The privatisation narratives

Updated 07 Jul 2014


File photo
File photo

THE case for privatisation is being pursued zealously on the grounds of market efficiency. In other words, privatisation would promote competition, bring the cost structure down and reduce transaction cost. It would scale down losses of public sector enterprises, curtail current expenditure and generate fiscal space for the government.

Pakistan embarked upon the privatisation bandwagon in 1988. The push for privatisation is both external and internal. The external push came from the influence of multilateral donor agencies under the structural adjustment programmes, while the internal push came mainly through the pressure of the business community and partly through academia.

However, the underlying common narrative among these pushes is known as market efficiency. This seems to be a decent narrative, but this narrative has not been contextualised.

A theory requires a context to describe the ground reality. So, a theory without a context is just like a vapid mango. A theorist is interested in knowing the truth. A practitioner tries to implement the theory, since he doesn’t have time to go into its fine details.

There is a need to debate the scale, degree, extent, pace and distributional consequences of privatisation

The case of privatisation has been pursued and implemented without delving into the fine details of theory. The difficult task of theorising was neither done nor debated.

On one extreme of the narrative is the market efficiency view, which says privatisation promotes competition, nurtures innovation and improves service delivery. This is based on the assumption of perfection in all markets. The proponents of this view cite successful cases of the telecommunication and banking sectors to convince the audience.

But proponents on the other side argue in favour of equity, and consider the government as efficient as the market. They bring up the efficient completion of the Lahore Metro Bus project in a record time by the provincial government as a recent successful case. They also cite the deleterious impact of privatisation on job losses and the financial loss to the exchequer in the form of non-tax revenues in case of profit-making enterprises.

The adherents further their case by arguing that there are a number of market failures that are not brought to the consideration of the public, like the provision of education and healthcare by the private sector at a high price.

Another narrative is just concerned with the sequence of privatisation — from loss-making enterprises to profitable ones — and right timing, with respect to the international investment scenario. However, these writers neither debate nor contest the case of privatisation itself.

We need to extend the debate of privatisation beyond market efficiency, and contextualise it. There is a need to debate the scale, degree, extent, pace and distributional consequences of privatisation. This debate will aid us in addressing the broader question of the kind, form and shape of capitalism we, as a nation, need: either fettered or unfettered.

The problems of unfettered capitalism have been exposed by the global financial crisis of 2008. The next question is whether unfettered capitalism is good for a developing country like ours. Can Pakistan develop with unfettered capitalism? Can privatisation promote industrialisation? I leave the answers of these questions for the avid and careful readers.

The writer is a PhD in Economics from the School of Business, University of New South Wales, Canberra, Australia

Published in Dawn, Economic & Business, July 7th, 2014