Privatisation
(This is FIRST of a series of TWO articles on the subject)
Margaret Thatcher showed the way to history’s greatest divestiture of state-owned assets in 1979, setting Britain off on the road to privatisation of US$ 68 billion of government or nationalised property. Governments across the world have engaged themselves in the 90s in fundamental economic reform, adopting Thatcherism as a functioning role model.
According to reliable reports, 160 state-owned or nationalised industrial or commercial enterprises are up for sale in Pakistan, TIME magazine putting the value of Pakistani state-owned portfolio at US$ 30 billion, employing 1.6 million people. With the sale of the Muslim Commercial Bank (MCB), the government has taken the first gigantic step in that direction despite a cabal of bureaucrats making an unlikely alliance of convenience with the Employees Union to resist denationalisation of banks. The majority opinion is that the private sector must play the dominant role in infusing dynamism in the economy, disruption by vested interests that want to retain power and patronage derived from this vast industrial empire is more than likely. In Pakistan, credibility for the privatisation effort is gained by the fact that a former high ranking bureaucrat, once solely in charge of the economy for many years, is now the President of Pakistan and a former colleague of his is the Finance Minister presiding over the proposed disinvestiture. Finance Ministers of the Third World all want to reduce the enormous budget deficits that have mainly resulted due to the Public sector being proven inefficient in running industrial and commercial enterprises, complicated by endemic corruption and back-breaking overheads due to nepotism and favouritism, susceptible to dictation by a work-force that has an unreal penchant for Union activity rather than in productivity. There is whole hog abandoning of the philosophies of Karl Marx in favour of Adam Smith, Margaret Thatcher is the new Guru, yet no magic wand exists that can wipe out the years of slothful practices in one sweeping wave. There must be liquidity among the commercial elite (and the masses) to purchase what comes on the market block, backed up by liquidity among the banks to pump money into the revival of sick industries. As lay-offs increase, there is a possibility of passive resistance turning into militancy, inflationary pressures turning the protest into anarchy. Despite being an economic giant, within months the once-mighty West Germans have been dragged down after re-unification into an abyss by the depth of East Germany’s economic plight.
The Soviet model worked as a great beacon to the newly independent nations of the Third World in the 50s and 60s. The Soviet Union is now in economic tatters, catastrophic for the many countries that had adopted the route of socialism. Many of the Aid Donors are themselves facing recession and have reduced external aid, whatever meagre amount is available is being redirected to communism-devastated Eastern Europe. Tough standards have been set for Third World countries to qualify, certainly this did not seem to be the intent of George Bush’s “New World Order” but increasingly the Third World is beginning to feel that credit and grants would not be relatively easily available anymore, countries failing to come upto standards laid out by the US (and other developed countries) would not be recipient of any more largesse. High on population and low on industrialisation, this is a horrendous situation for Third World countries to contemplate, lack of raw material would complicate this even further for many countries.
Wholesale adoption of the Thatcher model for privatisation may not be suited to countries like Pakistan. The environment for privatisation was quite different in UK than that obtaining in Pakistan, even there the process took over 12 years and was not complete even when Thatcher left office. The socio-economic infrastructure of Great Britain in 1979 was far more advanced than in Pakistan in 1991, the literacy rate was higher, the market economy was well-used to foreign exchange transactions, the stock market was well-established, there was a net inflow of funds from foreign tourists, etc. In contrast, Pakistan has excessive population coupled with accelerated population growth and multifarious social and political problems that have divided society providing for a bad security environment. While UK was able to withstand the loss of jobs, not more than 5-10%, and employees were cushioned for a period through social security and compulsory savings, the loss of employment in Pakistan will afflict a greater percentage without the same capacity for absorbing shocks. Breakdown of social order into anarchy in this fashion has many precedents in history.
There is no alternative to denationalisation, deregulation and privatisation if we are really serious about reinvigorating the economy, yet we must approach the process with caution, tempered with due respect for our own peculiar circumstances, prime among them that we already have a large unemployed work-force and that there would be a social and political risk in coping without having some sort of a solution in place. The present economic confusion in the Soviet Union is an example of planning after the event. Indolence, corruption and neglect have been endemic under bureaucratic fiat, yet despite the economic logic of free market forces, State intervention remains necessary in certain critical areas to protect the masses against economic exploitation. The solution lies in injecting private sector individuals under contract into management of key public sector units. “Our socio-economic structure has not achieved the sophistication necessary to protect our large middle class and the millions of poor from the vagaries of the few rich and greedy”. THE NATION, Dec 25, 1991. The continuing misery of our impoverished masses is ripe for the notorious and/or the unelected to organise social convulsion. A land of great opportunity, rank opportunists have laid the cupboard bare. How many of our traders resist raising prices during Ramzan?
Whatever may be the cause of overstaffing of industrial and commercial enterprises, the moral responsibility for both the white and blue collar workers employed by these units remains that of the Government. While Mr Sartaj Aziz has worked out a mechanism whereby the public sector’s 1.6 million employees would be guaranteed their jobs for a year or so, the social conscience and responsibility of our industrial and commercial elite is suspect, it would be too much to expect them to live upto any such agreement even in spirit what to talk about the letter of the agreement for even one year-and after that one year, what then?
While one may well argue that Government must not get into the business of imposing mandatory pay rises (it should definitely impose minimum wage restrictions), the fact remains that less than 1% of the private sector entrepreneurs gave their employees the Rs.200 pm raise made mandatory by the Government in December 1990, not even the nationalised banking sector. The welfare of the employees must remain paramount when handing over the units to the private sector, job security has to be ensured. In USA, the heart of capitalism, where hiring and firing is an employer dominated prerogative, great sensitivity is shown for the employees by a series of legislations meant to protect their legitimate rights. At the same time, throwing a large number of units on the block for sale may result in reduced prices, made more complicated by the lack of market absorption capability.
The first priority should be to allow more banks in the private sector to increase liquidity required to support wholesale takeover of the impoverished public sector. The Government of Pakistan (GoP) has made a shrewd first move in dismantling foreign exchange regulations, making Pakistan a free exchange area, pre-requisite for encouraging private foreign investment. This will certainly attract money away from the parallel black economy into the economic mainstream and thus increase domestic liquidity. Foreign investors will be attracted if they are convinced that the security environment will not deteriorate. So many countries are going the same route that foreign investment may remain scarce even if they are willing in spirit to invest in Pakistan.
GoP has also to honestly decide what is their AIM ? If the aim is to reduce deficits by earning money for the Government coffers by selling off State-owned property to the highest bidder then that is a short-sighted intention. The correct aim should be to reinvigorate the economy by bringing in the dynamism and enterprise of the private sector, the objectives being to (1) refurbish the depleted GoP treasury (2) avoid recurring drain on Public funds (3) bring performance-related incentives to the work-force ensuring protection of the legitimate right of the work-force for continued gainful employment. Reconciling the aim and objectives into commercial harmony will make for a useful stimulant to the economy. GoP must ensure that there is no hint of vested interest running amok, if the people of Pakistan believe that the whole privatisation exercise is to divide the spoils among the selected few, the entire operation will collapse in acrimony and confusion. What happens to the economy thereafter is anybody’s guess, we could be in far worse shape!
Any misstep would mean that we might yet require wheelbarrows to take currency notes to the bakery to buy a loaf of bread.
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