Nationalizing “Bundoo Khan”
World War 2 sustained communism far beyond the 50 years it should have gone on its own momentum, the impetus of that war acting as a “manufacturing force-multiplier” for the socialist economy. As it is Communist China chose economic emancipation in the mid 70s under Deng Tsao Peng, President Jiang Zenin nailing the coffin of its socialist ideology last October by allowing free enterprise entrepreneurs officially into the Communist Party. By the late 60s it had been clear that the romantic notions of socialism that the leaders of independent third world States newly created in the 50s was seriously flawed. Saddled by an inefficient and indolent public sector which was into railways, telecommunications, water projects, electricity, sewerage, etc but flanked by socialist ideologues like JA Rahim and Dr Mubashar Hussain, Zulfikar Ali Bhutto plunged Pakistan into three decades (and still counting) of economic wilderness by his nationalization-binge of the early 70s.
The inadequacies of the public sector notwithstanding, to add to Pakistan’s problems hundreds of medium and small industries that had no place under the public sector control were also nationalized, mainly to “create” employment. According to one wag, Karachi’s “Kabab specialist” Bundoo Khan paid Rs. 100000 to an Income Tax Officer (ITO) demanding a bribe of Rs. 10000 only, the Rs 90000 given additionally ensured that the ITO accepted his profits to be even lower. Bundoo Khan feared the government would nationalize his “Kabab Shop”. The straw that really broke the camel’s back was the nationalization of banks. From being profit-making almost all the nationalized entities soon became loss-making units employing (for political patronage) many times more than economically feasible.
Notwithstanding uneconomic unemployment there was a modicum of accountability under political control till July 1977. Given the absolute cover of Martial Law, Ghulam Ishaq Khan let his commercially ignorant bureaucrats, mostly raring to line their own pockets, run riot till 1985. Instead of returning the foreign loans obtained for building the manufacturing sector, Pakistan winded up paying compound interest on the amounts due. By 1990, we were on the economic ropes, a concerted effort had to be made to sell/rid ourselves off these very public albatrosses around the neck of Pakistan’s economy, to (1) reduce the foreign debt, and (2) let private sector enterprise re-invigorate the sick units. The whole nationalization concept was meant to give the poor and downtrodden masses “Roti, Kapra aur Makan”, the travesty of fact is that it ended up taking away most jobs, and with that not only their aspirations for food, clothing and shelter but also that of their children and subsequently that of their children’s children.
Business is not the business of government, Pakistanis are indeed “indebted” to the PPP for putting us in such debt, we must not forget our “debt” due to successive PML (N) governments, who added to Pakistan’s economic problems by failing to privatize (1) properly and (2) quickly. Both political parties also did the ultimate, beggaring the nationalized commercial banks (NCBs) by forcing loans on the basis of patronage rather than merit. Under that cover many bankers also made money. Privatization has been done in “fits and starts”, in many cases successive political governments let the family silver be virtually stolen e.g. “How to buy a bank without any money”! While the privatization effect on the economy has been positive, in essence it failed to achieve its primary aim of reducing the national debt.
Take for comparison the two NCBs “privatized”, viz (1) Muslim Commercial Bank (MCB) and (2) Allied Bank of Pakistan (ABL), let us also examine one different form of “privatization”, that of Exxon Fertilizer. Without going into the mode and manner of the sales of the banks, the totally divergent performance of these two financial institutions after de-nationalization is revealing. From the very start, MCB has been a major success story. Nationalization had made the bank inefficient and unresponsive. The 12-member “entrepreneurs consortium” who bought 26% management control of MCB chose Hussain Lawai to be MCB’s first President to meet this challenge. With a tremendous reputation as a very innovative and brilliant financial manager, Lawai more than proved it in reviving and re-invigorating MCB. In the years 1974 to 1991, foreign banks had taken up the slack in the artificially created vacuum, overnight MCB started to compete with them in service and innovation both. In the Benazir years 1993-1996 Lawai became close to Asif Zardari, with the fall of the government in late 1996, the mantle passed to Mian Muhammad Mansha and Lawai chose self-exile abroad. For reasons that are most unfortunate, Lawai and Mansha fell apart. This is a great tragedy, both being fantastic exponents of Pakistan’s great financial and potential, in many ways they are complementary to each other.
Notwithstanding that unfortunate parting of ways, it was lucky for MCB that Mansha rather than anyone else took over as MCB’s President. Easily the leading entrepreneur in Pakistan today by far, Mansha had been on the Bhutto regime’s hit list and in virtual “exile” abroad. He propelled MCB into a very dominant position by sheer-dynamic entrepreneurship, creating an effective team and force-multiplying MCB’s banking potential manifold, and that too against great odds. The greatest disaster visited on this country was the creation of the myth of “21 families”. Every economy needs “titans” of industry and commerce to pull the economy forward. These workhorses allow a “hundred flowers to bloom” in the shape of “ripple effect” on the economy. Our great tragedy is that in 1974 the PPP government went for these business powerhouses and destroyed these much-needed “tractors”. After great tribulation over two decades, a new set of dynamic entrepreneurs has come to the fore, many multiple times more sophisticated than pre-1974. One cannot keep entrepreneurship down, it will always show its worth. Mian Mansha is the leading “tractor” of the present economy and MCB is a shining example of his entrepreneurship par excellence. It behoves those who look to a bright economic future in Pakistan to be proud of business magnates like Mansha, whose vision and expertise not only takes the economy into over-drive but also fulfill their social and moral responsibilities to the population at large.
Exxon Fertilizer exists as an excellent example of ESOP (Employee Stock Option Plan) in the country, a model of what sincere and effective management can accomplish. Exxon’s management and employees, led by late Shaukat Mirza, created a Trust to take-over and manage Exxon Fertilizer, they enhanced it’s great commercial success story. Having retired from Exxon, Shaukat Mirza was tapped by the government to turn Pakistan State Oil (PSO) around. Shaukat Mirza did just that before he was unfortunately assassinated, ostensibly because of “sectarian” reasons. The undeserving are now reaping not only the laurels but also the rewards. The killers may have been caught but the world is full of examples of honest bosses (who were a threat to in-house mafias) who were “cleansed” at the behest of the corrupt, “sectarian” reasons indeed!
A variation of ESOP was used to privatise Allied Bank. The management/employee take-over was stage-managed by the then President, Khalid Latif, and even hard-bitten cynics felt Allied was going places. Khalid Latif promised much but had other ideas, the focus of his management team being personal gain rather than corporate development. Promotions to key positions were made on reasons other than merit, only loyalty to the corrupt hierarchy counted. A change of political regime brought Khalid Latif’s downfall and the situation only worsened under his successor. By the time his successor’s successor was removed because of a change of political regime, there was a full-scale loot of Allied’s till. The situation has been retrieved somewhat by the present President installed by the military regime, he may be no ball of fire but he has competence and great integrity. Allied survived because of its own great momentum as a financial institutions, however some corrupt holdovers still exist in senior positions.
It does not matter whether the entity is the public sector or the private sector, good and honest management is always crucial to the performance of any enterprise, expertise and integrity are the keys to the success of all corporate ventures. Lack of merit leads to inefficiency and corruption, these in turn will lead to losses. While all over the world honesty is the exception rather than the norm in the public sector, in Pakistan nationalization has led to disastrous commercial failure, this has been repeatedly compounded by bad governance and populist economic policies.
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