If King Rama V were alive today, he would not recognise any of the major landmarks of old Siam during his reign. The only exception is the State Railway of Thailand (SRT) that he started in 1890. That was a joke. Not a very funny one, especially for the 44 million commuters that still rely on SRT trains to go about their business.
Amazingly, life has not changed much since the reign of Rama V at the SRT, or the Royal State Railways of Siam, as it used to be known. The original 71-kilometre Bangkok-Ayutthaya single-rail tracks are still in use. Derailments are common occurrences, while punctuality is rare. The empty Airport Rail Link terminal is a white-elephant project for all to see. Failing marks for passenger safety as well, as a 13-year-old girl was raped and murdered by one of the guards in 2014 on an overnight train, her body thrown out the window.
The SRT can be called the poster child of state-owned enterprises (SOEs). Despite being one of the country's largest landowners, its debt is in excess of 100 billion baht and its annual operating losses are estimated at a minimum of 10 billion baht. Worryingly, the other 55 SOEs are not exactly in better shape.
Essentially, these SOEs are government-owned commercial entities -- 46 are non-financial SOEs in key economic sectors ranging from transport and water management to communications and power generation. There are even a few oddballs such as the Playing Cards Factory, Liquor Distillery Organisation and Zoological Park and Botanical Garden Organisation. The remaining 10 are financial entities, including state-owned banks, a government pawnshop and specialised financial institutions.
Over the years, these SOEs have grown into behemoths with combined assets exceeding 12 trillion baht, or half of all public assets. They employ 425,000 people nationwide.
Listed SOEs make up 17% of market capitalisation, generating nearly 100 billion baht in revenue for the state with annual expenditures twice that of the government.
Not surprisingly, these SOEs are perceived to be inefficiently managed and corruption-prone, which has resulted in a loss of development opportunities for the country and added costs for its citizens. SOEs' problems are complex and multi-dimensional and include political interference, multiple objectives (society vs business) and conflicting roles of policymaker/regulator/owner combined into one. Being monopolistic by nature does not help. There is no motivation for operational excellence.
The coup in 2014 led to the establishment of a "superboard" with sweeping power to supervise all SOEs, aiming to improve performance and efficiency. Previously, SOE boards were stacked with political appointees and their cronies. In year four of military rule, politicians have been replaced with junta appointees, mostly in uniform, and their associates. I find it hard to believe that these new board members can eradicate nepotism from the boardrooms of SOEs. The superboard is heading in the wrong direction.
The mandate of the superboard is to clean up the mess with a new governance framework and clearer roles for all parties. But nothing of substance has emerged. Worse still, corruption allegations continue to surface. The Rolls-Royce saga is only the latest to embroil two high-profile SOEs. Prosecutors in the US and Britain claimed that the aircraft engine maker made illicit payments over 20 years to officials linked to Thai Airways International and PTT.
Interestingly, Rolls-Royce has already agreed to pay a £671-million fine to settle the corruption allegations. Neither THAI nor PTT has been charged with any offence. Both companies issued the usual statements about setting up task forces to look into the allegations, which are unlikely to yield anything, especially prosecution.
What is more worrying is the proposed establishment of a 100% Finance Ministry-owned holding company to take ownership of 12 corporate-type SOEs, with the remaining SOEs that were set up under a specific law to come under the State Enterprise Policy Office. This structure looks like a remnant of the centrally planned economic model of the former USSR in the 1960s, and we all know how well that turned out.
What the country needs is full privatisation. This is not just a Thai problem. Governments around the world make ineffective business managers. Political pressures rather than sound economic and business sense drive them. Admittedly, public-sector reform entails political costs. The entrenched interests of most bureaucrats and many politicians, and the fear of losing power and money as a result of changing the status quo, have established a potent resistance to real reform measures.
Nevertheless, Britain and Russia faced similar dilemmas and overcame the obstacles because their citizens rose up and demanded change from their leaders. During the 1980s and 1990s, prime minister Margaret Thatcher privatised several SOEs, such as British Petroleum, British Telecom and British Airways, as well as rail, electricity and gas companies. Party secretary Mikhail Gorbachev also did the unthinkable in Communist Russia at the time, pushing through "perestroika" and "glasnost" policies in the 1980s.
The path to SOE reforms was bruising -- militant trade unions in Britain put up a stiff fight, and there were nationwide general strikes and blockades. Troops were deployed to face down the unions, and the unions eventually succumbed.
Privatisation and deregulation often occur together. Free-market competition will spur improvements in efficiency and services. Selling state-owned assets to the private sector would raise significant sums for the government, but this takes finesse. Get it wrong and you could end up like the Russians, who sold assets at fire-sale prices to oligarchs.
There are a number of conditions for privatisation to succeed, including a promising economy with adequate national savings; a healthy banking system; a viable capital market; a reasonable level of inflation; political commitment to withstand resistance from interest groups and bureaucrats; a high level of public acceptance; transactional factors such as financial expertise, adequate standards of financial reporting, permissible collective agreements with unions and a capacity to create legislation to facilitate privatisation; and an adequate regulatory framework.
I believe Thailand meets most of these conditions -- the only missing link is the will of the people to push their leaders to take that first step in the right direction.
Teera Phutrakul CFP® is a certified financial planning professional and member of the Institute of Directors.