We live and survive in a need based economy; one of the roles of the government in any economy has been to manage resources so that people would get what they want with ease of time and availability. Prudent identification and strict management of resources were believed to be the key to development of an economic system. For years governments assumed – and more so the socialist societies – that if left on people, the greed of amassing all into one and the desire to subjugate others through deprivation could piece the society into pockets of individuals thinking about their own interest. Therefore, to keep the notion of self-interests in check, governments have been producing, supplying and selling goods and services to its citizens on its own; although without much success. Hence state organisations, instead of becoming a resource, become a burden due to lack of competition .At the turn of the 80s, in the preceding century, it was finally decided that governments should concentrate on anything but production. It was decided that self-interest could be best checked through government regulations – the original business of a government. It was decided to let the private sector take over government owned entities, through different contracting or selling mechanism so as to draw maximum advantages from resource utilisation.
Why Privatise?
Different government adopt privatisation for different purposes but the objective of all these remain the same: cost affectivity and efficiency. It is believed that owing to its massive size and intertwined arrangements governments themselves become the cause of failure of state owned enterprises, by using it as an instrument to further political interests. One loud and clear allegation on Pakistan’s state owned enterprises has been the recruitment of incompetent people on strategic positions. On top of it, excessive employments coupled with unjustified perks and privileges had become the additional louts that sucked into the remaining productivity of SOEs.
In the pre-1945 era, colonisation has been the fate of most of the world we live in today. State was omnipresent in every endeavour. This governing strategy moved into the system in the post colonial period as well. States controlled the economy, at times to give maximum benefits to the citizens and at other instances to exert more pressure over them. However, in early 80s it was fully realised by many developed as well as less developed countries that the intervention of government into every production activity was creating losses. SOEs were eating into the government budget through subsidies and capital infusions, while soaring debt and increasing fiscal problems came as a by-product of the former two. Thus it was thought that capital released from the sale of state owned entities would be made available for public service development ventures to further facilitate people. In the years to come, privatisation opened the doors of economic participation through shares ownership, widening the sphere of collective prosperity. As British government, on the eve of its thunderous success of privatisation in late 80s, narrated its success story by saying that “rising number of ownership shares have contributed to the government’s goal of creating property-owning democracy through privatisation.” Privatisation opens new avenue for investment, brings new skill dimensions to the labour market, widens the tax base of the state and infuses a flare of competitiveness in people, taking progress to a new high. There is a positive correlation between growth and privatisation.
What and how to Privatise?
Looking into the British experience of privatisation we find a complete tilt towards getting away with state-owned infrastructure industries or what can be called the national utilities. United Kingdom has sold electricity, water, gas, rail network, and now the NHS run hospitals are finding their way into the private sector as well. In fact in an ideal scenario, every small or large, profitable or non profitable entity should be privatised to make it efficient. Though privatisation reduces government control but it can mess with people’s control as well if the property of competitiveness is not taken into account. In the example of United Kingdom as well as in France and Japan, industries were restructured before put on sale. Sector competitiveness is important to keep people from exploitation of the private sector. It is argued that privatisation in Pakistan has given birth to cartelisation. In theory it is not enough to have two large enterprises and one small to guarantee competitive environment, it requires a balanced spread of companies to give a fair price, quality and quantity to the consumers. It is perhaps for this very reason that industries in UK, France as well as in Japan have been floated in the open market, encouraging individual citizens to share the ownership. The divisibility of companies in term of loosening off of structures, fragmenting market through lower entry barriers, raising public stakes in the entities sold and putting regulations to monitor the private sector have made privatisation a success not a burden to the people of these and many countries that followed right rules of privatisation. According to the competitive commission of Pakistan and World Bank estimation, monopolistic practices and cartels are perceived to hold sway in Pakistan in such businesses as banking, cement, sugar, automobiles, fertilisers and pharmaceuticals after privatisation. The million dollor question is; did privatization improve the life of a common man in Pakistan or was it a boon for the top twenty again?
Privatisation in Pakistan
As is always the case, any venture undertaken by the government of Pakistan reeks of financial corruption, the privatisation process too has this foul air about it. The famous judiciary movement, that happened to change the fate of this country by almost 40 per cent, has its origin in the privatisation plan of Pakistan Steel Mills, sold by the Musharf-Aziz government at a throw away price. The intervention of Supreme Court through a petition moved by different stakeholders, layered off the deal to its bare reality that included massive kickbacks, personal aggrandisement and the non-national approach of our leaders in disposing of national entities. Selling the steel mills short and without taking into account the consequence of rendering its employees, numbering in thousands, unemployed, was termed by the Chief Justice of Pakistan Iftikhar Muhammad Chaudhry a callous move. During one of the proceeding in 2006 the Chief Justice of Pakistan remarked that “the objective of privatisation of state owned enterprises is to alleviate poverty and debt retirement, but this was not considered fully in the mill’s privatisation deal. The Cabinet Committee on Privatisation took the Privatisation Board’s recommended price of Rs17.20 per share for granted and consequently, shares were sold at a low rate of Rs16.81.” The echo of short selling of state owned entities can be heard in nearly every sale the government undertook; PTCL and KESC being a few toppers. On the flip side however, empirical evidences of different countries have shown that countries usually fail to balance the options between privatising quickly and extensively and the desire to maximise proceeds from privatisation. Observers believe that privatisation should be implemented slowly and carefully but of course not at the cost of strengthening opponents by giving them sufficient time to organise their resistance. What differentiates Pakistan’s case from the rest is not short selling but the use of proceeds of privatisations for developmental purposes. When Musharaf left the throne of Pakistan in August 2008, the country was snarled in the worst fiscal crisis, with its foreign reserves almost dried up and its financial managers knocking at the doors of IMF to bail the country out of financial crisis. Though, only a year earlier on 12th November 2007 Shaukat Aziz, then Prime Minister of Pakistan, claimed to have earned $6.41 billion from privatisation. One should not be misdirected by 8.96 per cent growth rate during much of 2005-06 – the windfall of foreign aid, for being the frontline ally of America, in the war of terror has feared the beast of sluggish economy away.
Managing stakeholders
The hue and cry that comes following the announcement of privatisation is common to all countries. Employees, contractors, suppliers even consumers fear losing something in the wake either in term of jobs, orders, or high prices. It is the job of the privatisation commission, or whatever board is asiigned the task of dealing with privatisation process, to assuage the fears of stakeholders. Governments do not let unemployment or missed contracts give sleepless night to its people. Compensation in term of different welfare programmes aimed at giving monitory incentive in case of job loss is built in the privatisation contract. It is how the government pitches its case to the people, determines the reaction to and execution of the sale deal. What we saw in the case of KESC and recently in the case PEPCOs, it was a show of the communication gap between people and the government. Fears of unknown is a normal emotion bound to overwhelm the stakeholders.
The process of privatisation is not merely changing hands of ownership; it is a process whereby goods and services are enhanced through specialisation and competitiveness of private sector driven by profit but sustainable only if quality, quantity and accessibility of goods and services are guaranteed. To prevent the private sector from getting carried away by profit, regulations are defined by the government to check any deviation from the mechanisms of market economy.
“Durdana Najam is a freelance financial feature writer, currently doing Executive MA in Governance and Public Policy, from FC College Lahore, she could be reached at [email protected]”
