Local Coordinator Program

The Wolf of PSUs: Inefficient & Non-existent

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Boston Public Garden by Sahaj Bedi, licensed under Unsplash License

Firstly, let us look at this brief video to better understand the essence of these PSUs in contrast with the private sector:  Here.

What are Public Sector Undertakings?

Now we know that a state-owned enterprise is called a Public Sector Undertaking (PSU) or a Public Sector Enterprise. These enterprises are owned by the central government or one of the many state or territorial governments, or both. The company needs to be majority-owned by the government to be classified as a PSU.

Human beings are not new to the concept of work. One might wonder, what does working have anything to do with PSUs? Let me paint you a picture through a microeconomic perspective of working at a 9-5 job to depict the core fallacy in the heart of the concept of Public Sector Undertakings.

We have two broad yet closely linked reasons for working hard; irrespective of pay, position, region, age, gender, or type of work-

1. To provide quality and efficiency at that particular work. Why? Because our bosses and superiors scrutinize it and our consequential rewards (in terms of perks and income) depend upon the work we put in.

2. To use the aforementioned income to support the family, pay the bills, and save for future consumption.

But let us make some adjustments in this picture. Now, unlike the status quo (present narrative), the boss/employer does not care about the quality and efficiency of your work. Unlike the status quo, deadlines are a thing of the past. Imagine, that you no longer have to worry about the consequences of being late in paying your bills or student loans, because- well there are no longer any consequences. You do not have to worry about future consumption because God got you covered, so recklessly spend as much as you want. In short, God here refers to the Big Government, who do not care about the results or output of PSUs, unlike in the private world. This new model and its subsequent rules are not dependent on the quality and efficiency of the work. They are given irrespective of the presence of those two virtues.

Let’s take a look at the incentive principle, a commonly accepted philosophical and economic concept

Incentive principle: The principle states that an incentive is something that encourages or motivates an individual to act. The field of incentive structures is core to the study of economic activities (both in terms of individual decision-making and in terms of co-operation and competition within a larger institutional structure).

Now given our new revolutionary workplace rules, does the employee still have any such incentive or encouragement to display the previous high level of work given that that quality and efficiency came with hard work in terms of time and effort which could have been used elsewhere, like with family, friends and social life?

The answer given to a rational employee would be a flat NO.

These utopian work conditions are not a figment of our imagination, but in fact, are present in the public sector undertaking/enterprises. You might have heard about some of the following terms in the news recently, a characteristic of inefficient and extremely dangerous government intervention- Recapitalisation, Capitalisation, Disinvestment among others. These terms will be explored more in the second part of this thread on PSUs.

Natural quality & efficiency checks and balances only exist in a free market owing to spontaneous order and the price-setting mechanism. In the case of PSUs, they are non-existent and that has a drastic impact on the efficiency of these enterprises. They don’t have to worry about retaining their market share or about the long term tenacity of their business model. Big Brother will obviously bail them out. After all, who cares about the fiscal deficit and the dangerous slippery slope that it entails?

So why are PSUs still present at every nook and corner? The answer lies in the simple fact that the general population still prefers the public sector and thus all their vices. The constant mismatched demonization (as crony capitalism is wrongly seen identical to free-market capitalism) of the private sector also has contributed to this idea. The stronger affinity towards the public sector has time and again come back to haunt us in various ways with its gigantic losses, inefficient and sub-par quality of goods & services, and consequential non-optimal use of government revenue, irrespective of the intentions of the government. The general population plays the role of enabler which in turn gives legitimacy to the idea of the government playing God through these PSUs. But as more and more people do the cost-benefit analysis of institutions like these, the people must see the light sooner rather than later.

So how many PSUs does it take to change a light bulb? None. There’s no incentive to change the bulb, we’ll just allow our eyes to adjust to the darkness.

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