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Editorial: February 2016

Privatisation blues

Dr Niaz Murtaza
The PML-N’s privatisation agenda is in trouble. Halfway through its tenure, it has not chalked any major achievements in this area, as true too in other economic areas like energy and exports. The PPP-controlled Senate has blocked PIA’s privatisation while PIA employees, whose union activities the government curtailed yesterday, are threatening to close operations despite government promises to defer privatisation. Meanwhile, the IMF is not pleased with Pakistan’s inability to meet loan conditions related to privatisation.
Unfortunately, the government must accept a big chunk of the blame for this mess. Given its plans to sell national assets worth billions of dollars, it should have initially crafted a sensible strategy in a transparent and participatory manner given privatisation’s mixed record globally. Studies from Russia, Eastern Europe and Latin America show that poorly managed privatisation processes often cause huge corruption, asset stripping, monopoly creation, increased inequality, cronyism and losses of consumer and employee welfare.
Evaluations of past privatisation efforts in Pakistan conducted by ADB, the Karachi-based Social Policy and Development Centre and other writers also reveal major issues. The performance of most privatised units had worsened; lack of transparency was common; and privatised banks had ironically become more prone than nationalised ones to lend to the government rather than the private sector.
There were concerns about cartels formation in the banking and cement sectors and large-scale employee lay-offs at the PTCL. Charges of sale of units at low prices to cronies were levelled against the PML-N itself during the 1990s. These studies largely focused on economic criteria and did not adequately cover social concerns like impact on employee and consumer welfare and poverty, which are especially critical for a country like Pakistan.
We lack a written strategy which takes stock of past issues.
Obviously, these global and national experiences do not relate inherently to privatisation but to badly managed privatisation only. But the frequent occurrence of such issues globally means that the chances of privatisation processes going awry in corruption-prone, low governmental capacity countries like Pakistan are high. Caution and prudence are thus required.
However, the need for Pakistan to enter into the strait-jackets of IMF loans was high in 2013 given its low exchange reserves. This coupled with the inherently neoliberal outlook of both the PML-N and the IMF meant that there was little discussion on the pitfalls of and alternatives to privatisation, and it was included as a major requirement in the 2013 IMF loan conditions. The government had initially announced an ambitious plan to hire competent CEOs for key state enterprises, through a merit-oriented and transparent process, to turn around the enterprises. However, the PML-N’s basic penchant for ad hocism and cronyism soon overwhelmed this temporary desire for meritocracy and this plan was quickly abandoned.
Not that the PPP is blameless in this process, for it too has failed to provide a credible alternative. The tussle on privatisation between the PML-N and PPP often seems less about the classical right-left debates about the merits of state vs. market production in the West. Rather, in the patronage-driven Pakistani context, the debates have become reduced to the right-wing PML-N seemingly viewing privatisation as an opportunity to benefit crony capitalists and the supposedly leftist PPP seeing state enterprises as an opportunity to employ its supporters as workers.
Going forward, the government must immediately change the embarrassing fact that even though billions of dollars of national assets are at stake, the government lacks a written strategy of even a few pages which takes stock of past issues, develops clear social and economic criteria and lays down a transparent process for dealing with sick state enterprises.
Most crucially, it must change the headline topic from the controversial issue of privatisation to the self-evident and non-controversial need to re¬vitalise sick state enterprises running huge losses and providing poor quality goods and services, eg, PIA and PSM. Clearly, few would challenge the self-evident fact that the status quo for them is unacceptable.
Such a shift in the headline topic would have two important implications. Firstly, the government would focus on sick companies only, thus ending charges about it first selling profitable companies, often at low prices to cronies, without any economic or managerial rationale.
Secondly, even for sick companies, privatisation to strategic investors would not be the default option but only one option alongside autonomy and professionalisation of board and senior management; establishment of employee-owned companies; and sale of shares to the general public. The best option for each sick enterprise would then be identified through a clear set of economic, social and managerial criteria and a transparent process. It remains to be seen whether the PML-N has the capacity to implement such sensible action.
The writer is a political and development economist.
Published in Dawn, February 2nd, 2016


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