The buy-back illusion

From time to time, often in the teeth of whatever crisis is gripping the country, we hear proposals for government to buy back certain companies or even entire industries, supposedly to ensure the welfare of the public. This knee-jerk reaction to re-nationalize is premised on an oft-mistaken belief that things were a lot better when the government owned everything from oil companies and power plants to airlines and bus companies.

The current labor dispute at Philippine Airlines is a case in point. The 25 Airbus A320 pilots of the private flag carrier had just barely left their jobs for better pay abroad when calls started mounting for government mediation—calls that soon quickly morphed into demands that the state purchase the airline from tycoon Lucio Tan so as not to prejudice passengers, the tourist trade and even the image of the country overseas.

Similar calls for re-nationalization grab headlines every time we experience a sudden increase in oil prices, for instance. Those who want government to bring down pump prices of gasoline never fail to demand a buy-back of the long-privatized Petron Corp., all the while pining for the days when gas was absurdly (compared to today’s prices, anyway) cheap.

But with the prominent exception of the most incorrigible of leftist rabble-rousers, most people are aware that the price of gasoline has less to do with what the government does than with the world prices of this increasingly expensive commodity, which government cannot do anything to control. And yet, some government officials, particularly populist lawmakers who really should know better, still play along with the re-nationalizers, offering pie-in-the-sky promises of lower pump prices, if only we could buy back the former state-owned oil refining and distribution company.

In the case of PAL, the people who think that reacquiring companies once owned by government are once again in the news, making political hay out of what is really, at heart, an intra-corporate labor dispute. If the government still owned PAL, they say, by some strange logic, none of this would have happened.

To its credit, the Aquino government seems to realize that re-nationalizing PAL is not the solution to the pilot’s walkout, quickly brushing aside the suggestion. Despite its supposed populist leanings, the administration has offered only to mediate in the dispute, offering a venue for the airing of gripes from both sides without even hinting at a possible government takeover of the national flag-carrier.

While its officials acknowledge the possible ill-effects of the walkout on transportation, tourism and even labor-management relations, the government has wisely steered clear of talk that it is even considering a buyout of the airline. Had the Aquino administration tried to play to the gallery by announcing that it was studying a buy-back, then it would have sent all the wrong signals to the businesses that it is courting and even to the public that is getting all riled up by talk of cancelled flights and severe shortages of seats.

Without going into the merits of the dispute—which are really best threshed out in the ongoing tripartite talks—it’s safe to say that the government cannot offer false hopes of intervention that goes beyond its mandate of regulating PAL and ensuring that the public’s interest is not jeopardized by the spat. And to continue proposing that a buyout by the state of the airline will magically solve its problems is to persist in ignorance in the face of the cold, hard fact of PAL’s privatization.

But even if the government were awash enough in cash (which it certainly isn’t) and crazy enough (which it obviously is not, in this case) to buy out PAL, what would be the result? Would the government be able to pay PAL’s pilots the wages that they have been offered by foreign airlines, thus preventing them from leaving?

Would the company’s efficiency and profitability improve, as they have under private ownership? Would a regime of low fares result if the government ran the airline, if it did not resort to subsidizing them using taxpayers’ money intended for other purposes?

The unequivocal answer to all these questions would have to be “no.” And even the people who want the government to buy back PAL, Petron or any other formerly state-owned and now thoroughly privatized company would have to agree, if they wanted to be honest about it.

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The inconvenient truth is that the government’s record in business has been distinguished by near-absolute failure. Even PAL, when it was still owned and controlled by the state, was almost run to the ground by the bureaucrats and muckety-mucks who considered the airline their personal fleet of airplanes, to serve their travel needs whether or not it made any money by actually ferrying paying passengers.

And the reason PAL did not fail was its stranglehold of all local routes and choice international ones, at a time when no other airline operator was allowed to fly the unfriendly, monopolistic skies of the Philippines. Still, the people who ran the state-owned airline required massive infusions of cash from government financial institutions to keep PAL flying, ensuring that even Filipinos who never flew its planes subsidized its operations through their taxes.

But if that all sounds like ancient history, consider the current moves of the present government to seek to rationalize the subsidies it provides to both the Light Rail Transit and the Metro Rail Transit. By raising the heavily-subsidized fares of both urban rail systems, the Aquino government wants to pass on some of the burden of the trains’ upkeep to the people who use them daily—and to ease the cost that is shouldered by the rest of the country’s citizens whose taxes keep the coaches running.

Of course, the government has to strike a balance between serving the need for cheap, safe and reliable transport needs of the million or so people who ride the LRT and the MRT with the other needs of the rest of the country. Government should calibrate any increase in the fares and painstakingly explain that any reduction of the subsidies will mean more money for other, possibly even more important government programs.

Subsidies, alas, are the not-so-secret means by which government can afford to artificially provide an important service at a cost to its citizens that would make any private operator weep. What Filipinos who enjoy any cheap government-provided service fail to realize is that the money to provide those subsidies will have to come from somewhere—either the taxes that they pay now or government borrowings that their future taxes will pay for eventually.

In return, Filipinos get inefficient, unprofitable and sometimes totally acceptable service, albeit at a cheap, subsidized price that they don’t realize they’re paying for— and probably paying for through the nose. And while certain critical sectors require nationalization (like health care, education, food and shelter) many others don’t need it.

Government, after all, should never be in business to make a profit but to protect its citizens (the poor, especially) from the depredations of the overly profit-oriented private enterprise. But apart from very few absolutely important sectors where it needs to actively intervene, it is futile to ask for re-nationalization of industries and companies that are already being run efficiently and profitably by private business.

As for PAL, it is not, thankfully, the only airline—or even the most efficient or the cheapest—available. And unless the government is willing to spend what money it has to buy the airline back and then proceed to destroy it again, then let’s just hope the company and its workers settle their differences amongst themselves. –Jojo Robles, Manila Standard Today