Nationalization debased

Published July 14, 2003

Prime Minister Zafaraullah Jamali wants the public sector in Pakistan to be depoliticised. By that he means ridding the national assets which have degenerated in most cases with heavy accumulated liabilities, of the varied sins, committed against them, which are political, economic and administrative—the result of the collective follies.

At the end of the road after 31 years of nationalization, such projects are undergoing surgery - or privatization - but as in the case of biological surgery, it is not a sure-fire remedy in all such cases. The tragic end of the Zeal Pak Cement and the National Fibre showed that amply.

In the manner socialism and nationalisation of strategic assets of the nation were regarded in the early 1970s as the solution for the problems of the poor countries, privatization and market economy are now held as the panacea for the poor countries along with the prevailing globalizational of the economy. The World Bank, the IMF and the Asian Development Bank are there to promote such trends and institutions, arguing they are the solutions for our economic problems.

There are those like Mary Robinson, former President of Ireland and former chief of the Human Rights Commission who has been pleading for Ethical Globalisation instead of letting the juggernaut of globalisation grind down the very poor and disadvantaged nations. But there are not many takers for such ethics, humanism and protection of the rights of the poor in the global political or economic arena today.

When Mir Jamali calls for depoliticization of the public sector he had also in mind that until now the public sector has been losing Rs100 billion a year and the government has been subsidising those institutions with the help of borrowed funds, and the borrowing has by now become excessive.

Finance minister Shaukat Aziz recently said the government had given Rs52 billion as subsidy to Wapda and the KESC, which is indeed a very large sum for a heavily-indebted government.

The World Bank has now submitted a Public Sector Expenditure Review which says that between 1998 and 01, the government paid to the public sector entities Rs300 billion as subsidy to keep the companies running. This is real financial haemorrhage which a poor country can ill- afford on a continual basis.

What the country would now like to know is what price was paid for the enterprises as they were nationalised 32 years ago? What has been the losses over the years and how much have they been subsidised and what is the current market value of such outfits. No such study of this kind is to be undertaken.

The public sector, as we know now, was born in 1972 when the first PPP government headed by Zulfikar Ali Bhutto nationalised the ten basic industries. In fact, what was actually done was a negation of nationalisation as the Pakistani owned companies were nationalised and not the foreign companies. In fact, they too were nationalised at first but immediately after that Bhutto asked finance minister Dr Mubashir Hasan to clarify that foreign owned companies were not nationalised. In fact, some of the small companies with majority foreign share holding were later let off the book and they rejoined the foreign sector in Pakistan and were happy for it.

On January 1, 1974, the banks, including the Habib Bank, the United Bank, the Muslim Commercial Bank and other Pakistani- owned financial outfits were nationalised along with the shipping companies.

In 1996, there was a move to reinforce nationalisation further and even take in cotton ginning plants which caused a great deal of consternation; but later that move was given up as politically hazardous.

Of course, the PPP government could not have taken over the foreign companies in 1972 because of the bad image of Pakistan following its indefensible conduct in East Pakistan. So, it did well to spare the foreign companies. Otherwise that might have brought greater infamy to Pakistan at that critical hour and the days that followed.

Initially, the decision was that the taken-over companies should be managed by professional managers or experienced corporate chiefs. Such men, who were heading foreign companies as well were hired on the same salaries as they were receiving then and given a free hand to manage the companies. Mr Rafi Raza as Minister for production was quite helpful to them.

Then the officials in Islamabad found it difficult to stomach the independence of the managers and began interfering in their work more and more. Thus, the managers began leaving their offices or the bureaucrats began replacing them.

And the officials of the ministry of finance began heading the banks and the large financial institutions, like the National Development Finance Corporation. Every senior official thought that after his retirement from service that he could have a short career in the financial sector with unlimited facilities. Mismanagement and corruption increased everywhere in the public sector.

After 1985, political appointees began heading the corporations. State units like Pakistan Steel had frequent change of heads. Political parties in office also began dumping their workers into organizations like the Pakistan Steel and the PIA. And when the MQM joined the government along with Nawaz Sharif it did the same in respect of dumping of its own workers in Pakistan Steel and elsewhere where it could. The losses of such companies increased and the government came to subsidise them to the extent of Rs100 billion or more.

And when the military rulers took over the state, military officers began heading such organisations, including Wapda and the KESC. A major exception was the PIA where a civilian continued to be the chairman, while the military officials were under him. That did not mean the efficiency of Wapda or the KESC improved as the frequent load-shedding and prolonged break-down in supply and the public protests have been highlighting.

Privatization is regarded as the ultimate remedy for such decayed institutions. That is the world trend too ever since it began with Margaret Thatcher in Britain. Meanwhile, Shaukat Mirza who was hired from the private sector did an excellent job in the Pakistan State Oil and following his brutal assassination, Tariq Kirmani as managing director carried his excellent work forward and yet the PSO is earmarked for early privatization.

Following the earlier privatization of MCB and the recent privatization of the UBL, the Habib Bank is on the auction block along with more shares of the National Bank of Pakistan. PTCL, the KESC, the distribution companies of Wapda, the Sui Southern Gas Company and the Sui Northern Gas are among the companies for sale.

But the privatised companies have always not been a success. If the MCB, many of the cement companies and the Millat Tractors taken over by the employees have been remarkable success, the Zeal-Pak Cement, the National Fibres and the Bankers Equity have been among the disasters.

Privatization is one of the major conditions for continuing aid by the World Bank and other Western donors. They want the currently profitable companies like the PSO to go before they too become losing companies. And the government has agreed to that as the government’s business is not selling oil, fertilizers or cement.

If following privatization, the new owners invest more money and employ more persons that could be greatly helpful to the country. The government is hence cautious. It does not want the companies to go the way of the Zeal Pak Cement as the new owners exploited the resources of the company they bought over and let the company go as the Tawakkals and Shons did.

Above all, if the companies run successfully they would need no subsidies and can produce greater wealth and pay larger taxes. In fact, the future of such companies after privatization is linked with the future of the economy. If the economy does well as it should according to present indications, the companies will also flourish and expand.

Anyway, the need of the hour is more job creation and more production for exports. The new foreign owners of the companies could export to their region a good deal and help their company benefit.

Taxes too are coming down in Pakistan to help the investors. And the interest rates are the lowest in the country ever. Only the shortage of power is a major handicap. But more and more companies are producing their own power economically.

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