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State firms’
evaluations need to be re-evaluated
By Lin Chia-cheng 林嘉誠
Fuel prices are up and people are angry. State-owned enterprises CPC Corp,
Taiwan, and Taiwan Power Co (Taipower) have been criticized from all quarters
for their conduct. The government has indicated that it intends to address these
ills.
Privatization has been mooted as a solution, although it may be reconsidered in
time. The debate on whether a company is run best by the state or by the private
sector, about how privatization should be implemented and how performance
quantified, has been going on for almost half a century.
The Cabinet, the legislature and government departments have all undertaken
exhaustive studies and submitted reports with recommendations, and there are
numerous pieces of legislation devoted to the problem, including the
Administrative Act of State-Owned Enterprises (國營事業管理法), the Company Act (公司法),
the Banking Act of the Republic of China (銀行法), the Petroleum Administration Act
(石油管理法) and the Electricity Act (電業法).
I served for four years on the Executive Yuan’s Research, Development and
Evaluation Commission’s (RDEC) Department of Supervision and Evaluation. This
department had a section responsible for evaluating state-owned enterprises,
with a staff of 10 people. The Ministry of Economic Affairs, which is in charge
of most of the enterprises, has its own commission for managing them. The
state-owned enterprise evaluation is carried out on three levels:
self-evaluation, review by the supervising department and a final review by
departments convened by the RDEC and reporting to the Cabinet.
Privatized former state-owned firms such as Chunghwa Telecom and China Steel are
no longer subject to this procedure, and neither are companies CPC and Taipower
invested in.
My experience is that the self-evaluation and the supervisory department reviews
tend to be forgiving and unwilling to reveal problems. However, the final
Cabinet review is sometimes also ineffective, due to unclear evaluation
benchmarks, understaffing, the confusion of short-term interests with long-term
objectives and the inability to meet policy objectives, annual evaluations or
budgetary limits.
The problems with state-owned enterprises are well-known: ill-defined roles for
chairmen and chief executive officers, iron rice-bowl positions for staff, low
turnover resulting in an aging work force and management, strong unions, a
hollow board of directors and excessive external interference.
Board chairmen who are parachuted in are powerless, ministers and department
heads have no job security, the president and premier are preoccupied with
running the country, and the RDEC — responsible for the performance evaluations
— lacks the legal clout to deal with enterprises that underperform.
Much has been written on why state-owned enterprises are needed, when the
government should sell shares or privatize or retain control. There have also
been many different theories and studies on how large-scale enterprises are
related to the public good, and how their part in an oligopoly — such as CPC or
Taipower — can be improved, given various possible scenarios of national
development.
What can be done to improve state-owned enterprises? The public is angry, but
this situation can be turned into an opportunity to change things for the
better. The Cabinet and the Department of Supervision and Evaluation have to
come clean and structure a timetable to deal with the issue; otherwise there
will be no end to the problem and the country will continue paying the price.
Lin Chia-cheng is a professor at Soochow University and a former member of
the Executive Yuan’s Research, Development and Evaluation Commission.
Translated by Paul Cooper
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