Privatisation matters

Privatisation is an issue of political economy. Political rather than economic arguments decide fate of privatisation

The question of privatisation is a divisive one. Debates about the issue are often reduced to dances around dogma. Opponents and proponents take it as a given that their position is one based on theoretically and empirically proven facts. Statistics and examples from foreign lands are proffered in support of one’s position. Heavy reliance is placed on difficult to refute counterfactual claims. Appeals to the national interest are made. The consequences of action or inaction are painted in vivid and frightening detail. Rarely does one comes across a nuanced discussion of the many trade-offs that need to be made in the event of any decision. Privatisation will result in winners and losers. We should know who these are and will be.

Privatisation doesn’t affect all Pakistanis equally. Not all feel they have a stake in the debate. Pakistan’s rural heartland doesn’t seem particularly interested. The urban poor don’t care. The domestic servant, toiling from dawn to dusk in our cities isn’t unduly worried that the state’s silver is being pawned off. Those in private sector employment seem quite sanguine. If feathers are being ruffled, it is those of politicians (of all political stripes) and of the employees and managers of the public sector enterprises/corporations that the government is proposing to privatise.

The issue of privatisation doesn’t affect all Pakistanis equally because Pakistan is a highly unequal country. There is stupendous inequality in the ownership of wealth. And there is great inequality in the access to opportunity that different Pakistanis have. According to the SBP, the top one per cent of depositors own 80 per cent of the deposits. Around 26,000 farmers (less than half a per cent of the total) own almost 15 per cent of the land. The fortunate few who control this financial wealth eagerly await the chance to pick up state assets. Those contemplating privatisation must ask themselves whether the sale of state assets at this point in time, when those who have the wherewithal to buy these assets are such a small minority, will serve only to further increase inequality in our country?

Pakistan’s education system is also highly unequal. Very large segments of our population (and consequently the labour force) are illiterate, and many of the nominally literate are functionally illiterate. The public sector is a large source of employment for the poorly trained and poorly educated. Of course, the vast majority of those who are poorly educated or low skilled have these disabilities for no fault of their own. It is the state that has let them down. And short of a G.I Bill (the United States Servicemen’s Readjustment Act 1944) type of effort to retrain and educate them, these people will remain poorly educated and lacking in useful job skills. Therefore, those contemplating privatisation must ask themselves who will play the role of employer of last resort when the government can no longer do so?

Part of the reason that state-owned enterprises can afford to hire relatively unproductive labour, whilst the private sector cannot, is that the profit motive is not the raison d’etre of such organisations. A middle ranking employee of OGDC recently asked me why the government would want to privatise an organisation that earns it Rs124 billion a year in profit? He seemed genuinely perplexed. And the question is a good one. It is unclear if the government has a good answer.

One plausible part of an answer involves the concept of opportunity cost. This is the cost of an opportunity foregone because of the use of resources to pursue a certain course of action. The capital that is tied up in the OGDC balance sheet could be put to many alternative uses. Rs750 billion would go a long way to solve our energy, education and infrastructure problems.

Our public sector enterprises supposedly belong to each and every Pakistani, but once again the ‘ownership’ of these state assets is highly unequal. Ownership of an asset entitles the owner to certain benefits. The right to these benefits is what makes the asset valuable to its owner. So what benefit does the common citizen derive from state ownership of corporate assets? Does he or she get cheaper air travel by virtue of being an ‘owner’ of PIA? Does he get better service or a greater choice of routes and destinations? Does the ownership of Pakistan Railways confer upon the average citizen the right to clean and punctual train travel? Those who push for a retention of public ownership must ask themselves how truly ‘public’ this ownership really is.

So who benefits from the state’s ownership of these assets? Who is the ‘owner’? Is it the employees of these public sector corporations? Perhaps, it is the senior management? In many cases, employees and management get more generous perquisites than their private sector brethren and for less demanding work. Opportunities for corruption and outlawry abound, job security is assured. And what of the government and the political fraternity? The most common, pressing and persistent demand placed upon a public representative is the demand for a job. Voters want jobs. And politicians struggle to give them. Thus the opportunity to place a handful of supporters in public sector jobs is a valuable one indeed. Each and every political party that has held the reins of government has presided over an influx of party supporters into public sector employment.

And while ownership of an asset certainly entitles the owner to certain benefits, the costs of ownership also accrue to the owner. So who bears the costs associated with public ownership of the state enterprises? In theory, these costs should be borne by each and every Pakistani citizen. And to some extent, this is indeed the case. When state-owned enterprises are unable to cover their cost of operation (or debt servicing), the government borrows to make up the difference, and government indebtedness increases. This increased indebtedness must be paid off by present and future generations of Pakistanis. And to the extent that governments impose indirect taxes, most of us do end up paying for today’s profligacy. But once again because Pakistan is a highly unequal country, a disproportionate burden falls upon those who pay direct taxes, such as the income tax. At last count, there were around half a million such souls in the country.

Privatisation is an issue of the political economy. But just as politics precedes economics in the term political economy, political rather than economic arguments will decide the fate of the privatisation effort. Whether or not this is a good thing, time will tell.

Published in The Express Tribune, January 11^th, 2015.

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