The State, Industry and Commerce – II
The Nawaz Sharif government has made some very laudatory and swift moves towards freeing the economy, speeding up the process started by Junejo in 1985 and continued by Ms Benazir. Open-ended incentives for locating projects in the rural areas can only encourage rapid industrialisation. Demographically speaking, it will initiate population shift back to the rural areas. Bureaucracy’s control over the granting of permissions having been reduced in the “sanctioning of” part, the Empire will strike back (to reassert their authority), probably by making utilities unavailable. The politicians ability to cope with the bureaucracy’s capacity to filibuster will be the acid test of the economic will of the new Administration, a hard rock on which the PPP wave floundered.
Overturning the policies of years of indolence, corruption and neglect, one must not go overboard and throw caution to the winds, we remain a Third World country and despite the economic logic of free market forces some State intervention of sorts in critical areas remains a must. 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 the greedy.
Passions aroused by the despondency and desperation of the masses because of their dire economic plight were harnessed by Z.A. Bhutto into a political asset by keeping them within reasonable control. Unfettered exploitation of the 60s kind will lead to massive social upheaval, the continuing misery of our masses is ripe for organising such a convulsion. Pakistan is fortunate in being a land of great opportunity, unfortunately rank opportunists have laid bare the cupboard of our great potential.
An advertisement by the Karachi Cotton Association (KCA) in the Business Recorder on Monday December 17, 1990, says it all, three earthen vessels representing Cotton Export Corporation of Pakistan (CECP), Rice Export Corporation of Pakistan (RECP) and Trading Corporation of Pakistan (TCP) lying upside down while that representing Muslim Commercial Bank (MCB) was shown right side up, symbolically conveying the businessmen’s appreciation of the Government’s decision to privatise MCB while indicating the three dominoes in the public sector still to go. Business overkill seldom takes into account residual after-effects, labour has the potential of disrupting the ongoing economic life of the nation. Case in point, the continuing tribulations of Gorbachev, who, in contrast to Deng Xiaoping’s cautious moves in keeping economic emancipation running ahead of political freedom, has tried to change things too fast, Glasnost ahead of Perestroika, thereby causing upheaval, encouraging reactionary forces to regain their lost power.
The landmark decision to allow regulated banks in the private sector by the Nawaz Sharif government goes beyond the investment bank concept for mobilising internal resources, a pleasant surprise in our national ambitions to bring the commensurate rewards of a free economy to the masses. While it was most necessary to resort to denationalisation/privatisation of Nationalised Commercial Banks (NCBs) to revitalise the economy in the absence of private commercial banks, this latest decision has made that earlier plea infructuous, it would now be absolutely wrong to still go ahead. Nationalisation was necessitated primarily because of the robber baron attitude of some of our elite businessmen, efficiency and service may have gone down because of bureaucratic practices and lack of competition, but a large number of bank branches were opened for socio-economic reasons, covering the population of our vast, extended backward areas, who normally would be denied this service.
Free enterprise only gives lip-service to the broad mass of the poor since small accounts mean more work and less profit, our businessmen have seldom shown great social conscience. Private sector will terminate the employment (as unacceptable overheads) of the large number of people employed, even efficient ones may be replaced by their own favourite and trusted personnel. Nepotism may be present today, in private hands it will become endemic. If the NCBs do not improve themselves they will become a natural prey to the pressures of free market forces, losing key personnel to the new private commercial banks.
Disinvestment/privatisation experience in Pakistan in respect of the ventures going through the process over the past 5 years has been singularly dishonest. The sale of the Hotel Intercontinental Chain (Pakistan Services Limited) to Sadruddin Hashwani qualifies as the scam of the century. Hashwani himself can hardly be faulted for getting the better of a sweetheart deal (after all that’s what business is all about, ethics aside), the fact remains that billions of rupees of real estate, a profitable running business and enormous commercial goodwill was handed over for mere pittance (few millions), nobody asks the questions how and why? One has heard tales about the Eiffel Tower being sold by a con artist (notably Henry Wilson, and twice), what do you call those who really sell the Eiffel Tower for pennies? If somebody is gullible enough to give away the State’s (or PIA’s ) candies in this manner, how can (and why should) we fault the recipient? More good luck to him!
If private entrepreneurs were to open the number of bank branches that MCB has — located on the real estate that many of the branches are now positioned (and even if we were not to take into account the business and the goodwill that MCB has or the expertise in its present staff), it would cost not less than Rs 15-20 billion. The way the sale of MCB has been contrived it would fetch the government exchequer less than Rs 1 billion in outright majority purchase. Any self-respecting drug smuggler could raise that type of money without batting an eyelash (or running up a sweat) and then have a ready vehicle for money laundering till Kingdom Come. No amount of platitudes by the government that the respectability and antecedents of the businessmen aspirants concerned would be ascertained will be effective, how many times has history been witness to the concept of front men? Money buys a lot of goodwill, if it is not drugs, it could be gold, anybody could be fronting for them, the handing over of these vast financial resources (and logistics) carries unlimited risk, a potential unmitigated disaster for the country.
The cure for the malady of the increasing militancy of the Unions of the NCBs does not lie in killing the patient. Cornered thus, fighting for their livelihoods, can anyone fault the staff for aspiring for their survival? Any confrontation will cripple the financial foundations of an already tottering economy. The government’s privatisation move will be possible because (the rumours say) MQM support will nullify the Union strength. In the face of MQM’s oft-stated principles it should be interesting to see them allying with big business, one dare says politics makes for strange bedfellows. In the grip of a self-inflicted economic doldrums complicated by a gulf enforced worldwide economic crisis, are we ready to commit economic hara kiri by engaging in a battle that we could (and should) avoid for many reasons?
A litmus test in checking antecedents of aspirants for opening private commercial banks could be the amount of individual and corporate income taxes paid by the aspirant over the past decade to be the legitimate ceiling of shares possible in a private bank. When a group of businessmen can give evidence that they are cumulatively good as a consortium for Rs 1000 million, let them go ahead and make a private commercial bank. Allowing those who have been dodging taxes to channelise their ill-gotten or ill-contrived wealth into the vehicle of private commercial banks is not morally correct.
The malady lies in the operation of the banking system rather than the original concept of the NCBs. Senior banking executives have to invariably look over their shoulders at some entrenched demigod bureaucrats in the Ministry of Finance, how can we blame them for responding to the various financial requirements of our politicians? The fault lies mostly in the governance, not so much in the governed, one should not get carried away and shoot the victims in place of the oppressors. The Pakistan Banking Council (PBC) should be made into a banking cell within the State Bank of Pakistan (SBP) having all its employees drawn on tenures from the NCBs.
Very much like the Chairman Federal Reserve Board in the USA, the Governor, SBP, must be appointed for a fixed tenure of six years and answerable to the Parliament which must have the power of confirming his appointment or impeaching him (or her) by a two-thirds majority if he [or she] should not be found worthy of his/her appointment. Freed of political coercion the Governor, SBP will be able to ensure the same of the PBC and its constituent banking units. The NCBs have a niche in our economic future which must not be eroded at the altar of vested interest. Taking the PBC out of the domain of the Ministry of Finance and putting it under the tutelage of a truly independent State Bank Governor would solve the problems inherent in the banking sector, the government’s (whether authoritarian or political) penchant for influencing the award of loans, bad loans made on political basis being the bane of the NCBs.
The government’s decision to denationalise/disinvest MCB is correct insofar as the logic of free market forces go, in terms of pragmatism it is wrong. Free market force rather than government fiat should decide the fate of unprofitable ventures. In the fact of the current economic situation, the decision will cause the elected government to come to grief too early in its tenure and must be reversed forthwith. The State should normally never intervene in the business of the country but certain exceptions have to be made out of political discretion and the overall national interest.
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