To pri­va­tise or not

The Pak Banker - - 4EDITORIAL - An­jum Altaf

SHOULD PIA, a state-owned en­ter­prise be pri­va­tised? It is poorly run, los­ing a great deal of money, and a drain on the bud­get. But what does that have to do with PIA be­ing a SOE? Therein lies the real ques­tion and some an­swers to our par­tic­u­lar predica­ment. If one were to line up all po­ten­tial ser­vices with the small­est in scale at one end to the big­gest at the other, read­ers would likely agree that the small­est (say, tea stalls at a rail­way sta­tion) are bet­ter pro­vided pri­vately and the largest (say, na­tional de­fence) by the pub­lic sec­tor. The rea­sons are not hard to fathom. Bu­reau­cra­cies are not good at adapt­ing to rapid changes in mar­ket con­di­tions and con­sumer pref­er­ences; mar­kets can­not ex­clude those un­will­ing to pay for a ser­vice like na­tional de­fence.

In be­tween these two ex­tremes, al­most all ser­vices be­yond a min­i­mum scale can be pro­vided equally well by both pub­lic and pri­vate sec­tors. Own­er­ship mat­ters less than ar­range­ments for man­age­ment. It might sur­prise some that the most ef­fi­cient util­i­ties in the world are in Sin­ga­pore, all op­er­ated by SOEs. The ex­am­ple of air­lines it­self proves the point. Read­ers can eas­ily look up pub­lic and pri­vate air­lines that are equally suc­cess­ful. In fact, if PIA were sold it would most likely be to one of the state-owned Mid­dle East air­lines de­mol­ish­ing im­me­di­ately the ar­gu­ment that an air­line can­not be run ef­fi­ciently by the pub­lic sec­tor.

This should bring us to the crux of the is­sue: it is not that an air­line can­not be run ef­fi­ciently by the state; what is be­ing im­plied is that it can­not be run by the state in Pak­istan. This should im­me­di­ately raise the ques­tion WHY? Why is the Pak­istani state un­able to run an air­line ef­fi­ciently?

Here one should not be dis­tracted by the ar­gu­ment that has be­come the im­plicit ra­tio­nale for pri­vati­sa­tion of SOEs in Pak­istan - that the pub­lic sec­tor is dis­hon­est. This is an in­valid ba­sis for de­cid­ing how a ser­vice is to be pro­vided.

One can­not le­git­i­mately com­pare the re­al­ity of one sec­tor with the ideal of an­other. The pri­vate sec­tor has an equal share of dis­hon­esty, from the lo­cal milk­man who mixes wa­ter in milk to the phar­ma­ceu­ti­cal com­pa­nies mar­ket­ing adul­ter­ated drugs, to the global cor­po­ra­tions reg­u­larly charged with fraud.

This opens up a set of is­sues. Once the air­line is pri­va­tised what would be our po­si­tion on the pro­vi­sion of an­cil­lary ser­vices like air­port fa­cil­i­ties and traf­fic con­trol and al­lo­ca­tion of routes? Wouldn't these also need to be pri­va­tised be­cause oth­er­wise they would re­main in in­com­pe­tent hands and neg­a­tively af­fect the ef­fi­ciency of the pri­va­tised air­line?

And if our gov­ern­ments are ac­tu­ally dis­hon­est or in­com­pe­tent, or both, as al­leged, how can we be sure that they would be hon­est or com­pe­tent in the process of pri­vatis­ing a SOE? Isn't it a fact that al­most ev­ery at­tempt at pri­vati­sa­tion in Pak­istan has been dogged by scams? How wisely would it use the pro­ceeds? We also know that all ser­vices in­volv­ing hu­man safety need to be reg­u­lated. How can we ex­pect a dis­hon­est, in­com­pe­tent state to reg­u­late ef­fi­ciently when it is not able to op­er­ate ef­fi­ciently? Wouldn't pow­er­ful pri­vate in­ter­ests sub­vert the reg­u­lato- ry ap­pa­ra­tus to fur­ther their in­ter­ests just as pri­vate firms buy out state agents to jig­ger their elec­tric­ity bills? Should reg­u­la­tion also be pri­va­tised? We reach a dead end if there are no cred­i­ble an­swers to these ques­tions. The log­i­cal im­pli­ca­tions of us­ing the ar­gu­ment of state dis­hon­esty and in­com­pe­tence for pri­vati­sa­tion are mo­men­tous lead­ing straight to the con­clu­sion, ab­surd as it might sound, that the state it­self ought to be pri­va­tised. It would be much more ef­fi­cient to give the man­age­ment of Pak­istan to the state of Sin­ga­pore.

Hav­ing iden­ti­fied the big ques­tion at is­sue we can re­turn to the rel­a­tively mi­nor one of PIA. Air­lines op­er­ate in a mar­ket open to com­pe­ti­tion and there­fore the ser­vice can be of­fered pri­vately with­out dif­fi­culty. Net­worked ser­vices like railways, elec­tric­ity, gas, and wa­ter, on the other hand, are nat­u­ral mo­nop­o­lies and much more dif­fi­cult to pri­va­tise al­though ex­am­ples ex­ist where this has been man­aged. At the level of pure the­ory and in an ideal world, the pri­vate sec­tor max­imises prof­its within a set of ex­ter­nally im­posed rules that pre­vent it from cheat­ing; the pub­lic sec­tor max­imises pub­lic wel­fare at least cost in a frame­work of ac­count­abil­ity that pre­vents it from abuse of power.

With­out hon­est reg­u­la­tion and pub­lic ac­count­abil­ity nei­ther sec­tor will de­liver - we are at best in­dulging in a sec­ond-or­der de­bate. Even if PIA is pri­va­tised, the state will re­tain con­trol over huge as­sets that it would con­tinue to mis­man­age. The prob­lem that mo­ti­vated the pri­vati­sa­tion of PIA will not go away un­less we face up to the real co­nun­drum of the in­com­pe­tent state and do some­thing about it.

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