December 3, 2001	Monday	Ramazan 17, 1422

THE most effective instrument available to governments for restricting the powers of monopolies is to introduce competition. This not only keeps prices as low as possible but also provides an inducement to entrepreneurs to become more efficient.

But there are some industries, especially in utilities, such as electricity, gas, telecommunications, where a single supplier will always be able to meet total demand more economically than two or more suppliers. Indeed, they are what could be termed, “natural monopolies”.

To introduce competition in such industries is, therefore, generally considered inadvisable. Monopoly, then has to be controlled through regulation,— a decidedly less preferable alternative to competition. There is wide-spread agreement throughout the world, with some exceptions, that utilities should not subscribe to the profit motive. This stems from the arguably erroneous belief that since the services provided by utilities— water, electricity, gas— are basic necessities there should be no element of profit in the prices charged for them. Another factor militating against the applicability of the profit motive to utilities has to do with fairness. People need access to fundamental services such as water, energy and communications, if they are to have a fair chance of participating fully in economic life. But a profit-maximising utility may not bother to maintain its network in remote areas that are expensive to serve, or in poor areas where few people can afford the service.

As a result, more often than not, prices are kept low or subsidised, utilities being mainly state-owned. But with privatization and liberalization having become the gospel of the IMF, many developing countries — being dependent on the IMF support— are under pressure to privatize even companies operating in industries such as utilities, which in many cases still remain state-owned in parts of the developed world. However, beggars can’t be choosers. Pakistan, like so many heavily-indebted countries, is being regularly administered large doses of bitter pills as prescribed by the mandarins in the IMF.

Private ownership, unlike public, is motivated by profit, whether it is ownership of a company selling potato chips or gas or electricity. It is agreed that profits perform important functions on an economy. Firstly, they remunerate shareholders who take the risk of supplying capital to the company. This risk is rewarded by profits, which have to be commensurately higher as the degree of risk increases. Secondly, profits reward innovation: the first person to market a product the people want will make the most money. And lastly, profits are an incentive to greater efficiency, since cheaper ways to produce an existing product or service will translate into greater profits.

Profits therefore encourage people to supply capital, to produce things that consumers want and to provide goods or services more cheaply. If profits achieve all these desirable ends, w