Privatisation: litany of ironies

Earlier, selling 26% stake in PIA was termed as privatisation; now proposal to sell 26% stake a strategic partnership!

The shooting of peacefully demonstrating PIA employees is a new low in the state’s desperate obsequiousness in acceding to the demands of international creditors in order to feed its profligacy. Questions of responsibility and culpability apart, a prior question is: why were the Rangers there in the first place? The Rangers’ avowed mission is to combat terrorism, which they have extended to corruption-linked terror financing. Allowed further leeway, it can even be stretched to effect improvement in law and order. Certainly, however, their mandate does not cover tackling trade union disputes.

The current dispute relates to privatisation of the national airline. Admittedly, PIA is incurring huge, unsustainable losses. However, contrary to official propaganda, over-staffing is not the prime cause of the losses. Simple economics states that average costs will be high with a given overhead and low level of output, with average cost declining as level of output rises. In PIA’s case, the reverse has occurred. Given the size of overheads, the level of operations has been reduced; thereby, raising average costs and losses.



Herewith, it may be pertinent to take a holistic view of the privatisation debate and process in Pakistan. At one end, the debate is doctrinaire and ideological. The neo-liberals favour privatising just about everything and the avowed socialists favour keeping just about everything under state control. At the other end is a more nuanced and practical side.

One uncontested purpose of privatisation is to enhance the efficiency threshold of the economy. Herewith, there are well-defined precepts. The private sector performs best in sectors where there are a large number of competing firms. Privatising enterprises in such sectors need to be viewed positively. At the other end of the spectrum, monopolies in private hands tend to harm consumer interests and are deemed to be performing best in the public domain or under public regulation. Public utilities are natural monopolies and are, therefore, the ideal domain of the public sector. The modalities of public management can, however, vary from direct administration to privatisation of management — rather than the asset — in whole or in parts.



A notable fact, herewith, is that a privatisation policy has never been framed and there has never been a formal debate on the subject in parliament, in the cabinet or in any official fora. A policy document allows the principles, objectives, justification and alternative modalities of privatisation to be stated in a coherent manner and its formal parliamentary adoption creates a majority acceptance, if not a consensus, on the issues. Without a policy, expediency and opportunism carries the day and has been so; with the resultant conflict.

A coherent privatisation policy would have identified the original mandates of existing public enterprises, given that some enterprises were not designed to generate financial profits. Without such a policy, the very logic of setting up public enterprises to achieve specific national agendas has been lost in the cloud of dust kicked up by the neo-liberal tantrum about public-sector losses and the absolute sanctity of profits. A case in point is the Pakistan Steel Mills, which was set up in the 1970s as part of a grand design to develop the engineering industry and was intended to supply subsidised steel to emerging engineering firms.



Given the absence of a stated policy, Pakistan’s privatisation journey has followed a rocky road. In the early 1990s, the argument for privatisation centered on public enterprises’ losses and the consequential budget deficit arising thereof. It was argued, rather loudly, that the savings accruing out of not having to subsidise loss-making firms could be used to retire debt and finance social programmes a la education and health. Ironically, however, the first of the enterprises to be privatised were profit-making ones! And by the end of the juma bazaar-style privatisation of close to 90 firms in one year, 1992, only 16 per cent of the proceeds had been devoted to debt retirement and the rest consumed in financing current, non-development expenditures. A temporary dip in budget deficits was achieved, but — ironically — via cuts in development and social expenditures.

The year 2000 onwards, the official mantra changed from the need to divest loss-making enterprises to off-load even profit-making ones, on the ideological grounds that ‘it is not the business of the state to be in business’. Without a policy, the grounds for privatisation have kept shifting to meet specific needs of particular governments, dictated by expediency and opportunism. In this case, the mantra ‘it is not the business of the state to be in business’ changed to ‘it is not the business of the Pakistani state to be in business, but it can be the business of a foreign state to be in business in Pakistan’.

PIA crisis: Late night meeting fails to break deadlock

Currently, the official mantra has resurrected the 1990s jargon of the need to privatise loss-making firms in order to curb the budget deficit and divert saved funds to social programmes. Loss-making PIA and Pakistan Steel Mills stand in this category. However, the ideological case of ‘it is not the business of the state to be in business’ prevails when the profit-making OGDC is placed on the sacrificial altar. Earlier, selling 26 per cent stake was termed privatisation; now the proposal to sell 26 per cent stake is termed a strategic partnership! ‘Unprincipled opportunism’ knows no bounds.

Published in The Express Tribune, February 6^th, 2016.

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