The privatisation debate

It's not state's responsibility to run businesses or offer jobs, rather it is to protect life, property of citizens.

Finally, the government has shown readiness to proceed with the auction of 3G and 4G spectrums. It is still not clear how the auction can proceed with a ban on YouTube and the state’s fondness for internet surveillance. According to a report, the presence of internet censorship software like Netsweeper and FinFisher, and the attempts to block too many websites is slowing internet connectivity in the country. These issues will have to be resolved before we expect serious investment in the sector. This said, it must be pointed out that the government’s desire to seek investors, to sell public assets and hence, stabilise the economy is admirable. And yet, the national discourse on the issue of privatisation remains trapped in the straitjacket of mendacity.

Recently, a leading think tank in Islamabad organised a discussion on privatisation. A number of well known economists were present there. Surprising as it was, almost all of them opposed privatisation. A mixed set of arguments, some mutually contradictory, were presented to justify their position. For instance, one speaker concluded that nobody would invest in loss-making enterprises and the idea of selling a profit-making enterprise belied logic. Another argument was that global trends were changing and at a time when governments all over the world were intervening to bail out private sector firms, Pakistan wanted to offload these precious assets. Another speaker thought that privatising strategic assets would compromise the country’s national security. A better way to reform the economy, hence, would be to collect more taxes and improve management of public-sector enterprises. It was evident that the fear of rising unemployment was of great consequence to the discussants and that the prospect of the private sector shutting down these enterprises after purchasing these units for peanuts could not be ruled out.

Sadly, the entire debate missed the basic point of the privatisation exercise. It is not the responsibility of a state to run businesses or to offer people jobs. A state’s first responsibility is to protect the life and property of its citizens, a task in which it is still struggling as it no longer has monopoly on violence. Whether an enterprise is making a profit or a loss, chances are it will end up compromising its operations sooner or later, given the quality of governance in the country. Many struggling enterprises were restructured time and again and yet they miserably failed to perform. The example of the Pakistan Steel Mills is before us. And even if you want to restructure these companies in order to make them efficient, the spectre of unemployment doesn’t go away as they already employ people several times more than their maximum capacity. We need interventions that ensure that unemployment sharply declines and to help add value to the labour’s existing skill set to ensure optimum harnessing of its potential. It is the responsibility of the state to ensure an enabling environment for business.

Nobody argues here that any of these businesses be thrown away for peanuts. Crony capitalism needs to be shunned. Transparency, effective regulation and strong oversight mechanisms are of critical import. And nobody here is arguing that revenue collection should not be improved. But still, privatisation remains the need of the hour.

Again, examples like the nationalisation of the Royal Bank of Scotland and the bailout of General Motors are exceptions, not rules. It is like taking an antibiotic meant to cure flu and using it as a regular meal. Governments should only intervene when absolutely necessary and for a limited time only. If, for instance, an investor tries to shut down a privatised project, the government can intervene to make sure it never happens.

Also, regarding the privatisation of assets that are considered of strategic significance, I think it is wrong to assume that the state will not be able to find solutions for its needs. But pray tell me, what is more important, retaining such assets or ensuring the country’s autonomy. The state badly needs more money to ensure it fulfils its basic responsibilities. It can either sell its assets or beg and borrow from others. To make sure the state doesn’t totally unravel, the former is a better option.

Published in The Express Tribune, February 23^rd, 2014.

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