Privatisation is no panacea

A common catchphrase in policy circles is, “It is not the government’s job to do business”

Abbas Moosvi April 18, 2024
The writer is a Research Fellow at the Pakistan Institute of Development Economics. He tweets @AbbasMoosvi


In Pakistan, anything ‘state-owned’ is treated as bad by default — as if there is something inherent in the model that ensures failure. This perception is the result of decades of sustained neoliberal propaganda, beginning in the late 80s with our first IMF ‘structural adjustment programme’. Despite the privatisation of over 200 enterprises since then, the promised benefits of easing fiscal pressures and reducing inflation rates have rarely materialised. In fact, in many instances the exact opposite has occurred: with both worsening following privatisation waves, frequently due to rising subsidies to newly ‘privatised’ businesses.

It is in this backdrop that the privatisation of PIA and other state-owned enterprises is being peddled today. Whilst it is true that these enterprises require deep structural reforms, simply advocating for ‘privatisation’ misses the forest for the trees. The fundamental error here is a failure to appreciate that just like the profit motive acts as the primary incentive for the private sector to maximise efficiency and continually improve operations, for the public sector the incentive for good governance is the prospect of returning to power for subsequent terms. This is not possible in Pakistan because ruling elites are not accountable to the ordinary citizen, but to specific influential circles that hold the nation hostage: the security apparatus, big landlords, industrial rent-seekers, IFIs, private patrons mostly based overseas.

Contrary to the notion of privatisation being the best solution in all circumstances, some of the world’s leading airlines, such as Emirates, Etihad, Qatar Airways, and Turkish Airlines, are all state-run. In the case of Pakistan’s aviation sector, a real time example of the flawed nature of the ‘privatise, liberalise, deregulate’ mantra is Fly Jinnah, which disrupted the market with low fares for 6 months before jacking them back up to prevalent rates around the time of its launch. This suggests that for ‘competition’ to sustain across time in a manner that benefits the end consumer, there is a need for regulatory bodies like competition commissions to mitigate against collusive behaviour, but this angle is never highlighted in ‘development conferences’ in Pakistan. Nor is the fiscal burden of non-combat, non-development defence expenditures — significantly higher than that of SOEs and a key reason for the obstruction of democratic transition in Pakistan.

A common catchphrase in policy circles is, “It is not the government’s job to do business”. Instead, it is alleged that public officials should focus on ‘fostering an equal playing field’, ‘providing quality infrastructure’, and ‘ensuring law and order’ — all vague objectives. Does an equal playing field mean endless tax breaks for big corporations or offering accessible, high-quality education that empowers the youth and creates future leaders? Road infrastructure might suit vehicles, but it also turns cities into inhospitable (and polluted) zones for anyone who does not own them. Law and order could be based on strict penalties for perpetrators, or it could mean establishing comprehensive social safety nets that guard against the desperation of poverty that causes people to resort to crime in the first place. In each of these examples, the implied preference is always for policies favouring those with prior economic privileges; and it is assumed that this is self-evidently the best approach. As a result, state capacity has been systematically eroded over the years, leading to rising inequalities, abysmal climate preparedness, and a governance domain populated by opportunists looking to amass personal wealth.

Private sectors cannot function in the absence of strong state capacity that elevates the talented, regulates against monopolistic tendencies, supports research and development, protects those on the margins, and offers high quality services — particularly in the social sectors — at affordable rates. The two domains exist in a synergistic relationship, mediated by a dynamic, proactive civil society.

Any ‘development agency’ that fails to appreciate this is not just suspect but actively causing harm — and must be challenged at every turn.

Published in The Express Tribune, April 18th, 2024.

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