Involvement Of Government In Business

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Involvement Of Government In Business

The involvement of government in businesses has always been a perplexing question for me. After a lot of contemplation, I have come to the conclusion that government should engage in business. The profits earned from such business can be used to meet expenditures which will result in low taxes from the lower income groups currently within the tax net. With expansion in businesses, the bar of taxable income can be raised. I believe that any government should primarily look after regulation and administration and with these responsibilities, the best way to do business would be to look at the Singapore model. Asad Umar from Pakistan Tehreek-e-Insaf (PTI), in PTI’s Economic Policy – GE 2013, has highlighted a similar intention under “Institution Reform Emergency” on the possibility of government engaging in business. In one of his television interactions he also referred to Singapore’s Temasek and Malaysia’s Khazanah as examples.

Temasek Holding is a holding and investment company of the Singaporean government that is responsible for managing companies and businesses of the government. Temasek Holding is a company registered just like any other private holding company in Singapore and pays taxes like any other company and is governed by the same rules as other companies of Singapore. This arrangement provides a level-playing field to all whether they are government affiliated companies or private settings. Temasek is protected to the extent of appointment of its 14 board members, its Chief Executive Officer (CEO) and its past reserves under the Constitution of Singapore. The executive authority of the country, and the sole shareholder of the company, Ministry of Finance, has absolutely no involvement in Temasek’s investment, divestment or other business decisions. Just like any other company, Temasek’s sole shareholder, Ministry of Finance, has the right to appoint or remove board members but with the concurrence of the President of Singapore. The board also needs concurrence of the President to appoint or remove the CEO. A very strong constraint is placed by the Constitution on usage of money by the government even though the government is the sole shareholder. The day a new cabinet is elected, all reserves of Temasek become “past reserves” and the new government or current government cannot draw any amount from the past reserves of the company, thus protecting national assets in the event of any change in government.

In Pakistan, our state-owned companies and enterprises are managed by the state to a variety of degrees and they all have officers from the Civil Services of Pakistan in various roles, from board members to managing directors of the company. Where there is any conflict of interest, one can see the overlap in the role of the state as a regulator and business operator. The separation of commercial interests of the state from its regulatory responsibilities is not something new to Pakistan or to the government itself. Government Holdings (Private) Limited Company was established in 2000 under the Ministry of Petroleum and Natural Resources, with the intent to separate “regulatory and commercial interests”.

Our government must also establish, as the sole shareholder, an independent holding company(ies) in order to manage commercial interests separately from its regulatory responsibilities. Considering our political culture, the best way possible is to create such a holding company through an Act of Parliament, such as a State Owned Enterprise Holding And Management Company (Establishment) Act, and place it under all regulatory requirements in force for the time being. The appointment of board members can follow the procedure as adopted in the Khyber Pakhtunkhwa Ehtesaab Commission. A Joint Search and Scrutiny Committee of Parliament can be mandated to find and appoint board members in the holding company and the board can subsequently appoint the CEO of the company. The company so created shall be given complete freedom to any investment, divestment and any other business decision, completely independent from any state institution/office and subject to the regulatory requirements in place. Taking the “past reserve protection” philosophy from Singapore’s Constitution, such protection can be placed on assets of the company so created and on its subsidiaries to prevent any direct or indirect encroachment from the government in office. This Act can also empower the company to have the power to appoint board members to its subsidiaries, and any such power essential to ensure efficient and transparent corporate governance in all subsidiary companies.

Another Act of Parliament, say the State Owned Enterprise Holding and Management Company (Taking Over Enterprises/Companies) Act can be introduced to transfer existing companies under various ministries/divisions to the management control of the newly established holding company. This Act may facilitate the transfer of commercial entities along with their assets and liabilities in a stage-wise manner so as to have reasonable time for the holding company to prepare for new administration. Although the current Companies Act consists of provisions regarding the relationship of a holding company with its subsidiary, for public companies the Act can be more elaborative and rigorous to set out the limits to which a holding company can exercise its powers in terms of assets and liabilities of the subsidiary company.

Our provincial governments can also shift to the concept of service provision or management of companies towards corporations, and improve service delivery by creating and playing in a competitive environment. Separating corporate interests of the government can significantly reduce the chance of abuse of merit and corrupt practices, thereby improving an overall transparent working environment and generating efficient revenue streams for the government. I believe such an arrangement can also attract considerable private and foreign investment in state-owned but privately-held companies as well as contribute to the growth of the company and economy.

 

The views expressed in this article are those of the author and do not necessarily represent the views of CourtingTheLaw.com or any organization with which he might be associated.

Yasir Cheema

The writer is an engineer by profession and writes on different subjects.



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One Comment;

  1. Amjad Iqbal said:

    The holding company concept can be very effectively used to regulate banks and their affiliated financial companies. This is being practiced in many other countries through the supervisory arrangement called “consolidated supervision”. The experience of government’s business in Pakistan has been dismal so far and bleeding continues by way of rupees 500 billion are allocated in the budget every year to keep alive government commercial entities. The examples of Singapore and Malaysia sound good but in our case interference has been the main culprit in downturn of profitable institutions in the public sector.

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