The return of state-owned enterprises and Ghana’s emerging anti-state movement (Part 2)
This is the second part of the article in which the writer looks at how state involvement in enterprises can help lift economies out of underdevelopment. The first part was published last Monday.
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We may need to do a little history by way of creating a context for the discussion. Without it we will not know where we come from and, consequently, where we are heading.
Colonisation deprives a colonised people of skilled labour, modern technology, access to capital, direct access to the global market, self-confidence and clout. These denials result in a weak (if not non-existent) competitive indigenous private sector. This was the case in Ghana at independence.
John Esseks, thus, gives the following account of the structure of Ghana’s economy:
“In March 1957, when Ghana gained her political independence, over 90 per cent of the country's import trade was in the hands of foreign firms; two British banks shared about 90 per cent of all banking business; expatriate companies held 96 per cent of total timber concessions; foreign investors owned all functioning gold mines and controlled about half of the annual diamond production; general insurance was entirely in the hands of expatriate firms; and foreign companies earned the bulk of total receipts in the small manufacturing sector.”
The overarching aim of the fight for independence is to take control of our own affairs. However, becoming global players in our own right was also an integral part of the struggle. Attaining this goal required us to catch up with the global players, who were at the time a couple of centuries ahead. Catching up required a well-coordinated and a more aggressive development plan. We needed to run while others walked.
How do we do this with the very weak and largely disorganised and unskilled private sector that colonialism had left us with? State ownership and control of the factors of production, it appeared, was the only plausible way that the former colonies, including Ghana, could launch themselves onto the much developed and far more sophisticated global market.
Therefore, Ghana, like most former colonies, began its statehood with an economy which rested almost entirely on SOEs. Through the decolonisation process, the State became a major player in almost all the sectors of the economy - transportation, aviation, agriculture, fishing, education, manufacturing, commerce and even entertainment. Barely five years after Ghana attained a republican status, John Esseks reports, again, in another publication:
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“By 1965 the state importing enterprise handled 35 per cent of the country's total commercial imports; the state insurance corporation transacted about 50 per cent of all insurance business; the government's commercial bank accounted for over 60 per cent of total deposits; the state-owned Black Star Line carried about 17 per cent of Ghana's sea-borne commerce; the government's Ghana National Construction Corporation had succeeded in displacing almost all private contractors from the largest subsector of building and construction that was financed by public funds; and the factories owned by the state or partnerships between government and private interests produced 27 per cent of total output in manufacturing.
We were on track, but those were the glorious days of SEOs in Ghana. They were short-lived.
Fall of Ghana’s SOEs
One great evil that afflicts SOEs is political influence; I mean misguided political influence. The evil becomes even greater when the polity within which the SOEs operate lacks stability and is much worse when competent, skilled and public-spirited management and strong capital market institutions are lacking. Ghana bore all these elements in abundance after the middle of 1960. Thus, by the close of the 1970s, most of the public corporations had been run down.
The country was heavily engrossed in debt owed to the countries and institutions of the industrialised West. Inflation rate was swinging above 100 per cent; GDP per capita had fallen from US$ 1,007 in 1960 to barely US$ 700 in 1983; and unemployment hit an all time high. Our countrymen had embarked on a desperate search for greener pastures outside the country.
The Ghana Anti-State Movement
At this point, one could hardly dismiss the concerns of the Ghana anti-State movement. From these facts, they have all the evidence to support their claims that state ownership or control of companies is a waste of public money and everyone’s time; that state ownership only promotes monopoly, rent-seeking, corruption, cronyism, nepotism, political interference, etc. all of which lead to the failure of SOEs; and, that this sad outcome is not peculiar to Ghana, not even to Africa.
These observations, thus, inform and are at the heart of the wholesale condemnation of everything state.
This vivid body of evidence also readily fed into the neo-liberal rhetoric, on whose back the western side of the Cold War rode to glory. It also formed the basis for the World Bank’s privatisation programmes that swept across Africa, Europe and Latin America, starting from the 1970s. It is recorded that the World Bank, between 1988 and 1993, saw some 2,655 SOEs privatised in the world, valuing over US$ 270 billion.
Structural Adjustment Programmes
The mismanagement of SOEs in the late 1960s and the debt crisis of the 1970s went into a full-blown manifestation in the early 1980. By 1983, the World Bank and IMF had happily secured the reluctant invitation of the PNDC military government. They came with the Structural Adjustment Programmes (SAPs). Ghana’s version of the SAPs was christened the Economic Recovery Programme (ERP). The ERP contained a series of prescriptions – trade liberalisation, price deregulation in industry and agriculture, currency devaluation, drastic cutbacks on government expenditure on health, education, etc, financial liberalisation, and privatisation/divestiture, etc.
Of relevance to us here, however, is the divestiture programme which was intended to shrink the public sector and to improve the performance of enterprises by mobilising private sector management and capital. The programme, thus, comprises privatisation – that prescription which requires the government to offload its interest in SOEs to the public. It also consists of liquidation of SOEs. In 1987, the State Enterprise Commission was established under State Enterprises Commission Law (PNDC LAW 170) to supervise the SOE reform programme. The divestiture programme, however, formally took off in 1988 under the State-owned Enterprise Reform Programme, which in itself was a part of the broad ERP.
The record shows that there were more than 350 SOEs when the reform programme took off. By 1993, the first round of the programme had seen some 55 SOEs privatised. Then came the second round which was implemented by another government agency, the Divestiture Implementation Committee (DIC). The DIC was established by the Divestiture of State Interests (Implementation) Act, 1993. Just into the second year of work, the DIC saw some 195 more SOEs privatised.