SAA can’t fly with its wings clipped by the state

AS MANY of my friends and colleagues know, to the point of boredom, I’ve just finished writing a book about nationalisation and South African politics. Unsurprisingly, I found nationalisation a discredited economic technique, which has generally gone out of fashion almost everywhere except a few remaining holdout nations — ours, sadly, one of them.

But one of the interesting exercises in the process of writing the book was trying to answer the question: are there circumstances in which nationalisation is compatible with modern economics? The short answer is that there are, but for them to work, the circumstances have to be very defined.

So now, when things such as the bail-out of South African Airways (SAA) occurs, I can’t help contrasting what happens in SA with those very specific conditions that internationally would allow nationalised companies to operate effectively.

Speaking about “nationalised” companies is largely a misnomer; the problem facing governments everywhere is not nationalised enterprises but enterprises that are essentially corporate in the way that they operate but which have the state as a shareholder, sometimes even as a minority shareholder.

One of the things that really impressed me was a set of interviews with people who worked in some of the British companies that were privatised during the 1980s — people who lived and worked through the change, and I challenge anyone who works in a state enterprise to deny any of these problems.

The first concerns time. People who worked for state enterprises were amazed at how fast things happened once privatisation kicked in. There was no more fitting into a parliamentary or cabinet timeline. Decisions went into effect immediately, which was shocking for people used to waiting around for months on end for a change to take place.

The second was clarity of purpose. Many of the functions of state enterprises were confused or even at cross-purposes. Were they service organisations or “for profit”? Since they had many priorities, any specific function could be justified in terms of one or another of those priorities. As a result, by having many priorities, they ended up having none.

The third concerned planning. Since there was no real impetus for the organisation to go beyond performing the function it was engaged in, there was no real need for planning. Tactical skills, the recognition of opportunities and the anticipation of new technology or trends tended to be poor or nonexistent.

Fourth, performance management, incentive schemes and work rate all changed dramatically once the company was privatised. Since it was possible to measure and reward according to a clear yardstick, a new sense of professionalism developed, as opposed to what might be described as obligationism.

There were many more issues, too, concerning things such as reputation management, marketing, gaining market share and so on. The point is that even if there are good reasons for a company to remain in state hands, the management challenges for the enterprise are complex. This is counterintuitive to many businesspeople, who often regard state-owned enterprises as backward, partly because they are mollycoddled by a financial guarantee. Out in the private sector, we fight the real fight, they tend to think. State enterprises are for sissies.

This is partly true, yet many of the advantages of the private enterprise don’t come from management per se, they come from the structure of the enterprise. Successfully managing an enterprise without the advantages of a private-sector structure is more complicated, not less. The point is that managing this difficult ship is possible only if you are totally at arms length from the government. You can’t do it with one hand tied behind your back.

What we are seeing with SAA is the opposite. SAA is becoming the government’s plaything, and if anyone thinks that’s a good thing I would ask them to try to recall a company called British Leyland.

Cohen is the author of A Piece of the Pie: The Battle Over Nationalisation.