Pri­vati­sa­tion blues

The Pak Banker - - 4EDITORIAL - Dr Niaz Mur­taza

THE PML-N's pri­vati­sa­tion agenda is in trou­ble. Half­way through its ten­ure, it has not chalked any ma­jor achieve­ments in this area, as true too in other eco­nomic ar­eas like en­ergy and ex­ports. The PPP-con­trolled Se­nate has blocked PIA's pri­vati­sa­tion while PIA em­ploy­ees, whose union ac­tiv­i­ties the govern­ment cur­tailed yes­ter­day, are threat­en­ing to close op­er­a­tions de­spite govern­ment prom­ises to de­fer pri­vati­sa­tion. Mean­while, the IMF is not pleased with Pak­istan's in­abil­ity to meet loan con­di­tions re­lated to pri­vati­sa­tion.

Un­for­tu­nately, the govern­ment must ac­cept a big chunk of the blame for this mess. Given its plans to sell na­tional as­sets worth bil­lions of dol­lars, it should have ini­tially crafted a sen­si­ble strat­egy in a trans­par­ent and par­tic­i­pa­tory man­ner given pri­vati­sa­tion's mixed record glob­ally. Stud­ies from Rus­sia, East­ern Europe and Latin Amer­ica show that poorly man­aged pri­vati­sa­tion pro­cesses of­ten cause huge cor­rup­tion, as­set strip­ping, mo­nop­oly cre­ation, in­creased in­equal­ity, crony­ism and losses of con­sumer and em­ployee wel­fare.

Eval­u­a­tions of past pri­vati­sa­tion ef­forts in Pak­istan con­ducted by ADB, the Karachi-based So­cial Pol­icy and De­vel­op­ment Cen­tre and other writ­ers also re­veal ma­jor is­sues. The per­for­mance of most pri­va­tised units had wors­ened; lack of trans­parency was com­mon; and pri­va­tised banks had iron­i­cally be­come more prone than na­tion­alised ones to lend to the govern­ment rather than the pri­vate sec­tor.

There were con­cerns about car­tels for­ma­tion in the bank­ing and ce­ment sec­tors and large-scale em­ployee lay-offs at the PTCL. Charges of sale of units at low prices to cronies were lev­elled against the PML-N it­self dur­ing the 1990s. Th­ese stud­ies largely fo­cused on eco­nomic cri­te­ria and did not ad­e­quately cover so­cial con­cerns like im­pact on em­ployee and con­sumer wel­fare and poverty, which are es­pe­cially crit­i­cal for a coun­try like Pak­istan.

Ob­vi­ously, th­ese global and na­tional ex­pe­ri­ences do not re­late in­her­ently to pri­vati­sa­tion but to badly man­aged pri­vati­sa­tion only. But the fre­quent oc­cur­rence of such is­sues glob­ally means that the chances of pri­vati­sa­tion pro­cesses go­ing awry in cor­rup­tion-prone, low gov­ern­men­tal ca­pac­ity coun­tries like Pak­istan are high. Cau­tion and pru­dence are thus re­quired.

How­ever, the need for Pak­istan to en­ter into the strait-jack­ets of IMF loans was high in 2013 given its low ex­change re­serves. This cou­pled with the in­her­ently ne­olib­eral out­look of both the PML-N and the IMF meant that there was lit­tle dis­cus­sion on the pit­falls of and al­ter­na­tives to pri­vati­sa­tion, and it was in­cluded as a ma­jor re­quire­ment in the 2013 IMF loan con­di­tions. The govern­ment had ini­tially an­nounced an am­bi­tious plan to hire com­pe­tent CEOs for key state en­ter­prises, through a merit- ori­ented and trans­par­ent process, to turn around the en­ter­prises. How­ever, the PML-N's ba­sic pen­chant for ad ho­cism and crony­ism soon over­whelmed this tem­po­rary de­sire for mer­i­toc­racy and this plan was quickly aban­doned.

Not that the PPP is blame­less in this process, for it too has failed to pro­vide a cred­i­ble al­ter­na­tive. The tus­sle on pri­vati­sa­tion be­tween the PML-N and PPP of­ten seems less about the clas­si­cal right-left de­bates about the mer­its of state vs. mar­ket pro­duc­tion in the West. Rather, in the pa­tron­age-driven Pak­istani con­text, the de­bates have be­come re­duced to the right- wing PML-N seem­ingly view­ing pri­vati­sa­tion as an op­por­tu­nity to ben­e­fit crony cap­i­tal­ists and the sup­pos­edly left­ist PPP see­ing state en­ter­prises as an op­por­tu­nity to em­ploy its sup­port­ers as work­ers. Go­ing for­ward, the govern­ment must im­me­di­ately change the em­bar­rass­ing fact that even though bil­lions of dol­lars of na­tional as­sets are at stake, the govern­ment lacks a writ­ten strat­egy of even a few pages which takes stock of past is­sues, de­vel­ops clear so­cial and eco­nomic cri­te­ria and lays down a trans­par­ent process for deal­ing with sick state en­ter­prises.

Most cru­cially, it must change the head­line topic from the con­tro­ver­sial is­sue of pri­vati­sa­tion to the self-ev­i­dent and non-con­tro­ver­sial need to re­vi­talise sick state en­ter­prises run­ning huge losses and pro­vid­ing poor qual­ity goods and ser­vices, eg, PIA and PSM. Clearly, few would chal­lenge the self-ev­i­dent fact that the sta­tus quo for them is un­ac­cept­able.

Such a shift in the head­line topic would have two im­por­tant im­pli­ca­tions. Firstly, the govern­ment would fo­cus on sick com­pa­nies only, thus end­ing charges about it first sell­ing prof­itable com­pa­nies, of­ten at low prices to cronies, with­out any eco­nomic or man­age­rial ra­tio­nale.

Se­condly, even for sick com­pa­nies, pri­vati­sa­tion to strate­gic in­vestors would not be the de­fault op­tion but only one op­tion along­side au­ton­omy and pro­fes­sion­al­i­sa­tion of board and se­nior man­age­ment; es­tab­lish­ment of em­ployee-owned com­pa­nies; and sale of shares to the gen­eral pub­lic. The best op­tion for each sick en­ter­prise would then be iden­ti­fied through a clear set of eco­nomic, so­cial and man­age­rial cri­te­ria and a trans­par­ent process. It re­mains to be seen whether the PML-N has the ca­pac­ity to im­ple­ment such sen­si­ble ac­tion.

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