The overall problem of management of the SOEs is systemic and cannot be solved in the public sector.
VIENNA, VA, US: This is apropos the article “The lack of logic for privatisation” (October 16) by Fahd Ali. The problem with the arguments presented in the article is that the writer tries to establish the case against privatisation by trying to prove that the profitability of privatisation transactions carried out in the past can be questioned and that privatisation would result in selling off the state silver at below market prices and in sale transactions that are not transparent.
This may or may not be correct but the validity of this analysis does not establish that the management of state enterprises should continue to remain in the public sector. The problem is that we are dealing with two strategies, both of which may be non-profitable when viewed in the short term. However, to establish which one should be adopted as the government strategy for the long term, we need to establish which of these would result in a smaller loss.
It is now known that state-owned enterprises (SOE) require an annual subsidy of around Rs500 billion. This results in a huge drain on our financial resources and is a major cause of the fiscal deficit. We have to factor in this amount when we compare the financial effects of privatisation versus state ownership. If we do so, we will see that selling off these enterprises would be the correct strategy, even if we receive prices that do not appear favourable at the present moment. The counterargument that SOEs can be turned around if the government appoints an honest managerial team and stops interfering in day-to-day tasks, is not viable in practice.
The problem with this proposition is that these two conditions are well-nigh impossible to meet in Pakistan. The previous 50 years have shown that many efforts to do precisely this have not been successful. Positions of the chief executives and those on the boards of directors of these enterprises have been used by all governments, both military and political, as plum appointments to reward friends and supporters, and to induct others on the SOE payroll, subverting the normal recruitment process.
The real problem is that the true criterion of success of a commercial enterprise — the bottom line — is never applied strictly. Under one excuse or another, the government bails these enterprises out once they have run through the previous tranche of investment and have again run up huge losses. In the private sector, they would be closed down the first time around. Thus, SOEs enjoy many of the advantages of private sector corporations but are not accountable in the same way for their bottom line.
The overall problem of management of the SOEs is systemic and cannot be solved in the public sector — in Pakistan at least. Here, I have not seen any of the many public sector corporations performing efficiently on a sustained basis. Stories in the press that one or the other of these SOEs have achieved record profits at a given point in time are either inaccurate, with only the marginal operating cost used to calculate profitability, or fabrications planted by a new management team appointed after a restructuring. Therefore, the correct course for the government to adopt is that the majority of the SOEs be privatised as soon as possible.
KK Fakhta
Published in The Express Tribune, October 19th, 2013.
Like Opinion & Editorial on Facebook, follow @ETOpEd on Twitter to receive all updates on all our daily pieces.
