THERE has been a heated debate in Pakistan on inefficiencies and corruption in the public sector /state-owned enterprises (SOEs). According to some estimates eight public-sector enterprises lose an estimated Rs250bn annually.

Neoliberal economists, of whom there is no dearth in Pakistan, have often stated that these entities need to be privatised as the private sector will be able to run these companies more efficiently. Most of us take these statements at face value and the government’s ownership of these entities is seen as something inherently negative. However, that is a one-sided narrative and deserves to be challenged.

In theory there is no clear case against SOEs, and despite popular perceptions SOEs can be well-run, efficient and contribute to the national development cause. There have been many examples where SOEs in the developing world have gone on to become some of the world’s most efficient and best-managed companies. Emirates airlines, Singapore airlines owned by Temasek Holdings from Singapore, the Bombay Transport Authority are all examples of successful SOEs.

World-class companies in the developed world such as Renault and Embraer, from Brazil initially succeeded as SOEs. The current global crisis has led to a renewed interest in state capitalism and SOEs in many developing countries. Recently, even the Economist, otherwise an ardent supporter of free markets and neoliberalism, has devoted an entire issue to the rise of state capitalism and the increasing economic might of SOEs in emerging economies.

One of the most successful examples of SOEs is that of the South Korean steel-making giant Posco, formerly the Pohang Iron and Steel Company. Posco was established in the late 1960s as a joint venture between the government and TaeguTec Ltd. This was at a time when governments in many developing countries undertook such investments in heavy industries as the private sector was unwilling and in certain cases incapable of taking on. The majority of the shareholding of Posco was in the hands of the government with TaeguTec owning 25per cent of the shares.

By the 1980s, still under government ownership, the company had become the most efficient steelmaker in the world with regular capacity expansions. It was only after the Asian financial crisis and a change at the helm in South Korea to a more liberal economic agenda in 1997 that the company was privatised, a process completed in 2000. What needs to be kept in mind is that this was an SOE for almost three decades and was a leader in productivity and efficiency. If there was something inherently wrong with SOEs, entities such as Posco should be inefficient and dependent on government handouts to survive.

In Pakistan there are cases of very well-managed and professionally run SOEs that are often not cited in the debate on privatisation. The Pakistan State Oil Ltd despite facing a liquidity crisis due to problems of circular debt earned a profit after tax of Rs14.7bn in 2011, making it one of the most profitable state entities. It has been consistently making profits, even in times of civilian governments when it is alleged that politicians dole out jobs to gain political patronage, and top managerial posts are given to cronies.

What makes the company’s performance all the more impressive is the fact that there has been significant competition at the downstream retail end, from global giants such as Shell and Caltex plus many other smaller players. Similar examples of profit-making SOEs can also be found, especially in the oil and gas sector. Entities such as the OGDCL, Pakistan Petroleum Ltd and Pakistan Oilfields Ltd have traditionally been well managed and not had to depend on the state for bailouts.

These examples do not imply that there is no problem in SOEs. Entities such as the Railways, PIA, Steel Mills etc are useful examples. However, the privatisation of these loss-making entities is not the only answer. And it is doubtful whether the laying off of employees is going to turn these entities profitable.

Privatisation at this stage, when these enterprises are making a loss, will mean that the state will sell them at a loss. Prior examples of entities that have been privatised to improve service delivery such as the Karachi Electric Supply Corporation have shown that privatisation is not the answer.

Even in the case of Pakistan Telecommunications, or PTCL, which has often touted as the most successful example of privatisation in the country, there has been a consistent drop in revenues as well as profits. Post-privatisation profits have been falling from Rs27bn to almost Rs11bn, a negative growth of 21 per cent per annum. Since 2005, the government has lost over $2bn as a result of a decline in the market value of its left-over stocks in PTCL and an additional $0.7bn due to further concessions that the government was forced to give to the foreign investor Etisalat.

There is an urgent need for an alternate discourse on SOEs challenging the dominant ideology in the country. While reform of these entities is indeed needed and welcome, privatisation does not seem to be the most viable alternative. Models of successful SOEs within the country and in other developing countries have to be studied in order for a decision to be taken about the restructuring of the ones that are not doing well — a decision that would be in the wider national interest.

The writer is pursuing a PhD degree in Development Studies at the University of Cambridge.