Reassessing state monopolies

Patrick Guntensperger, Business Consultant, Jakarta ttpguntensperger@hotmail.com

Polls indicate that the quality of services provided by government utility monopolies is among the most frequent complaints here in Indonesia. A fresh government could take those complaints and turn them into an opportunity for real progress in this country.

While publicly owned and operated utilities, if run well, can be the most efficient way of providing necessary services to a large population, Indonesia has a dilemma on her hands. The sad truth is that the Indonesian government is simply incapable of running any large corporation efficiently. The inexperience of the bureaucrats, the instability of any given political party and, let's face it, the appalling and rampant corruption that typify Indonesian government make it a virtual certainty that any national utility provider, or any government monopoly, will be a black hole into which money disappears and out of which nothing (including services) ever returns.

On the other hand, privately owned utilities would have to be closely monitored and regulated. In Indonesia, this would mean enormous amounts of bribery and graft to the bureaucrats who would be responsible for that control and a few government officials and their pet corporations would get wealthy while services remained non-existent at worst and undependable at best. What to do?

The simple answer is that there is no simple answer. Each type of service would have to be evaluated to determine whether it is in the countrys best interest to maintain or grant a monopoly. Some services and products, if allowed to compete freely and honestly, are best left to private entrepreneurs; the competition provides a free market control over price gouging and encourages constant improvement and ongoing research & development in an effort to maintain a competitive edge.

Other types of businesses should be run by or at least be directly accountable to the government. In Indonesia, there should be as few as possible of these and each government corporation, particularly if it is granted a monopoly, should be supremely transparent and absolutely accountable to the public.

In those cases, that is, the vast majority, where it is deemed to be more appropriate to allow free competition for the provision of goods or services, there must be rigidly enforced laws regarding price-fixing and other attempts to influence the market artificially.

In those few government monopolies that are licensed, we must be constantly vigilant to ensure that the services and goods provided are of acceptable quality and price and that no government officials are milking it for their personal gain.

One need not be cynical, merely realistic, to point out that here in Indonesia, every tool we have in the box will have to be deployed in order to combat corruption, both in privately owned businesses and government controlled ones. We can rest assured that without stern preventive measures, a government monopoly will be initially perceived as a cash cow for the fortunate civil servants entrusted with its administration.

But equally, it will be necessary to exercise extreme vigilance against attempts at market control by privately owned corporations. Some countries take such a strong position against collusion among competitors to fix prices, that, for example, it is a criminal offense for two Realtors to agree to charge any given commission rate to their clients. Price fixing must be eliminated if the market forces are to be allowed to have their say.

What goods and services should be provided by government- controlled monopolies and which should be allowed the freedom of the marketplace? The answer to that question defines the type of country Indonesia will be.

Indonesia needs to have as few government controlled monopolies as possible. The government and the civil service simply don't have the experience or the trust of the public that is necessary to run big corporations. We couldn't have the government run in any effective manner corporations that provide, say, the manufacture and distribution of consumer goods.

The government must, however, be responsible for control of the military and the police. We must at all costs avoid the development of private armies or armed security forces that can easily become paramilitary groups. The Nazis in 1930s Germany started out by merely creating their own force as security for a political party. Eventually they controlled most of Europe and almost the entire world.

Every voter must consider the pros and cons of having the government manage businesses like electrical and gas supply, airlines, telephone and other communications services, health care and internal transportation. Do we believe that the government is capable of the honest and efficient management of these enterprises?