Privatise, but Carefully!
Pakistan’s golden economic years were the 60s. While there were aberrations, e.g the disproportionate distribution of wealth among only a handful, they were nowhere as serious as those confronting the nation today. A mixed economy with benevolent central direction was a model for the other emerging economies of Asia. Today we will be lucky if we can regain any semblance of the momentum lost to us over the past three decades. By the early 70s, despite the fact that it had become quite apparent that the concept of socialist economy was a dismal failure and many of those countries that had followed the romantic notion of socialism under the leadership of charismatic leaders were already re-thinking their economic strategy, we started to head pell-mell in that direction. The first major breakaway from the pure socialist model was the Peoples’ Republic of China, which under Deng Tsao Peng started to gradually brake and reverse the socialist Soviet model and by the early 1980s was well on the road to a mixed economy. In retrospect it seems they followed Chinese cousin Lee Kwan Yew’s Singapore model of the late 60s/early 70s on a far bigger scale. The far smaller Island-State provided the blueprint for opening the economy to free enterprise with public utilities under State control, at places in partnership with the private sector. The leaders of both Singapore and China were careful to keep the opening up of the economy ahead of the loosening of controls over freedom lest the public’s aspirations overcome achievement. In the early 80s Thatcherism was born when Margaret Thatcher established her policies on the dual Chinese experience (Singapore and China), to quote “when you copy from one person it is called plagiarism, when you copy from many it is called “research”.
The father’s penchant for sweeping nationalism has only been transcended by the daughter’s for complete privatisation, an orgy of extremes and excess, both at the wrong time. Late Zulfikar Ali Bhutto at least had his own vision, neither Ms Benazir’s vision or her objectives seem to be her own. Bhutto went about dismantling Ayub’s economic legacy with wholesale vengeance but this paled in comparison to the bureaucratic excess during Zia’s Martial Law that followed. Given a veritable treasure package to handle, bereft of political control and with the military men-in-charge having no sense of economics, bureaucracy went berserk in personifying the worst of Soviet-model control in industry, ushering in inefficiency, pilferage, corruption, etc in so rabid a manner that despite free-wheeling movement towards free enterprise over the past 5-6 years we cannot stop our economic slide downwards. One saving grace of the Soviet model was that those corrupt or profligate with the public money or property faced firing squads, has any of our corrupt managers in the 1977-1985 period faced any punishment?
Without exception all the emerging economies of Asia (other than China) such as Japan, South Korea, Taiwan, Singapore, Thailand, Malaysia, Hong Kong and Indonesia are mixed economies where strategic economic assets remain firmly in public hands, albeit in some cases in partnership with the domestic private sector. Whether it is electricity, gas, telecommunications, public transportation such as rail, ferries, etc, there is no foreign majority ownership of any public utility services in any country. Singapore Telecom, Singapore Mass Rapid Transit (MRT), Singapore Airlines etc all have State control over majority shares. In the realm of finance, can anyone name any financial institution in the “Asian Tigers” where public shares have been taken over by “strategic investors,” the code word for foreign dominance of ownership/management? On the other hand, it has not been that easy for foreign banks, etc to open branches in some newly emerging economies? BCCI made futile efforts to open a branch in Singapore at the height of their 70s success story. To protect the rights of a vast majority of common citizens, “free enterprise” has been monitored in a sophisticated manner from being exploited by so-called MNCs and/or their vagaries. Where are the teachings of Islam where it is the responsibility of the State to ensure that the basic wants of the poorest citizen is provided for? With the price of electricity and fuel what they are, will the common citizen be able in the future to afford light and/or heat?
The US is not a good example in the first world since most of their utilities started as private companies in the first place and were thus “privatised” at the outset, entrepreneurs taking calculated risks, many came to grief, many also succeeded. UK and Europe serve as better examples to illustrate the point. Can anyone name any major utility that has been given over to “foreign ownership” or even to a “single company entity”? Thatcherism involved gradually selling the shares of the nationalised companies to the general public, in many cases keeping some shares under State control on behalf of the public. In this manner when British Telecom, British Rail, British Gas, etc were “privatised” i.e. instead of shares going into foreign ownership or even under single domestic control, the general public got a stake in the assets disinvested by the State. This was the way we started to disinvest PIA and PTC, we should continue that policy. Countries like France, Germany, Italy, etc have many sectors still under State control or privatised in the Thatcher-manner to many domestic investors. Foreign entrepreneurs are encouraged in the utilities sector but the investment is for new ventures, not making over the majority shares of the existing ones.
Given the practice in both the first and third worlds of a conservative approach to foreign dominance in basic utilities, what is the demon that drives Pakistan to sell all its assets, ostensibly under IMF tutelage? There is a saying, “only fools rush in where angels fear to tread”, never is it so applicable than to the planners of both the democratic regimes included that do not realize the consequences of inviting modern “East Indian Companies” to take over this country’s strategic assets. There is reason to privatise, State control is centralized and inefficient, it breeds nepotism and corruption but it is far better than economic subjugation by others. There is also reason to privatise so as to pay off our debts but if the new liquidity is used as working capital to cover the deficits for the present Budget then there is nothing more counter-productive. The Chairman, Privatisation Commission (PC), has said that US $ 200 million has been used for debt retirement and all privatisation proceeds will be used for that purpose from June, why not immediately and what will be left to privatise in June? $200 million is less than 1% of our existing foreign debts, in any case this was used to pay off internal debts. Once MNCs have a vested interest in the country they have a penchant for interfering in domestic politics/influencing bureaucracy so as to maintain their profits, which they almost never invest within the country, at least in socio-economic infrastructure. Have any MNCs doing business in Pakistan invested in social projects like making educational institutions, hospitals? From time to time they make token offerings to various projects but never a complete package.
Above all, what about the common citizen whose interests will hardly be safeguarded if the utilities are sold off to “strategic investors?” To give examples, the air and train fares are subsidised to many destinations so as to be within reach of the pocket of the poor man. If fuel, telephone, electricity and other consumer-usage prices are at the mercy of foreign investors where the driving force is profitability and profitability alone, particularly if they have a monopoly, would the State be able to maintain a subsidy when the cost rises, on a commensurate basis? Would MNCs be amenable to socio-economic initiatives which is the responsibility of the State?
To summarize the options available to our planners, viz (1) it is necessary to privatise many sectors that were wrongly nationalised by the first PPP regime in the early 70s, (2) it is also necessary to privatise utilities that are not of strategic importance to Pakistan, (3) privatisation in utilities sector must be in public-private partnership so as to safeguard the interest of the common citizen, (4) it is extremely important that in areas that affect national security instead of searching for “strategic foreign investors”, we gradually disinvest shares to the general public on the Thatcher pattern, (5) some sectors must remain under State control without any participation of foreign investors, (6) all funds generated by privatisation must be earmarked for debt retirement to the exclusion of all else, (7) privatisation must be a transparent process that must require domestic “strategic investors” to declare their source of wealth and taxes paid over the past 15 years to the national exchequer, (8) a pragmatic balance is required between the public sector domain and the private sector to have a genuine mixed economy and (9) foreign investment must be encouraged but for new ventures, not for existing ones.
Governments cannot act like Commission agents who have no interest as to what is being sold or purchased and at what price. The interest of commission agents is a vested one, of their own pockets only, not of the country. For them whether an economy is private, public or mixed makes no difference, the sale or purchase at any price supersedes all other considerations. Furthermore, what can be more satisfying than pocketing profits from the sale of something that does not belong to you?
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