An incisive look at the economies of developed countries and those that have transcended the take-off stage, reveals that though they pursued different models of growth or different variants of the same growth model in line with their own socio-economic realities, they made these achievements through private led growth with governments only playing the role of facilitator. This role was usually executed as that of an imaginative regulatory regime providing a healthy and competitive atmosphere for entrepreneurs and businesses. These governments focused mostly on industries pertaining to defense, communications and public welfare. One can safely infer from these role models of economic growth that for most of these countries, mixed economies provided solutions to their economic woes with the private sector playing a dominant role.
But in Pakistan, economic decisions have mostly been influenced by political considerations; by successive regimes that misdirected efforts and hampered the country’s march towards self-sustained growth. In the early seventies, an imprudent decision was taken to nationalize all industries without weighing the pros and cons of its impact on the economy in the long run. The management of these units was handed over to the bureaucracy which was ill-equipped and lacked the necessary expertise to run these units. Inefficiency, rampant corruption and incessant political interference in running these industries took its toll and many of the profit earning entities, like Pakistan International Airlines, were turned into perennial loss bearing outfits needing regular financial injections and bailout packages from the government to keep them afloat.
Realizing the debilitating impact of that decision, the PML(N) government took the initiative to nullify this profound negative consequence through a process of gradual privatization of the SOEs and to assign a greater role to the private sector. Though some of the units were privatized, the process could not be carried forward satisfactorily due to political instability and frequent regime changes.
Presently the government owns 126 industrial concerns including big money guzzlers like Pakistan Steel Mills PSM), PIA, PSO and Railways among others. Pakistan Steel Mills alone suffered losses to the tune of Rs.200 billion during the last five years and the government had to give four bail-out packages amounting to Rs. 40 billion. These entities are incurring an annual loss of Rs.500 billion which is almost 25% of the revenue receipts of the government. The state of our economy can ill-afford to support these non-performing units indefinitely. The decision to privatize 31 SOEs including Pakistan Steel Mills, PSO and a number of power producing and distribution companies within the next three years is therefore, a prudent one. The step is estimated to save the government about Rs.500 billion annually, which would enable it to spend the money saved from supporting the sick units on vitally needed socio-economic development and also encourage the private sector to make investments in different industries with confidence in their investments. There are no two opinions about the fact that revival and revitalization of the economy can be carried out only through cutting government expenditure, broadening the tax base and encouraging private investment both domestic and foreign. That is a universally agreed upon fact.
There is however no dearth of opponents of this initiative by the government. They believe that instead of the privatization of these units, the government should have gone for the restructuring of these units to make them profitable as was done in Malaysia. It is also argued that the failure of SOEs has been caused by bad governance rather than state ownership. The detractors of privatization argue that the privatization process in the 1990s did not have a favourable impact on GDP, investment and employment. They quote from a report of the Asian Development Bank in 1998 which observed, “Only 22 per cent of the privatized units performed better than in the privatization period; 44 percent performed the same whereas approximately 34 percent performed worse.” Some are also skeptical about the lack of transparency in the privatization process. (It is perhaps pertinent to mention here that the PPP who resorted to the indiscriminate nationalization of industries, finally realized its folly and its 2008-2013 government also advocated the process of privatization, even privatizing some SOEs.)
All these arguments and observations do have some substance but do not provide a practical and realistic discourse on solutions, and fail to recognize ground realities. The Malaysian model cannot be superimposed upon Pakistan because of the different socio-economic conditions. The government has chosen a middle course to sell off the sick units and restructure the ones that have the potential to be transformed into profitable concerns. Railways and PIA are not being privatized as of now and the government has already approved packages to revive them. Another point conveniently being missed by the critics is that the total privatization of state owned units is not proposed. The argument about bad governance is too vague and non-specific. The units needed to be run by professionals, not the bureaucracy. The claim that privatization in the 1990s did not have a positive impact on GDP, investment and employment, is disproved by the fact that the economy grew at a rate of more than 6% during 2000-2008. As for the ADB report, it is evident that only 33% of the privatized units performed worse, so overall we were not worse off, especially considering the political instability of the country. With regards to transparency, the government has reconstituted the Board of Directors of the Privatization Commission to eliminate the chances of any indiscretion on the part of any individual. Furthermore, the government is also engaged in putting into effect structural changes and drawing regulatory regimes that would create a truly competitive atmosphere for industrial growth. One must remember that privatization is only one ingredient of the state’s comprehensive economic strategy. The effects of privatization therefore, need to be evaluated in relation to the country’s overall economic agenda.
The writer is a freelance columnist.
Email:ashpak10@gmail.com