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The Case for a Mixed Economy

A large number of Asian and African countries got independence from their European rulers in the 50s and the 60s. Since socialism was in the forefront in shrugging off the yoke of imperialism and capitalism, almost all the leaders were ideologically socialist. Socialism was the romance of the times. Invariably the nationalist leaders followed the Soviet model in their economic thinking, inevitably it led to disaster for their respective economies. While they were certainly right in maintaining that the State had a responsibility to safeguard the socio-economic rights of the common citizen and look after their welfare, by shunning free enterprise altogether they created an inefficient system without any incentive or motivation. The monarchical prerogative of appointing managers was replaced by the qualification of individual loyalty to the socialist system irrespective of ability. Over the years, concentrated education ensured that managers of better quality were created in Soviet Russia and Communist China but those also fell away eventually without incentive. Countries such as Zaire, Angola, Uganda, etc had very little experienced managers among locals at their respective independences. The exodus of expatriates devastated their potential. The most potent example of a sea-change in change in thinking is that of Nelson Mandela, who realized that the loss of white managers would send South Africa into the darkness as had happened to many African countries despite being rich in resources. On the surface, Mandela made a historic black-white compromise, in real sense he compromised on ideology for the economic sake of the people, opting for a pragmatic mixed economy instead of the ideally romantic pure socialist concept. Mandela had the advantage of the Zimbabwe experience to back his ideas, not so leaders like Nkrumah, Sekou Toure, etc who took their people into darkness while promising them light. Desperate to be considered one of the great non-aligned leaders of the 20th century and egged on by socialist ideologues like J.A Rahim, Mubashar Hasan, Shaikh Rasheed, Mairaj Mohammad Khan, late Zulfikar Ali Bhutto took us down the nationalism route into economic disaster in the early 70s. In his defence one can only say that he did rein in rampant capitalism that saw inordinate wealth concentrated in the hands of only 23 families, he simply went too far in his nationalisation binge.

Merit is the touchstone of a capitalist economy in supersession to all other considerations. However, there is considerable disparity in the concentration of wealth in Pakistan despite the distribution over a wide spectrum attempted (to his credit) by Bhutto. Above all there is very little documentation to support a merit-based purely capitalist system. In a country of 120 million people, there are hardly 1.5 million tax-payers approximately 750,000 salaried and 750,000 non-salaried. Approximately 1 million rural land owners are outside the tax net as well as another 2-3 million entrepreneurs. In effect, wealth is concentrated in the hands of 5 million heads of families, of which only 1.5 million (slightly more than 1% of the population) bear the burden of the rest of the country. If an average family/family group comprises 5-10 people, the entire nation’s wealth is thus in the hands of 25-30 million people while almost 90 million live below the poverty line. Unfortunately 90% of the country’s utilities are used by the 20% of the population who can afford it but rarely pay for it, thus putting the utilities in danger of individual bankruptcy. The balance 10% of the resources is left to be used by almost 80% of the population, regretfully whatever is available those poor people cannot afford it. The danger is that if we follow unrestrained capitalist policies of having little affinity between buying power of the populace and price fixation based on profitability alone. The entire salaried class of 1.5 million people, having about 10-15 million dependents as well as considerable middle class of similar number i.e. a total of 30 million will also NOT be able to afford water, gas, electricity, transport, telephone, etc. The inordinate rise in utility rates recently, particularly electricity is exceedingly ominous. Almost everyone who reads a newspaper has been affected by it, what to talk about these who cannot even afford to buy a newspaper! In such circumstances, State has a fundamental responsibility towards its citizens.

Socialism worked very well in the Soviet Union, the COMECON countries and China in the first generation, its effects started to dissipate as nepotism and corruption crept in to bolster inefficiency in a centralised system without motivation. By the second and third generations, party apparatchiks were mostly privileged scions of the survivors of the first generation, they took on the trappings of the same royalty that was anathema to a Socialist system. Enterprises, whether public or private, can only work if their managers are good. For Pakistan, a symbolic example is PIA, known in the late 60s and early 70s for its excellence. Air Marshal Nur Khan (and later Mian Rafiq Saigol), selected above average managers and PIA became one of the best airlines of the Third World, its corporate excellence only surpassed by its superior services on or off the ground. Today the same PIA is in a holy mess because of years of being overly staffed by political appointees, the merit system being ignored for promotions which are mostly based on favouritism and/or nepotism. Despite having had excellent Managing Directors like Arif Abbasi, Nawaz Tiwana, etc and brilliant senior managers of the calibre of Khurshid Anwar, Saleh Tareen, Safdar Rizvi, Jaleel Tareen etc, all of whom who rose up the ladder within PIA, the airline has gone into decline. As the realisation dawned upon PIA executives and staff down the line that Client-Patron relationship mattered much more than performance, incentive and motivation went out of the window, to be replaced by centralisation in every department, adding to inefficiency and corruption. Over staffed, badly managed, prone to political manipulation, PIA serves now as a bad example of State control where the Chairman and MD are under remote control from Islamabad. The executive management of the 70s has given PIA enough corporate momentum to remain an enterprising player in Pakistan economics. The disinvestment of 10% of PIA shares to the general public provides another example of disinvestment gradually to a genuine public-private partnership that can grow in a mixed economy.

For the foreseeable future, countries like Pakistan have no option but to go for a pragmatic mixed economy in which services vital to the common man remain in public sector hands but with better management because of partnership with the private sector. A public sector enterprise can function dependent upon the leaders, after all Riaz Naik ran RECP very well, so did Nusrat Hasan in CECP, similarly TCP had an outstanding leader in Mr Mohammad Yousuf. However, these were few and far between, as such the selection of chief executives for public sector enterprises as well as management down the line will be the difference between success and failure. The Government of Pakistan would do well to study how the selection of bad managers over the past two decades has seriously affected public sector enterprises. Run like incentive-oriented corporate utilities, there is no reason for less than full efficiency like the utilities in Singapore, Taiwan, S. Korea, Hong Kong, Malaysia, Indonesia. Those are examples of superb corporate success that have provided excellent services to the mass consumer public. China’s case is fundamentally different as their reforms involved giving corporations freedom to operate independently in a market economy, in effect making the employees effective masters of their own economic destiny. In Pakistan, we must carry this public-private sector partnership into other areas such as health, education, financial management, etc so as to be able to provide services to the common man whose welfare must remain of paramount importance to the State.

Above all in countries like Pakistan, the interest of the common man, who represents 80% of the population, is best served by keeping the utilities cost within his reach. This can only be done by maintaining a control over vital services. This can be done by partly disinvesting shares to the general public on the PIA/PTC pattern. The masses in effect become investors but the control remains in public sector hands by means of majority shares. This allows the public to have a say in the management which becomes more merit-based and incentive-oriented. Pakistan’s best interests can only be served by a mixed economy.

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