Don’t privatise the state, please

In poor countries like Pakistan, some entities have as much social value as the armed forces, security agencies.

“The problem in a nutshell is that not everything that is profitable is of social value and not everything of social value is profitable. Reality TV, fashion, sports and gambling are all of questionable social value, but each is quite profitable and exists in the private sector. Meanwhile, few would argue that the Army, Navy, Air Force, Marine Corps, Coast Guard, police department, fire department, libraries, parks and public schools are of no social value, and yet, they could not exist if they were required to be profitable. To reiterate, the key issue is this: not everything that is profitable is of social value and not everything of social value is profitable. The proper role of government is the latter”.

A relevant quote from an article “Why Governments Should Not Be Run Like A Business” by John T Harvey in Leadership, a Forbes publication.

A government has no business doing business. Sounds logical. But a government devoid of the necessary instincts of a sharp businessman would find it almost impossible to frame socio-economic policies that ensured progress with equity. Such governments either end up widening the gap between the rich and the poor, or failing them both miserably.

Governments in poor countries, especially those which are totally dependent on imported fuel, need to be necessarily business-minded to be able to not only rationalise the dependence, but also reduce the burden on the import bill by being an expert of the market as are the international oil sharks, racking in millions on price fluctuations of as little as a minimal most fraction of a cent.

Donor-driven poor countries need business-minded governments even more because if you are not well versed in what is happening in international trade, more likely than not you are going to end up returning almost the entire aid back to the donor country in import bills.

Also, it is only a business-minded government, which can make a distinction between an enterprise that yields profits of immense social value and those that yield purely financial profits.

Take for instance, the Steel Mill. No matter how you run it, at the production capacity of 1.1 million metric tonnes, it can never be financially profitable even if you cut its fat to bare bones. Its social value is too dubious to merit any consideration. So sell it today even if it brings in only one dollar (the land in its possession should, however, be sold at market rates) because every passing day would only add to its losses and increase the burden on the national budget. This is true for most of the items earmarked by the government for privatisation and disinvestment.

However, this will never be true for PIA, Pakistan Railways, power generation and distribution entities, Oil and Gas Development Company Limited, Pakistan State Oil, utility stores, National Bank of Pakistan, Civil Aviation Authority, Pakistan National Shipping Corporation, Karachi Port Trust and Port Qasim, etc. In rich countries perhaps, these entities would be better off in the private sector. But in poor countries like Pakistan, these entities have as much social value as the armed forces, security agencies, libraries, parks, public schools and public health institutions.

A government without business know- how would hardly be able to maximise social benefits of a public sector entity at a minimum financial cost. In most developed societies, this is done by letting the public sector compete with the private sector but with keeping the latter’s profit motive within reasonable bounds by establishing legally sound autonomous statutory regulatory mechanisms.

And even after such mechanisms are developed, air, road and rail transport, energy-related units, public schools and public health institutions, at least up to primary levels, would need to be kept under government control, no matter how much the cost.

A big chunk of unnecessary financial losses that these public sector entities of social value are incurring currently can be eliminated by cutting down on waste and replacing inefficient managements with efficient ones. Also, their burden on the budget could be significantly eased if the government were to collect the taxes that are due to it from all its citizens who earn taxable incomes. Only a business-minded government would know the importance of enforcing tax laws strictly across the board without exception and exemption.

Published in The Express Tribune, February 5^th,  2014.

Like Opinion & Editorial on Facebook, follow @ETOpEd on Twitter to receive all updates on all our daily pieces.