July 17, 2006	Monday	Jumadi-ul-Sani 20, 1427

IN formulating public policy, choices must be weighed to determine whether they accord with the interests of all stakeholders and whether they are a balanced choice between them. At the same time, they must in accord with the overall interests of the people. The question arises whether the privatization policy serves needs and interests of all stakeholders.

The privatization policy lacks guiding line, especially after pundits of the so-called ‘market economy,’ (in reality, special interest groups) and supporters of the ‘stabilisation’ programmes of IFIs, took over. The most important stake-holder, the general public itself, is out of their view.

Here the importance of the need to have available as much data about the prevailing objective conditions as possible cannot be too strongly emphasised. Perhaps, the problem is the lack of clear goals in the minds of policy makers, who have made themselves too dependent on foreign advice, irrespective of whether such advice serves our national interest or not.

The government also appears to be much too compliant as far as political and financial interests of the ruling elite are concerned. No wonder, the general perception is that their policies serve foreign interests to which the local elite have tethered themselves. This is not a very flattering picture, because in the final analysis, it is the outcome of the policies that count.

The performance of the KESC, PTCL, and others after privatization can serve as a good guide to shape of things to come. The over-arching profit motive has had a highly detrimental effect on the performance of these privatized institutions. In the management of infrastructure and utilities, stress must be laid on performance and delivery. The reason is obvious: these are services auxiliary to the more substantive fields of industry and commerce. If they deliver satisfactorily at small cost, the performance and profitability of substantive sectors of the economy improves drastically.

The source of rapid deterioration of KESC’s services after privatization can be traced to the preoccupation of the new management with increasing profits and cutting costs in areas where a better sense should have prevailed. The government’s contribution in this are the ill-advised decisions to shelve plans for construction of more thermal power stations in the state sector in order to make life easier for independent private power producers.

This does not mean that profitability should be ignored altogether in case of utilities and public sector industry. It only means that efficiency of service delivery at affordable economic prices, rather than profitability, should be the criteria.

The Supreme Court’s verdict against the PSM deal is a blow to the policy of unfettered privatization, selling public sector assets at throw-away prices. Apart from the PSM deal, which attracted attention because of the size and value of the Karachi Steel Mill and the tremendous differential in the bidders’ offered price and the prevailing market rates. More than half a dozen industrial units, most of them profit-making ones, were handed out to private bidders at terms highly favourable to the buyers.

Nevertheless, the verdict is not likely to deter the government from its privatisation drive. If anything, they may only change tactics. Evidence comes from its prompt constitution of the CCI as required by the SC verdict. The rest might be sought to be achieved through manipulation.

Most of the arguments given in favour of the unfettered privatisation are those given by Osborne and Gaebler in their 1992 book ‘Reinventing government.’ The book is about reducing the size of government on the premise that ‘free enterprise and market economy’ offer the best solution in every case. While the government repeats the cliché that “it is not the business of government to do business,’ foreign state-owned companies— many from other developing countries— acquire and run some of our ‘privatised’ utilities.

In practice, matters are being taken to the other extreme; the government seems to be abdicating even its responsibility to regulate business, and provide the much-needed education and health services. Such policies have resulted in pushing most people down the economic ladder, something the former IBRD Chief Economist, Joseph Stiglitz, called, the ‘race to the bottom!.

Even worse, they oversimplify many concepts and apply the ‘free market’ solution indiscriminately to all problems—even while the market is hardly free. A thorough analysis or examination of conditions peculiar to our milieu is clearly lacking.

Recent experience of privatisation of health, education, utilities and basic industry shows that it not only results in increased cost, thereby putting them beyond the reach of even the middle classes, but also in deterioration of service. Privatisation of education has not only made education expensive but its quality also is not commensurate with the cost. The policy has forced the Supreme Court to take notice.

Even if some of the public sector organisations need to be offloaded, this should be allowed to happen through attrition—the gradual but natural process of not recruiting personnel for posts as and when their incumbents retire or leave of their own accord. In imposing retrenchment solutions, they have only succeeded in exacerbating the already grave problem of unemployment and poverty.

An alternative to outright sale of assets to private interests is to float shares of public sector industrial undertakings like the Steel Mill to small investors from the general public to raise finances for revamping. That would ultimately set a fairer value for the shares, while at the same time the government would maintain control over the prices of large industrial and utility enterprises’ products.

The tendency to look upon each and every activity in terms of profit, irrespective of whether service is being delivered that is supposed to be delivered, is suicidal. As an example, if you try to make the utilities profitable at the expense of service provision, by avoiding routine maintenance or renewal of essential machinery, or by making them expensive, this has a multiplier effect on the entire economy.

They could take a leaf from China’s book, which keeps utilities cheap for industry. The growth of Chinese industry and infrastructure has been unprecedented. True FDI is rushing to China, even as China continues to run state enterprises and use state companies to win contracts abroad.

In Pakistan, they continue to make taxation ever more regressive, and while they make auxiliary services like banking more profitable, the main productive sectors, industry and commerce, decline because of input and transaction costs, the people in general become poorer and the economy suffers.