One reason for the perennial and inevitable failure of SOEs is they entail negative or perverse incentives.  Even where SOEs such as Eskom, South African Airways and the South African Broadcasting Corporation are nominally independent, the fact that politicians hire, fire and suspend their leadership means SOEs serve selfish management and short-term party-political ends at the expense of long-term efficiency.  Factors such as tenuous and politicised leadership appointments, monopoly protection, government subsidies and guarantees, and immunity from insolvency ensure that the self-interest of leadership conflicts with the interests of the people they are meant to serve.  The inability of political masters and underlings in leadership to benefit from improved performance, asset values or profitable efficiency promotes corruption and abuse.  The lack of reward consistent with performance means that a busy, honest and efficient day that would be a good day in the private sector, tends to be a bad day in the government.

Read Leon Louw’s full column Why state enterprises will never get it right first published by Business Day on BDlive today.