BICOL UNIVERSITY

GRADUATE SCHOOL
LEGAZPI CITY

Name: GRACE R. CAMPOS Year & Course: 2ND YR EDD ELM

Course Code and Description: PhDPA 311 Financial Management in Government
Professor: DR. RAMESIS LORINO

REFLECTION PAPER NO. 4

PRIVATIZATION, THE ROLE OF THE STATE AND THE FUTURE OF GOVERNING
Maria Fe Villamejor-Mendoza

In the Philippines, privatization has gained support due to two issues: 1) the
politicization and inefficiency of state-owned businesses, and 2) the ongoing issue of
declining revenues and rising spending. However, the ideological campaign to shrink the
size and reach of government also includes the advancement of privatization.
Privatization was started by Aquino in 1988 on the belief that government has no business
in business. Her belief was that the private sector should be a model of the government
and their practices must be brought into the public sector. This ideology was due to the
history of the Marcoses that the enterprises are used to launder money by the dictator.
While it is true that the Aquino administration launched the Philippine privatization
initiative, Marcos established the groundwork for it with a presidential decree on the sale
and disposition of public property. To "orderly dispose" of some government assets that
were judged not necessary for the government's activities, Marcos issued Presidential
Decree 2030 in February 1986. The functions of government-owned and controlled
businesses (GOCCs) were outlined in Presidential Decree 2029, which he had previously
signed. These decrees were issued in response to the nation's mounting debt and budget
deficit during Marcos' final few years in office. The poor management of the GOCCs was
a contributing factor to this. According to the 1991 book Deregulation and Economic
Development in the Philippines, the number of GOCCs increased "unprecedentedly"
during the Marcos administration. This expanded to 303 corporations in 1984 from 65
GOCCs in 1970. According to the book, this was a result of Marcos's increased public
investment, but it was also a result of the emergence of crony capitalism at that time,
which promoted corruption.
The government-owned and/or controlled corporations (GOCCs), also known as
the Philippine public enterprise sector (PES), were established as effective development
tools. They are expected to carry out governmental, developmental, and commercial
tasks and to work in frontier industries where there is a high barrier to entry and a lengthy
gestation period. They have nearly always held positions of authority within the State,
including in sectors connected to finance, public utilities, agricultural development, and
trading, as well as in social, civic, academic, and scientific efforts, gaming, and gambling.
These have led to the conclusion that the sector is pushing out the private sector, is a
financial burden and a hotbed for fraud and abuse, and has lost all relevance due to its
lack of accomplishments.
According to the language used in the Philippines, state-owned enterprises
(SOEs), public enterprises (PEs), or government-owned and/or controlled corporations
(GOCCs) are defined in PD 2029 (1986) and reiterated in AO 59. (1988). They have been
set up and run because of genuine or alleged flaws or market failures. They were
developed, particularly during the "commanding heights" era, to provide specific
operations that are pioneering in nature, especially where the required expenditure is
substantial, and the gestation period is lengthy (Tabbada, 1989). Later, GOCCs
developed into "important platforms for the consolidation of political and economic power"
(Dytianquin,1985). Additionally, they were abused and utilized as "means to shift public
resources to the hands of cronies and the private few" and "laundry services" (Briones,
1985).
Due to the governance problems GOCCs encounter, the path to change is
significantly more difficult for them than it is for the private sector. PEs are organizations
that combine "public" and "enterprise" dimensions and seek to integrate corporate
organization traits with those of a national policy inside the same body. They are distorted
government entities that, unhappily, are unable to strike a balance between fully furthering
the common good and entirely maximizing individual interests since they perform
economic functions while simultaneously being tasked with fulfilling several important
social goals. They frequently have conflicting interests (like those of profit and service or
proprietary development), are vulnerable to unwarranted political involvement, lack
transparency, and lack responsibility as a result. Additionally, they typically adopt bad
practices like burdensome bureaucracy, ambiguous objectives, and directors who answer
to the state, a ministry, or even certain elected officials or political parties rather to the
public.
Few would contest the idea that privatization has grown to be the most well-known
component of or watchword for public sector changes globally in the modern era. It's
excellent for businesses to have competitors. Entrepreneurs and service providers are
motivated by competition to innovate their offers and seek to outperform their rivals in
terms of consumer attractiveness. There is no incentive to continually innovate or provide
the consumer - a resident of the government's jurisdiction with better service than he was
previously receiving when the government is the only provider of a service. Service
providers are compelled by competition to reduce operational expenses, which may result
in savings being passed on to customers. Greater efficiency cuts down operating costs,
which in turn benefits consumers by serving them promptly.
A privatized public service may no longer be susceptible to political sway. This is
because the private provider is primarily concerned with making money rather than
competing for the government office in charge of the service with businesses and special
interest groups through savvy campaign donations and loud support. However, this does
not imply that corruption is impossible. In certain ways, the risk of corruption is higher
when public services are run by the private sector than when they are.
Governments can cut the taxes they charge citizens by privatizing public services
to make them more effective and affordable. In some instances, the privatization of a
governmental service, such as a prison, can give locals work opportunities, enhancing
their quality of life and boosting the local economy. Also, the potential for bribery and
corruption that come with privatization is one significant drawback to be aware of. Private
businesses typically exhibit less transparency than governmental institutions, and this
lack of transparency combined with a desire for profit can serve as a fertile environment
for corruption.
The possibility of rigidity in privatization is another issue. Extended agreements
between governments and private service providers are common. These long-term
contracts bind residents to a single service provider for the duration of their life. Although
a private company may portray itself advantageously to get a contract, the quality of its
service may decline once it is up and running and its clients have become accustomed to
it. Privatization can result in higher prices even though it is typically advocated on the
grounds that it will save customers money. The services in electricity, water, and
transportation that have been privatized resulted in citizens paying higher prices for these
basic needs and commodities. Fast forward to 2022, when severe inflation is
experienced, lawmakers propose to buy back some state-owned enterprises like Petron
Corporation. The largest and sole publicly traded oil refining and marketing company in
the Philippines, Petron Corporation, which was previously state-owned and controlled,
will significantly help to temper increases in oil prices. Petron was initially privatized in
1994 through a deal with PNOC and the Saudi Arabian Oil Company through a stock
purchase agreement which gave a 40% stake of the company to the oil producer. The
industry was deregulated through Republic Act 8479 or the Downstream Oil Industry
Deregulation Act of 1998 in a bid to stabilize and provide reasonable oil prices and
encourage competition and investment in firms, among others.
A lot of privatization's benefits and drawbacks stem from the same root.
Governmental pressure to run efficiently and the desire for profit by private organizations
are the driving forces behind privatization. All privatization's benefits and drawbacks are
a direct or indirect result of this profit-driven mentality. Accountability and adherence to
the needs of the public ought to be the primary considerations. They will be found in
environments where organizational structures and competitive pressures ensure that
managers carry out our, the owners', wishes. Realizing that privatization is not a cure-all
for the problems with the public sector is crucial. Transferring ownership to the private
sector is unlikely to provide significant results in nations where the market does not
operate well and where businesses are still susceptible to arbitrary government decrees.
Simply put, it shifts rent ownership from the public to the private sector. Similarly, the risk
of consumer exploitation increases when private monopolies are established without an
adequate system of monitoring and controls. In fact, altering the culture through, for
instance, fostering a competitive atmosphere or giving new entrepreneurs proper training
is arguably more crucial than altering ownership. As is frequently the case with utilities, if
an enterprise retains its monopoly status after privatization, it must be subject to
appropriate controls; otherwise, inefficiencies and monopoly power will merely be
transferred to the private sector, with costs borne by consumers, or monopolistic
exploitation by efficient private owners will replace the inefficiency of public ownership.