Don’t blame the moneybags

The mess we are in is caused by the government, not the private sector.


Kazim Alam March 17, 2014

In an op-ed published on March 5, executive editor of this newspaper, Muhammad Ziauddin, criticised the ‘so-called private sector’ of Pakistan, saying the success of these ‘moneybags’ is based on hundreds of Statutory Regulatory Orders (SROs) issued by successive governments over the years.

Using this argument, he built a case against the privatisation of state-owned enterprises, claiming that the efficiency of the private sector is simply a myth. There can be many arguments for, and against, the privatisation, which received 12.3% of the total revenue collection as subsidies during the last fiscal year. But the writer based his argument on a premise that pro-privatisation pundits love to highlight as well — that the government’s ability to decide winners and losers in a marketplace is essentially bad for an economy. The writer says successive governments have manipulated the market through favouritism and cronyism. But he opposes the privatisation process that aims to limit, if not eliminate, the government’s footprint across a number of sectors. Similarly, his subjective claim about the ‘conjured-up’ efficiency of the private sector can easily be countered with solid data. The oft-cited transition of the banking sector from being a regular recipient of bailouts in the early 1990s to one of the major taxpayers in the post-privatisation years is a case in point.

Warning us about the dangers of the free market economy, critics of private sector always blame the global meltdown of 2008 on Wall Street greed. While doing so, they simply overlook the far more critical role that government played in bringing the financial world down to its knees. For example, the sub-prime mortgage crisis was singularly caused by government-created gigantic mortgage corporations. More importantly, it was the monetary policy pursued by the US Federal Reserve System that artificially kept interest rates too low for too long, making the housing bubble reach such a disastrous level. If anyone thinks that government’s footprint in Pakistan’s economy is not substantial already, they must look at more recent and credible research. Contrary to official documents that put the size of the government as a percentage of GDP at 22%, former official of the Planning Commission Nadeemul Haque says the government actually controls more than 60% of the economy.

The mess we are in is caused by the government, not the private sector. Instead of a bureaucrat sitting in ministry of commerce, I would rather let the proverbial invisible hand of free market decide what people can afford and what they can’t.

Published in The Express Tribune, March 17th, 2014.

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