The writer is an Islamabad-based TV journalist and tweets @FarrukhKPitafi
Finally, the government has shown readiness to proceed with the auction of 3G and 4G spectrums. It is still not clear how the auction can proceed with a ban on YouTube and the state’s fondness for internet surveillance. According to a report, the presence of internet censorship software like Netsweeper and FinFisher, and the attempts to block too many websites is slowing internet connectivity in the country. These issues will have to be resolved before we expect serious investment in the sector. This said, it must be pointed out that the government’s desire to seek investors, to sell public assets and hence, stabilise the economy is admirable. And yet, the national discourse on the issue of privatisation remains trapped in the straitjacket of mendacity.
Recently, a leading think tank in Islamabad organised a discussion on privatisation. A number of well known economists were present there. Surprising as it was, almost all of them opposed privatisation. A mixed set of arguments, some mutually contradictory, were presented to justify their position. For instance, one speaker concluded that nobody would invest in loss-making enterprises and the idea of selling a profit-making enterprise belied logic. Another argument was that global trends were changing and at a time when governments all over the world were intervening to bail out private sector firms, Pakistan wanted to offload these precious assets. Another speaker thought that privatising strategic assets would compromise the country’s national security. A better way to reform the economy, hence, would be to collect more taxes and improve management of public-sector enterprises. It was evident that the fear of rising unemployment was of great consequence to the discussants and that the prospect of the private sector shutting down these enterprises after purchasing these units for peanuts could not be ruled out.
Sadly, the entire debate missed the basic point of the privatisation exercise. It is not the responsibility of a state to run businesses or to offer people jobs. A state’s first responsibility is to protect the life and property of its citizens, a task in which it is still struggling as it no longer has monopoly on violence. Whether an enterprise is making a profit or a loss, chances are it will end up compromising its operations sooner or later, given the quality of governance in the country. Many struggling enterprises were restructured time and again and yet they miserably failed to perform. The example of the Pakistan Steel Mills is before us. And even if you want to restructure these companies in order to make them efficient, the spectre of unemployment doesn’t go away as they already employ people several times more than their maximum capacity. We need interventions that ensure that unemployment sharply declines and to help add value to the labour’s existing skill set to ensure optimum harnessing of its potential. It is the responsibility of the state to ensure an enabling environment for business.
Nobody argues here that any of these businesses be thrown away for peanuts. Crony capitalism needs to be shunned. Transparency, effective regulation and strong oversight mechanisms are of critical import. And nobody here is arguing that revenue collection should not be improved. But still, privatisation remains the need of the hour.
Again, examples like the nationalisation of the Royal Bank of Scotland and the bailout of General Motors are exceptions, not rules. It is like taking an antibiotic meant to cure flu and using it as a regular meal. Governments should only intervene when absolutely necessary and for a limited time only. If, for instance, an investor tries to shut down a privatised project, the government can intervene to make sure it never happens.
Also, regarding the privatisation of assets that are considered of strategic significance, I think it is wrong to assume that the state will not be able to find solutions for its needs. But pray tell me, what is more important, retaining such assets or ensuring the country’s autonomy. The state badly needs more money to ensure it fulfils its basic responsibilities. It can either sell its assets or beg and borrow from others. To make sure the state doesn’t totally unravel, the former is a better option.
Published in The Express Tribune, February 23rd, 2014.
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COMMENTS (10)
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There will always be diverging opinions on privatizations from academics and economists; that is the nature of debate. What the author is missing is that the common man knows little about economic theory. We dont like the idea of privatizations because of the people who will carry it out in Pakistan. They are the same dishonest politicians and bureaucrats who have ruined our country, and they do not care for country level economics or society outisde of their own interests. They are just trying to fill their pockets through kickbacks and favouring their friends and business partners. This govt had listed over 50 organisations to privatise, just do the math per organization and you will realize why this and public spending works are THE ONLY things this government cares about.
Why is it necessary to privatize, Once privatized will the institutions be run by aliens or same Pakistanis. If these Pakistani politicians can become billionaires at state's expense then the least they can do is make these institutions work properly stop robbing them & then complaining they are loosing money, If anything is run by corrupt managers it will loose money.not a rocket science.
@Dan Is Emirates a state-owned airline or not? Was it ever privatized? That is the Question. You'll find it's just as state-owned as Russia's Gazprom or China Mobile. Like them it earns a massive amount of money for it's nation.
The purpose of the state is ensure the well-being of it's citizens. Providing jobs and services is part of that. What do you want states to do, look on apathetically as poverty and unemployment ravages the citizenry? Here, read this you dogmatic propaganda-victim.
http://www.nytimes.com/2014/02/17/world/americas/turnabout-in-bolivia-as-economy-rises-from-instability.html?_r=0
It is not Governments responsibilty to run business can be debated upon, but I think this argument is based on the fact that if a Government runs business no one in that country can match it beacuse the Government would have absolute monoply and control. In Pakistan we would just be passing on that control and monoply to some private hand as we do not have any regulators that can work independently. In a country like Pakistan where we have a large number of population, mostly living under the poverty line Government must play a greater role in helping people enmass.
Absolutely valid points raised. We always manage to impart a spin of emotions to everything.
@Dan: I respectfully beg to differ. It gets all its equity from the government. The biggest advantage it has is the development of the Dubai Airport which happens because both the Civil Aviation Authority and Emirates Airlines are arms of the government, all of the ground infrastructure is provided by the government because it is a national airline a national treasure and is part of the government. It is able to take advantage of it being a government company when it is raising financing from local and international banks. These are all great things because here the government comes in play in providing on the ground support, best airport hub in the world and attract very competitive financing rates because of its government ownership. The airline could not have succeeded if it was in private sector. Hats off to the Government of Dubai for managing it efficiently and making it the best and biggest airline in the world in just 25 years. Let there be no doubt that the government did it not the private sector. Its just that the Government of Dubai is run efficiently and with integrity. What is required is to run the government institutions efficiently and with integrity and not sell the national assets because you feel that the government cannot be run with integrity.
@Aamer:
Emirates Airlines is run as a private organization with little or no support from the Dubai Goverment. It operates independently, raises debt and financing independently and makes all decisions as a fully private organization. And hence is one of the best run airlines in the world
Can I ask the author why does he think that it's not the responsibility of the government to run businesses. Some businesses are too strategic to be handed over to private sector. Case in point is airline. The most successful airlines in the world (Emirates and Singapore) are run by the government. They are successful because they are run by the government not inspite of it. All of the successful railway enterprises in Europe are run by the governments while the failing railway structure in USA is run in private sector. The list can go on. In Pakistan privatisation is only being undertaken to reward friends who financed the election campaign. The reason we got into this power mess is because people like the author advised the government that it's not it's job to produce electricity and how wrong they were.