Therefore public enterprises do not face the threat of a takeover when they perform poorly. Managers at privately-owned companies do better due to competition and threat of takeover, and because of the expectations of the stockholders for a return on their investments. This results in a reduction of the production costs through dedicated supervision. Some schools of thought have argued that partial privatisation can solve the problems without the state having to deprive itself of control of the enterprises. But the fact is, even partial privatisation allows politicians to have an influence on the performance of the firm to attain political goals, and the subsidies also keep on flowing for the firms’ bailout. Moreover, the valuable tax-payers money that is disbursed in the shape of subsidies can be saved through the privatisation of enterprises that perform poorly. These saved resources can be reallocated towards social policy areas and reduction of domestic and foreign debts.

Nationalisation of enterprises had been a norm in socialist economies during the 1950s to the ’70s. In the ’70s, Pakistan followed the socialist model of economy. The reason underlying the then government’s thinking for this extremely radical action of nationalisation was the perception that national wealth was being concentrated in the hands of a few families and the rich were getting richer and the poorer getting poorer.

Two decades later it turned out that these assertions and assumptions that drove this particular line of action i.e., nationalisation was not only unrealistic and flawed but the consequences were exactly opposite to what the intentions were. In Pakistan the fiscal deficit reached a high of 8.5 per cent of GDP in 1987-88, which severely constrained the fiscal space available to the government. The collapse of the Soviet Union and the bankruptcy of the socialist model resulted in the wind flowing in the direction of privatisation. There was a realisation that the private sector is more efficient because there are no bureaucratic hurdles involved in it.

Then the trend changed all over the world. During the ’90s, Pakistan started privatisation of state-controlled enterprises, for example MCB and Allied Banks were privatised in the early ’90s. India followed Pakistan in the privatisation process and implemented reforms of liberalisation and deregulation when. Manmohan Singh was the finance minister. The result of Indian reforms is quite evident before us. During the first 45 years of its independence until 1991, India was hardly able to achieve per capita income growth of one per cent per year and poverty remained persistently high. In the 20 years (since 1991 when India privatised major companies), India’s average per capita income growth has been four to five per cent per year, poverty has been declining ever since and has fallen below 25 per cent. Pakistan, unfortunately, could not follow through these reforms in a continuous and consistent manner.

Looking at Pakistan specifically, in 2009-10, losses at government-owned enterprises like Pakistan Railways, Pakistan Steel, PIA, Utility Stores, TCP, NHA, Passco and Pepco caused a loss of Rs 245bn to the national exchequer. Given the declining fiscal situation, losses on this scale are unsustainable. Therefore it is evident that the need of privatisation of these inefficient public-sector organisations can hardly be over-emphasised.

The government instead of draining its scarce resources towards sustaining the large public-sector enterprises should concentrate on providing viable and conducive business environment. It should focus on providing basic infrastructure in the form of roads, airports, seaports, provision of inputs like water, gas, electricity and above all, a pool of well-trained technical manpower and business managers. It should open universities and polytechnics to train the manpower and also ensure that the education sector is catering for these requirements. It is also the government’s responsibility to ensure that the economic interests of the country are not compromised by making unattractive deals while privatising. Transparency and fair play should be insured at all costs so that bidders and private investors develop confidence in the economy and the government policies. The government on its part should play the role of a regulatory authority to provide a level playing field to all the potential investors. This will make the market more attractive for both foreign and local investors.

The methodology to resolve corporate disputes should be defined and refined to insure confidence of the investors and industrialists. If the corporate dispute resolution system is credible and trustworthy, the privatisation process will blossom. The government should also fairly rationalise duties on inputs for industries so that no industry unduly benefits at the cost of other. While outlining the must-haves for efficient privatisation, the need of improving the law and order situation of the country must become the government’s top priority to attract potential investors. The culture of red-tape and bureaucratic hurdles have become the norm in developing countries. We must eliminate these by instituting an efficient one-window operation to facilitate investors. In the presence of competition law, economic growth would be insured by the removal of entry barriers and curbing of anti-competitive practices from the system.

During the privatisation process, every country needs to adhere to certain sensitivities. There are certain strategic organisations which cannot be privatised like the National Development Complex (NDC). Such companies are not to be privatised to prevent their likely exploitation by the forces inimical to the interests of Pakistan. However, these organisations are very few in number.

From the preceding discussion, it clearly emerges that today Pakistan’s economy is in dire need of privatisation which must also include large and inefficient public sector organisations that are depriving the national exchequer of huge sums of money year after year. The sooner it is accomplished, the better it would be.

Nasr Ullah Khan is a student of MSc International Relations at NDU, Islamabad. He is interested in finding out the benefits of privatisation in the Global North and its prospects in the developing world particularly Pakistan. He can be reached at nasr0109@yahoo.com.

The views expressed by this blogger and in the following reader comments do not necessarily reflect the views and policies of the Dawn Media Group.