Privatisation and white knights
(This is the CONCLUDING part of a series of TWO articles)
Protecting the legitimate rights of public sector workers while inducting private entrepreneurs into a dominant role in dismantling the public sector will take some doing. Even if our commercial and industrial “tigers” had the social conscience to persevere with a surplus work-force they could not economically do so. Overstaffing, financial benefits without relevance to performance and general mismanagement have rendered our public sector enterprises into dying white elephants. To survive as economically viable units, they will have to (1) shed workers and (2) revise pay structures and benefits. All this carries great social and political risk, accentuated in the absence of employment opportunities and social institutions meant to buffer the shock of unemployment.
To swallow this bitter potion, a pragmatic step has to be taken that may not be entirely in consonant with the concept of free market enterprise, nonetheless it takes into account realities that exist. Hidebound by solutions that are theoretical in nature will be counter-productive to creating the environment necessary for economic emancipation. To put it bluntly, the exercise can be compared to a deep sea diver being brought to the surface, if brought up too fast the “bends” just might kill the diver.
The first priority is to reconcile (1) the shedding of surplus staff with (2) inducting management that operates on a commercial wavelength rather than bureaucratic requirements while (3) obtaining the requisite market price for the public sector units and (4) having enough liquidity to run them effectively. One has to dispassionately evaluate the professional capacities of the rank and file running these units. Whether it be an industrial or commercial enterprise, management and workers have a proven capability in running these units, whether profitably or at a loss, they have performed, have on-hands experience and know each other’s capabilities over the years. This work-force must be encouraged to jointly make a bid for the units in which they are employed. The essence of private sector enterprise is risk, one can well argue what is the inherent risk that the management and labour undertake in the absence of a free market atmosphere?
All public sector employees units have elaborate salary and pension schemes, etc, on termination, they would be given a “golden” handshake. By free exercise of their choice, management and labour must first decide whether (1) they want to invest (and risk) their financial future in their own enterprise (2) if the note is positive, then those opting should decide who would be their managerial representatives in conducting negotiations for the “Consortium” thus formed, work out a realistic wage and benefit policy for themselves and “freeze” it for the time being. Those who opt out of this scheme should be given a “golden” handshake. In this manner, the work-force will be reduced to some extent in the first stage. Those that remain in the Management-Labour “Consortium” must be given “provisional shares” depending upon their financial input i.e. the value of the “golden handshake” they would have received and which they are pledging as their contribution to the “war chest”, the cumulative amount to be used to make a bid for the unit in question. If the WAR CHEST matches the government’s reserved price, the solution is easy, however this may not be possible in many of the units. In that case, the Consortium must look for financing from Development Financial Institutions (DFIs) to back-up their efforts, some public sector units being profitable will make this process relatively easy. DFIs must be convinced, either by previous knowledge or ascertainment, whether the Consortium has the necessary credibility and expertise to run the particular unit profitably. The Consortium has also the option of negotiating with a private entrepreneur to financially support their bid. Aspirant private entrepreneurs can enter into direct negotiations with the Consortium to (1) get to know each other (2) decide upon the financial parameters of their proposed cooperation and (3) once decided upon, to make a joint presentation to the Government.
The Government should appoint a neutral umpire with integrity and some knowledge of Commerce, to ensure that the (1) legitimate rights of GoP and workers are protected (2) Consortium makes correct representations to the private sector, entrepreneurs and vice versa and (3) continued profitable commercial and/or individual activity is safeguarded. The private sector entrepreneur evaluates whether the risk in collaboration with the Consortium is well worth it, the Consortium decides whether they can live with the expertise and expectations that the private sector suitor is offering. It becomes a “marriage of convenience” where both parties get to know each other before they get down to consummation of the “marriage”. The union, thereof, may not be made in heaven, it will be more natural than artificially forcing a decision down the throat of entities that are the ones most affected viz (1) the work-force (2) the private entrepreneur. While the employees are risking their “Employees Stock Option Plan” (ESOP for short), the private entrepreneur is the WHITE KNIGHT who comes to the rescue of the ESOP participants.
It is a critical exercise that needs judicious adjudication and careful implementation so that the parties concerned apply the right managerial expertise for correct economic exploitation of the units leading to profitability. The WHITE KNIGHT must be chosen by (1) inviting applications from prospective entrepreneurs and then (2) short-listing the applicants looking at their financial expertise, business acumen and credibility. One of the problems with Mergers and Acquisitions in USA and the developed world was that more often than not the supposed WHITE KNIGHTS who came to help the besieged firm against the “Raiders” sometimes turned out to be DARTH VADERS, breaking up the commercial or industrial enterprise into saleable sub-units and selling these for a profit and then putting the remainder in turn again on the block at market basement prices or worse, letting them slide into bankruptcy. Commercial and industrial enterprises are staffed by human beings and are no less living entities themselves. Unprofitable ventures may be spun off, selling off profitable units usually means a kiss of death for the remainder. This falls within the realm of exploitation as this is not business in the main-line sense but pure speculation. The US economy is going through a fine-line recession because instead of regular businessmen, wonder-kids of the MILKEN-kind, who are basically gamblers, pushed up the stock market prices artificially, putting the besieged management under financial pressure. In order to stave off the Raiders, the management usually resort to heavy borrowings from financial institutions to purchase the shares to build up their ownership level, thereby pushing the share prices up further, making their enterprises debt ridden. The Raiders themselves also borrow heavily to mount their financial attack for control and thus in either of the cases it is the enterprises themselves that eventually end up laden with more debt, resulting in the demise of many once-healthy industrial and commercial enterprises.
GoP would do Pakistan and itself a great favour by avoiding this internecine warfare and carefully screening the White Knights so that DARTH VADERS do not step in to destroy the remaining effectiveness of the already strained public sector units. GoP missed a chance when privatising MCB, perhaps it could try this experiment with the Allied Bank of Pakistan, which one believes is next on the auction block. Many checks and balances have to be put into place, one can do this better with private sector financial professionals with Merger & Acquisitions experience rather than a Committee heavily loaded with bureaucrats without any business clues except for their own personal gain. In effect these characters are the Pakistani version of creeping Raiders, the PILFERERS.
Nobody doubts that privatisation is necessary, what is to be avoided in the uncertain market conditions is that either of the extremes is to be avoided, viz (1) open bidding for the public sector units with the units going to the highest bidders or (2) units being handed over to the employees without ascertaining their management and financial capability in running the units successfully. Economic emancipation is possible only through a genuine merger of private entrepreneurship with a dedicated work-force. The bottom line is that a genuine mix of interests is necessary to revitalize the public sector, given sincerity, goodwill and honesty of purpose.
We have surplus of cash crops like rice and raw cotton, etc earning foreign exchange, we are blessed with plenty of raw-materials and the basic infrastructure for advanced industrial ventures. Pakistan is self-sufficient in food, above all, we have a dedicated manpower that responds well to motivation and clear objectives. How can we fail unless we fall back to the office-bound version of dacoits (or PILFERERS) who will certainly like to subvert the process of privatisation for their own selfish, greedy motives?
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