Among these are the two primary reasons of national security and nation building. And there is usually the dominant issue of national pride, which has an enormous value (sometimes called "psychic income") to people. Anyone who questions this, particularly in the West, need only look at the United States' space program and the impact that competition with the Soviet Union had on NASA and the benefits for patriotism it produced.

Without historical context it is not guaranteed that anyone learns anything from the basic metric of "profitability" of an SOE, although free-market advocates like to preach consistently in this direction - telling African, Latin American and Arab governments that they must "privatize" everything because of the benefits that will accrue to the nation if the SOEs are run profitably.

But, in the broader context, I am not at all sure of how the free-market crusaders arrive at their determination of profitability. The most peculiar aspect to their arguments is that they (many of them) often fail to point out the obvious reality that there really are no free market nations, anywhere. Not even America where subsidies, tariffs and quotas abound in steel, sugar and agricultural sectors. It has been persuasively argued that it was American protectionism that sparked the Crash of 1929. Remember Smoot-Hawley? The state intervenes all of the time in markets, in every country in the world. Of course, many argue that state intervention in the American economy pays a bigger dividend than monetary profit. Look into how sugar and wheat were used, at a financial loss, in the Cold War.

In light of that, I though the most important portion of your editorial was the following:

No one should begrudge WASA CEO Errol Grimes his $50,000 (or whatever) compensation package with Audi, if it is accompanied by a demonstrable increase in the Authority's efficiency and ability to deliver a reliable water supply. His position would become untenable if, after his well-negotiated package, much of the country continues to be bedevilled with water problems.

While the Public Sector Negotiating Committee is a useful mechanism for determining State sector compensation, there also needs to be a process for reviewing performance and ensuring that highly-paid executives deliver.

Rather than pure profitability, in the nominal monetary sense, the criteria for success or failure must be whether the purpose and function of WASA and the job description of the CEO has been fulfilled.

Trinidad and Tobago's WASA has the following goals and responsibilities:

1) maintaining and developing the waterworks and other property relating thereto transferred to it

2) administering the water supply thereby established

3) promoting the conservation and proper use of water resources

4) the provision of water supplies in Trinidad and Tobago

If these goals are met, in a manner that is consistent with the CEO's job description; and if the goals and objective of WASA are not obsolete, then WASA is a success, in my opinion, regardless of its "profitability" or the salary level of CEO Errol Grimes.

Your editorial raises the issue of accountability in state-owned enterprises and gets closer to the real issue which is, beyond both free-trade and socialist rhetoric - how does one truly identify a comprehensive metric by which to compare a state-owned or private enterprise, in the context of a nation or political economy (the same importance can be given to the question of how one determines whether a deficit or debt is "good" or "bad")? It is one of several remaining issues that divides the West from the rest of the world and sometimes, the governments of the rest of the world from the aspirations of their citizenry.


Cedric Muhammad

Wednesday, April 30, 2003