In the oft-visceral negative reactions that most Pakistani journalists have towards privatisation, there is one phrase that many love using to describe the process: selling the ‘state silver’, as though state-owned companies were some precious heirloom being sold off by a negligent son who does not care about the family legacy. But this phrase is highly misleading: nobody is talking about selling anything remotely that important.
I must confess a certain admiration for this deft use of rhetoric. The ‘state silver’ argument tugs at two heartstrings amongst Pakistanis: a love of all things family and an attachment to tradition. Those advocating privatisation are then seen as callous and greedy, and against all things Pakistani. Admittedly, the economic liberal side is not helped by the fact that foreigners flying in from Washington DC often make the same arguments we do.
But our argument is simple: the state should have a far narrower definition of ‘strategic’ assets than the anti-privatisation camp currently wants. The focus of the state should be on the provision of essential infrastructure for an economy to thrive. That includes security first and foremost, followed by education, health, roads, municipal services and other related services. The assets owned by the government that are used to provide such services can indeed be determined to have ‘strategic’ value, since these are both essential to the welfare of citizens and cannot be provided easily by the private sector to the entire country.
But what exactly is the strategy behind the government owning oil and gas production and distribution, electricity generation and distribution, airlines, railways, telecommunications and even retail grocery stores? What advantage does state ownership of such companies provide to the ordinary citizen of Pakistan? The only Pakistanis who benefit from these companies are the corrupt employees, who suck the life out of them while rendering the lives of their customers miserable.
And what exactly is the fear of foreign ownership of businesses in Pakistan? I can buy petrol at the same rates from foreign-owned oil companies like the Anglo-Dutch Shell as at the state-owned PSO. Deposit growth at foreign-owned banks like the UK-based Standard Chartered far exceeds that at state-owned banks because people like their quality of service. And some of the most extensive oil and gas exploration in Pakistan is being done by the Hungarian energy company Mol Nyrt and Italian giant Eni without arousing any protests.
But beyond the obvious advantages to Pakistani consumers and economy, there is one critical advantage of privatisation that is often overlooked: it takes the subject of managing a section of the economy off the public agenda, allowing the government to focus on things that truly matter.
Take the privatisation of banks, for example. Leftists love to criticise that process these days since banks lend a majority of their deposits to the government. Let us ignore for a moment the fact that this is largely due to the government’s voracious appetite for debt and the State Bank of Pakistan’s (SBP) Prudential Regulations, and focus on this: the only part of the government that is concerned with the financial health of the banks is their regulator, the SBP. In the 1980s and early 1990s, the government’s energy was consumed by the constant bailouts the banks needed, as well as scandal after scandal of politically motivated loans. How many of those take place these days? Some, yes, but not nearly as many in decades past. The management of the financial sector no longer consumes airtime in the national debate.
Imagine if the same were true of the energy sector. Imagine if Prime Minister Nawaz Sharif did not have an energy crisis to deal with. What would the national conversation be about then? Maybe we might have gotten around to tackling militancy. Who knows? We may even have paid attention to our crumbling schools and hospitals.
Economic liberals, like myself, do not despise government (like some of our counterparts in the US). We just want it to do what we absolutely need it to do, and avoid wasting its energy on doing things that private sector actors can do better. Then, maybe one day, government schools will be good enough to be described as the ‘state silver’.
Published in The Express Tribune, January 16th, 2014.
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Agree with the author. None of the critics have unfortunately offered a substantive rebuttal to the points raised by the author. Wonder what is the obsession with PIA being in govt control or for that matter Steel mill. Imagine the amount of money, govt would have saved if steel mill had been privatized 5 years back.
@PakArmySoldier I never claimed to be an economist. I just call myself an economic liberal, which is just a set of preferences about how the economy should be organised. And Mr Fahd Ali presented arguments that I disagree with.
You're an MBA student. Don't masquerade as an economist. Fahd Ali in an earlier op-ed piece has discredited your argument.
I would like to ask the author what a private investor can bring to the table that government cant. Lets take the oft repeated example of PIA. What magic wand does a private sector investor have that government of Pakistan does not have. Infact the reverse is true, GOP has some major significant advantages in running the national airline that private sector can never have. The two most successful profitable airlines of this region are run by the government (Emirates and Singapore). This is because airlines requires large borrowings and with the credibility of soverign behind it the airline can borrow and upgrade its fleet. No local investor can dream of such credibility. What is needed is the will to put professional management and a professional board. Its that simple. Because private sector cannot do anything more also. In Pakistan privatisation means paying back to the friends who helped the party get to power. Its not part of any economic agenda. Its a payback for favours received.
In order to prove the success of privatization plans examples are given of western and in particular American corporations. The problems is that one would not have any problem if some one were to start with their own money and build a company on the basis of their hard work and effort. That is the way Microsoft started and so did Google and many many others. In Pakistan however the privatization really means a loot sale of the government owned assets which have been built up over decades using national money and resources. The so called entrepreneurs in Pakistan want to acquire these dirt cheap, at times paying nothing, and then sell all the assets such as real estate bringing the original organizations to ground. There is no dearth of such examples in the past 30 years history of the privatization efforts in Pakistan. Check with Shahid Hasan Siddiqui if you are in doubt. Cell companies in Pakistan started on their own and succeeded without benefiting from loot sales. So no one bothers about their success. It is the corruption and non-transparent deals that have been the hall marks of previous privatization efforts that the critics question. Also is it not a fact that Japan, South Korea, Malyasia and of Course China were carefully controlled and regulated economies which progressed under the supervision of their governments. It was only much later on in the game that some free market principles were allowed. However, even now these are by and large government regulated and controlled economies.