- Government should incentivise private sector to diversify their investment interests
If you want to get something done, then you will have to primarily do it yourself. The situation of government is no different. And government wants to do whatever it can to provide a base for the private sector to get involved, and to regulate it thereafter. It can, and it should realise that there is no guilt, as the neoliberal proponents would like it believe otherwise, in doing some things by itself, and in certain cases parallel to the private sector. For instance, the myth that government is inherently inefficient in the business of doing things is simply not true.
Take say, the case of running enterprises, like UAE government successfully running Emirates Airlines, or for that matter, public utilities. In that sense, under the social contract, along with security, health and education are the essential fundamentals that give shape to the strength and personality of any nation, and for that matter are basically designed and provided by the government in essence; with private sector only involved that much. The Scandinavian governments have been successfully providing such services since the time they were an agrarian society, and only opened the field later on to private sector but to the extent that the primary control remained of the government.
Hence, in this spirit there is a need to make a wealth fund, as the PTI government is envisaging making to deal with the losses of State Owned Enterprises (SOEs), and for putting these in private hands to use public funds primarily. But, then this should be the extent of involvement of private sector and the SOEs should not be therefore privatised. This is because it will be risky to put these strategically important enterprises, in terms of public utility they provide, in private hands, which basically looks at profits, and cares little to remain socially responsible in its profits and in reducing negative externalities from its work.
Rather, PTI should quickly give an institutional governance — and incentive structure reform package, and engage merit-based technocratic elements in doing so. For filling the financing part of the effort for putting the SOEs on a sustainable path, the government may envisage floating minority, time-based shares for the private sector till the time that these enterprises become viable enough to sustain themselves through the enhanced capacities of the ministries under which they fall.
During the same time, the government should make a plan to reform public service and improve the capacity of ministries, which are best suited to keep an oversight role. Therefore, the government should straight away formulate a merit-based board of governors for each SOE, who should in turn suggest, in consultation with the government, governance and incentive structures, along with establishing financing plans. Hence, the bottom line being that the SOEs remain in the public arena.
Basically government needs to be more creative with its economic policies, enhancing in turn the margins for bringing greater gains for both the public and private sectors
The main reason that these SOEs should be kept in government’s domain is because they have strong bearing on the lives of people. Moreover, this should also be done to not allow the private sector — which is answerable to the public in a very limited as compared to the elected government representatives and public servants who are paid through their taxes — to undercut democracy. Also, efficiency, as seen by the private sector is mostly limited to profit maximisation and not public welfare as such; the classic example that is coming to the fore in Pakistan is the example of KESC. PTI would not want to add to it in terms of similar examples of SOEs, ending up like this electric company.
It is not to say, at the same time, that a government should not engage the private sector altogether, but before the government can engage the private sector, it will have to create the needed ‘base’ for that initiative itself. For instance, before microchips could be used by private companies like Apple and Microsoft, it was mainly the US government’s agency Pentagon that created and took forward the initiative to provide the scientific and organisational base of the microchip industry. For this, funding and technical expertise were invested by the government themselves. It was the coming together of this field to a level where the private sector could envisage a sense of obtaining profits, that it took interest.
The private sector could not be expected to start and go alone in the way as government could and should, given the required high level of commitment level, the initial investment and the very risky nature of envisaging, starting, and continuing to cover those initial hard miles. It may just not be possible for the private sector to sustain doing something without the returns needed to sustain, given the small base that any private entity has, as compared to the huge undertaking that the government can commit itself to. That once again makes public service reform all the more necessary and urgent.
When it is being indicated here that the government should create base for the private sector to play its possible part, it is not to say that it should first directly, and in some cases only solely enter it and develop it; some sectors just need indirectly government providing the environment, for which that is enough to attract and keep engaged the private sector, like for example where returns become available in a short range of time, initial investment is not that high, and where technical knowhow could be created relatively quickly and easily, if not already available with the private sector.
What the government should do is to target creating money, in both local and preferable foreign markets (to have enhanced market available) from one initiative at least that gives a lot of returns; a product or service that could be a source of immense revenues. For that the PTI government should set up a high-powered committee right away. Those returns could then be used to do (a) providing liquidity to private sector to engage them productively, (b) spend on welfare initiatives, (c) to build necessary mega infrastructural projects, and (d) most importantly to extract at least one natural resource, of the likes of oil, gas, minerals for earning phenomenal returns and to channel those as the second major source from government’s own kitty. This would put the role of bilateral and multilateral funding on a diminishing path (allowing such aid/loans to shift to other countries), with only the role of technical assistance being sought when needed.
At the same time, the government should incentivise private sector to diversify their investment interests, especially from those avenues like numerous and quite similar clothing brands for example, to those areas of high public importance that need this private investment like in education and health opportunities. For this, among other steps, it is important for government to create, transparent and in a high number, stock exchanges, and help people create mutual funds to take advantage from the economies of scale of investing like a big investor. The government may also guide pension plans to include investing in financial instruments and mutual funds to increase both investment for the listed companies, and also allowing these people to hedge more meaningfully for their post retirement times; which means also that they should have greater opportunity to invest once even after they retire. Hence, initiatives like these will help reduce both the saving-investment gap in the economy, and would also greater welfare benefits for the people.
Hence, basically government needs to be more creative with its economic policies, enhancing in turn the margins for bringing greater gains for both the public and private sectors.