Change of guard in Wapda

RETIRED general Zulfiqar Ali Khan is no more at the helm of affairs in Wapda. He has completed his five-year term, an honour always denied to the duly elected prime ministers. He alone could claim the credit for the Elysian heights to which he took Wapda.

General Zulfiqar could not control expenditure, which ballooned, during his stewardship. The General was handsomely rewarded and was given a six-figure salary after he retired from the military. Wapda became a bottomless pit and swallowed billions of rupees in subsidies that the Federal Government paid in the face of stiff opposition of Ministry of Finance and international finance institutions.

How did he get the job in the first place? This would shed some light on the method of selection which is far from being based on merit. It was in 1999, when one happened to be at the prime minister’s house for some official meetings, when chief minister Punjab, Mr Shahbaz Sharif, who was standing there after the meeting, emphatically suggested that only a strong general could improve the fortunes of Wapda.

It was pointed out to him that this might not be such a wise move because on the one hand it would amount to an admission on the part of the government to have failed in running such a huge utility and by extending the argument to its logical conclusion, the whole government.

Mr Khan ran Wapda with an iron hand. He had a no-nonsense style of disregarding any inference from any quarter. The only boss that he accepted was the Chief of the Army Staff, who lent him unqualified support. He would have federal secretaries changed. He perhaps would without doubt rank as the most powerful chairman of Wapda. He brooked no interference at all. If anything, it only increased his resolve to stand firm. He routinely defied ministers, the World Bank/IMF duo and at times even the courts and called their bluff. He defied judicial awards.

Once an impeccable foe of Hubco, he would later routinely stay as the house guest of its chief. He hounded his lowly employees like a tyrant and publicly humiliated the seniors, general managers et al. They were scared of him stiff. There was a disconnect between and the Wapda bureaucracy.

Zulfiqar withstood intense pressure from World Bank/IMF duo not to shed off his other hat as chief executive of Pepco. He never allowed privatization to take place. He would make promises without delivering and the duo would accept these and come up with fresh loans. He saw through their bluff. He created 12 companies but never allowed them freedom of action and firmly planted pliant brigadiers as their chiefs.

All decisions in Wapda for all five years were his. Nobody else could take decisions. It was too centralized a system of management, with all its pitfalls. Even a minor decision by a general manager to participate in a meeting called by the controlling ministry of water and power required his prior approval. Most of the time decisions became infructuous because the need had already been overtaken by events.

But what did he do with all that powers? Wapda is in a bigger mess and the hopes of a turnaround both in Wapda and KESC of which he was a chairman have been dashed. Wapda or KESC has no document to indicate line losses at 40 and 50 per cent respectively. But Mr Khan went on repeating these figures including in advertisements, which coincided with the last referendum, organized to endorse a sitting ‘president’. He accused all his predecessors in Wapda and KESC of lying about the line losses.

Another of his achievements was a pubic image that he succeeded in instilling in the minds of the people that they presaged disaster both for the two utilities and the nation, because of the tariff rate charged by IPPs was a rip-off. He had, during Nawaz Sharif’s government, renegotiated the agreements and went about claiming that he had brought about savings of billions of dollars. Expenditure on IPPs went on rising. He couldn’t be right in both the claims that he had brought about savings and the IPPS were trouble. Either the revised tariff was reasonable or IPPs were trouble.

Closer examination of thermal power stations run by Wapda would show that IPPs produced cheaper electricity. Unless hydel power was taken into account WAPDA did not match their efficiency. Another important point to consider is that without the IPPs half the country would be in darkness. But we had more electricity than our run-down system could take, although there was huge latent demand.

We had surplus electricity for which the former chairman could not find an economical use. According to some estimates the surplus power that he allowed to go waste was of the order of 2000 MW. He did not let India buy that surplus for reasons that had nothing to do with either trade or commerce, but entirely his personal — not to provide comfort to the ‘enemy’.

The World Bank and the IMF have been managing this country for as long as one remembers, particularly in the last four years. When the general was appointed to head Wapda, the local high-ups in the World Bank were jubilant as if their dreams had come true. Their innate generosity reasserted itself after the fall of Nawaz Sharif and the duo came hurrying with the cheque books. Now we are sitting on a pile of dollars, which do not forebode well for our future. Their contribution happily coincided with 9/11 when nervous Pakistanis started transferring funds to a safer place in Pakistan.

The donor duo has fine-tuned conditionalities into an art form. They try to micro-manage to an extent where they do not want to slip up on a minor detail. They have installed teams at strategic places to monitor the CBR and the ministry of finance. They were never so happy with their performance. They wanted Wapda and KESC privatized and both are nowhere near the targets. Mr. Khan was adamant in disregarding their advice. Money kept coming. It is reported that the duo is again happy at seeing the back of Mr. Khan.

They are once again brimming with optimism as if their wishes had come closer to realization. They have been insisting since 1990 for privatization of these two sinking utilities and every time the government fails, the duo rewards them with more loans.

For clarification it should be stated that the loans go to the federal government and not to the utilities, but micro management of the utilities is one of the conditions precedent for the loans. Both of us know that we are lying but the duo pretends to believe us, because that is how they advance their careers by saddling a Third World country strategically located with more and more onerous loans.

One happened to meet the same official of the World Bank who was jumping with joy at the appointment of the general five years back and questioned them about their misplaced optimism. The answer went something like this. That there was total absence of security in Wapda.

The MD KESC, Mr. Shahid Hamid, an outstanding member of the civil service had been killed. Two, the Word Bank does not interfere with the personnel decision. And a third argument that was far more outrageous was that there is lack of competent and honest professionals available in Pakistan to be able to head the two utilities.

Total lack of understanding on the part of World Bank officials who enjoy running this country is more than apparent. We do not need security guards in the two utilities, what we need is professionals (not necessarily engineers) who are both competent and honest. As it is, Wapda has the most intense security apparatus ever seen in a civilian outfit. The place is infested with security men. There is a full intelligence brigade to watch over the senior officers of the utility. The claim of the IFIs that they do not wish to interfere is totally flawed. Their interference extends to placing their men in offices like CBR and Wapda to monitor compliance with their conditionalities.

It is for lack of understanding on their part of the complexity of our problems, and lack of comprehension on our part as to the baleful effects of more and more loans that we are confronted with the worst possible combination of stupidity and crass criminal neglect of national interest.

As for the third argument that Pakistan lacks the expertise, as a matter of fact the country is full of competent and honest people but it is the system that fails to find them because what it needs is obedient robots.

One former prime minister wanted a new head of Intelligence Bureau (IB). He was in Lahore and asked one of the aides to suggest an appropriate replacement. Correct to the core, that civil servant suggested that a panel of senior-most officers of the police may be called for. That was much too long a wait for the prime minister and he asked a retired Lt-Colonel, who was present there to take that job. He had his difficulties and he suggested another retired Colonel. This man was appointed although he was working in a civilian job of Garde-19. Mind you, the job of director, IB is of Grade 22. That is how appointments are made, now or before.

A similar method was used to make appointments in private power & infrastructure board (PPIB) and national engineering services Pakistan (Nespak). Both the candidates had failed in the interviews but were appointed nonetheless. One was known to the prime minister and the other to a minister. Nespak doesn’t have salaries to pay to its employees. PPIB is run on loans contracted more than a decade earlier.

As for the new Chairman of Wapda, one wishes him well. His first month on the job will reveal far more than all his previous private sequestered life.

Role of tertiary education

IN the column published in this space last week I dwelt on the importance of tertiary education for sustained economic development and social change. I wrote about the emerging consensus among development economists and practitioners of development that the institutions such as the World Bank were wrong to put so much emphasis on access to primary schools while paying almost no attention to higher level education.

In fact, in several cases these institutions insisted that public funding should be directed towards primary schooling, away from tertiary instruction. The governments are now being asked to treat the entire education as a continuum that stretches from pre-primary education; to primary, secondary and tertiary education; and beyond, to technical education and research and development. While that policy advice has begun to be given — and in some cases it has begun to be received — what are its implications for the structure of the sector of education, participation of the private sector at various levels of the educational continuum, availability of public funding for education, and the role of the state.

Before attempting to answer these questions, it will be useful to take a look at what is happening across the globe and not just in developing countries. The educational sector in rich countries is also under considerable pressure to change. The sources of these pressures are similar to those being felt in the developing world. It would be appropriate, therefore, to start with an analysis of the situation in the world’s rich countries.

Let us begin with the question of the role of the state in education, a question that has been the subject of much attention for decades and an issue about which there have been wide swings of the pendulum including that of informed opinion. “Public goods, quasi-public goods, and externalities are fairly common in the real world,” wrote economist Paul Krugman a few years ago. “They are common enough that it is necessary to take proposals for government intervention in the economy on a case-by-case basis. Government action can never be ruled in or ruled out on principle.

Only with attention to detail and prudent judgment based on the facts of the case can we hope to approach an optimal allocation of resources. That means the government will always have a full agenda for reform — and in some cases, as in deregulation, that will mean undoing the actions of government in an earlier generation. This is not evidence of failure but of an alert, active government aware of changing circumstances.”

This long quotation from the writings of a highly respected economist helps to focus attention on a number of issues that have bedevilled the role of the state in economic matters, not just in the sector of education. Krugman is right in emphasizing pragmatism over ideology, a dynamic approach over the one that does not change, and the recognition that governments can never — in fact, should never — totally step aside from participating in the economic lives of the citizens they govern. It was wrong for development practitioners to insist during the time the policy agenda associated with “the Washington Consensus” held sway that good economic governance meant little and very spare role of the state.

In this context, it is interesting to note that while much of the Washington Consensus advice to the developing world emanated from rich countries, public funding remained the main source of support for tertiary education in that part of the world. But that has begun to change and in a way that has lessons for the developing world.

According to a 2001 OECD study, of the eight rich countries for which data were then available, private expenditures for tertiary education grew faster than public expenditures in seven countries — France, with a strong tradition of high quality government-financed tertiary education, was the sole exception. In Canada, Italy, the Netherlands, and Switzerland public expenditures actually decreased in real terms. This happened because of a sharp increase in private participation in this part of the educational sector, a subject to which I will return in a moment.

Not only was the state in the developed world contributing a smaller proportion of the total funding available for tertiary education. It was also using much greater flexibility in the way government funds were provided. A number of countries switched to resource allocation formulas pegged to the value of inputs and outputs. The formula-funding approach to budgetary allocation was designed to develop greater institutional autonomy by giving more management discretion to tertiary education institutions in the internal distribution and utilization of the government funding.

For instance, in Australia, Denmark, New Zealand, and Sweden tertiary education institutions were given more autonomy in allocating resources across faculties, departments, and programmes. Formula funding also provided financial incentives for improved institutional performances in relation to national policy goals.

In other words, a number of rich countries treat tertiary education as a quasi-public good with important externalities that justify considerable government funding. That tertiary education has important externalities — which means that it produces an array of social benefits that go beyond those that become available to those who are educated — has come to be recognized only recently. A 1998 report published by the Institute for Higher Education Policy based in Washington identified a number of public benefits that can be associated with tertiary education.

These include nation-building and development of leadership. Political development is also facilitated by higher education. Democratic participation; increased emphasis on consensus-building as a way of managing inter-personal and inter-group affairs; the perception that the society is based on fairness and opportunity for all citizens are some of the developments fostered by the right kind of tertiary education.

Let me illustrate this point by taking an example from Pakistan. Sectarian violence in Pakistan is perpetrated by the groups whose members have not received higher education and whose exposure to education, at best, has been to the narrowly focused madressahs. Bringing modern education to these groups should make them more tolerant towards people who profess different faiths. This is an example of an externality associated with tertiary education.

Social mobility is also helped by tertiary education, a fact that has been noticed by some anthropologists who have studied the composition of the labour force in India’s IT sector. There is much greater mixing of the castes in this part of the economy than is the case with the old manufacturing and service sectors. The IHEP study also identifies reduced crime rates, improved health and improved basic and secondary education as some of the social benefits of tertiary education.

Like so many other benefits from positive economic developments, tertiary education also has multiplier and cumulative effects. The old debate in the United States about the relatively poor performance of black Americans in racially mixed schools and colleges has begun to focus on the cumulative impact of tertiary education as communicated through generations. It has been noted that in the affluent suburb of Shaker Heights, Ohio middle class blacks apparently work less hard in school and clearly lag behind their white peers in achievement.

But, race is not the determining factor. According to one expert, “ninety per cent of the district’s white students, but just 45 per cent of its black students, have two parents with college degrees. And nationally, middle income blacks are much more likely to be new to the middle class than middle income whites are, so parenting behaviours that are associated with class (such as reading nightly to children) can be mistakenly interpreted as racial in character.”

Another important externality is the formation of industrial and educational clusters that are dependent on the institutions providing higher education. The existence of universities and training institutions has promoted the development of high technology industries in many parts of the developed and developing world. The successful experience of technology-intensive poles such as Silicon Valley in California, Route 270 in Maryland, and Bangalore in India attest to the positive effects that the clustering of human capital alongside leading technology firms can produce.

East Asia has many examples of technology intensive poles including the Daeduck Research Complex in Korea, Tsukaba Science Town in Japan and Hsinchu Science-Based Technology Industrial Park in Taiwan. The only comparable example of this in Latin America is Campinas in Sao Paulo State, Brazil.

Balancing these external social benefits are economic and social advantages that become available to those who obtain higher education. Among the economic benefits for the well educated are higher salaries, better employment opportunities and higher savings rates. Social benefits include improved and healthier lifestyle and also higher life expectancy.

Since the benefits from tertiary education accrue to both private and public sectors, governments have been prepared to allow private finance to enter this sector. Nonetheless, most governments are insisting on a regulatory framework within which the private sector is allowed to participate.

If the development of tertiary education is to be treated as a shared responsibility of public and private sectors, how should the latter be invited to play a meaningful role? There are several options available, some more attractive than others. To start with is the entry of private players into the system as “for-profit” operators. They can play an important role in the systems in which public institutions are particularly weak. This is the case in several South Asian countries, particularly Bangladesh and Pakistan.

How free should be the entry of private capital in tertiary education? Is there a role for the state, particularly in terms of regulating the institutions set up by “educational entrepreneurs”? Should the state motivate the private sector to self-regulate by providing accreditation only to those institutions that meet certain prescribed standards? How should students from less well-to-do families gain access to these institutions?

Answers are being found to these and many other questions by educationists across the globe. In the United States private colleges and universities have to conform to certain standards laid down by various collegiate and university associations. In several Middle Eastern countries, the state grants charters for the establishment of private institutions after a thorough investigation. In some Latin American countries, student loan programmes are available to help children from poor and middle class families finance their stay in private institutions.

There is one requirement for active state participation in developing private institutions. For the state to play an effective role, government agencies assigned the task of regulation and oversight have to be technically strong and able to resist the temptation to collect rents from the entrepreneurs wanting to invest in the sector. This is not the case in the countries that have weak governments and, therefore, weak ministries and departments of education. It is precisely in these countries where “for-profit” educational institutions seem to flourish the most. This, then, poses a paradox. The solution is to trust the private sector to regulate itself on the basis of guidelines developed in a transparent way by the public and private sectors working together.

Mahathir’s legacy revisited

MALAYSIA’s Mahathir bin Mohammad, who successfully fought Islamic fundamentalism in his country, had, in a speech on January 21 this year, observed: “There is now a deep split among the Muslims of Malaysia, caused by Muslim politicians abusing the teachings of Islam ... one political party has convinced its followers that anyone not joining or supporting it is not a Muslim. Thousands of Malay Muslims believe that voting for this party will guarantee a place for them in Heaven.”

A day before he called it a day and handed over his powers to his deputy Abdullah Ahmad Badawi, state legislatures in two states where the fundamentalist Pan-Malaysian Islamic Party or the PAS rules approved strict Shariat laws for promulgation. (The federal government has, however, rejected the PAS right to enact these laws). One of these states, Trenggannu, contains 64 per cent of Malaysia’s proven oil reserves. A week later, the PAS released a long-awaited ‘Islamic State Document’ which spells out what constitutes an Islamic state and how the party would realize this if it wins state power through elections scheduled to be held next year. Its chief, Abdul Ghani Awang, says: “So far the government has ruled Islam, now we want Islam to rule”.

The fundamentalists who were strictly kept in check by Mahathir for long had been waiting for his exit and have now stormed the political stage in a big way. Their threat to his legacy is, however, not yet so grave but can become real if not effectively contained at this stage. Although he has already served his country as prime minister for 22 years and became a role-model for other developing countries, these are the times everybody wished to see more of him. The problem is that political Islam, even if it fails at the hustings, can still upset the delicate racial balance so skilfully achieved and, hence, undo the enviable economic gains.

The way Mahathir had handled the racial issues was quite amazing. The challenge was “too frightening”, as he once said, since about 62 per cent of the population are Malays who are Muslim but the country’s business drive comes mainly from the Chinese minority (30 per cent). In 1969, there was a serious outbreak of racial riots and Malaysia was “written off” by the world. It looked as if racial harmony would never return. The cause of the riots, when investigated, was found to be economic disparity between various racial groups.

Mahathir was of the view that the Chinese must be allowed to prosper without any hindrance but that Malays, not a well-off community, be given certain favours. So, it was decided that a bigger share from the country’s wealth will go to the Malays and other weaker racial groups including Indians (eight per cent) to reduce the imbalance. The policy worked and since then there has been no racial riots.

And when Mahathir refused to accept the IMF’s assistance during 1997 East Asia crisis, he had in his mind its long-term repercussions, including the ones that may bring racial tensions. He was convinced that borrowing from the IMF would mean a loss of independence but what he feared most was that the IMF would not allow his government to effectively reduce disparity between the Malays and the non-Malays.

However, it was the economic dimension of his decision and the very act of refusal, which the West is not accustomed to, that had surprised the world. It so happened that when the currency crisis hit most of the East Asian countries, the IMF sought to intervene to “rescue” them. Mahathir refused to buckle to the IMF’s demand and did the opposite of what it recommended. He imposed capital controls and pegged the country’s currency to the US dollar.

As he recalled during an address to business leaders of Lebanon early this year, taking such a bold step was no easy task. “It was frightening. Everyone said we were going to destroy ourselves. But (ultimately) we succeeded and recovered.” The billionaire currency speculator George Soros, who was seen to have triggered off the crisis, had then disgustingly called Mahathir “a menace to his own country” for refusing to listen to the IMF advice.

In September this year, when IMF chief Horst Koehler visited Kuala Lumpur he was generous enough to admit that Mahathir was “right at that time”. The IMF also described his dollar-peg decision as “stability anchor” of a rebounding economy. There could be no greater tribute to Mahathir’s vision of how Malaysia’s economy should function.

Mahathir retired from the political scene at a time when the Muslim world is already suffering from a critical scarcity of able statesmen. He proved to the world that it is possible to be both Muslim and modern and that a pre-dominantly Muslim society can comfortably co-exist with people of other faiths. If Islam is to regain some degree of lost glory and be prevented from being humiliated by the West and regarded as a religion of terrorists, then the Muslims must learn new sciences and technologies, he always advocated. He was bold enough to call a spade a spade while describing the sad plight of the Muslim ummah.

Following are some of the observations he often made to describe the causes of the decline of Muslims nation:

(1) When the Industrial Revolution took place in the 19th century, the Muslim world was either unaware of it or just ignored it. For a long time, the results of the revolution, such as electricity and mechanized vehicles, were also rejected for being un-Islamic. So, the Muslims continued to lag behind and became more backward as the scientific advances passed by.

(2) The Muslims are more concerned, and rightly so, about what is forbidden by their religion. But there is no one opinion on that. In Afghanistan, so powerful is the belief that no part of a woman’s body may be seen by strangers that women there refuse to take off the ‘burqa’ even when they are allowed to. In other parts of the Muslim world, it is permissible to leave the face and the hands uncovered. Who decreed these dress codes?

(3) Knowledge, which the Holy Prophet advised the Muslims to seek even if one has to go as far away as China, has been interpreted by theological clerics as religions knowledge only. The study of other kinds of knowledge is regarded either sinful or of little merit and not contributing to ensure a place in Heaven. What the early Muslims took the Prophet’s advice to mean was studying works of Greek and other scholars before Islam.

(4) The Holy Prophet brought only one Islam to the world. But today there are many Islams. There are Sunni Islam and Shia Islam, each of them further divided into numerous Islams and each group claiming to be practising the true religion and considering members of other groups as infidels, deserving death.

Mahathir was often critical of a typical Muslim attitude, found more among Arabs, of reacting to their enemies’ moves with anger rather than adopting a thoughtful approach. “They (Jews) survived 2000 years of pogroms not by hitting back, but by thinking,” he once said admiringly about Jews. (Such remarks, on occasions, confused the West about his political beliefs as did one remark at the OIC summit.) Then he asks: “Was there no other way for the Muslims to react than to ask our young people to blow themselves up to kill people and then invite the massacre of their own people?”

Malaysia under Mahathir has been the world’s most impressive success story. Two generations ago, the country was so backward that it looked like a large botanical garden. There were only tin mines and rubber plantations. Mahathir turned it into a manufacturing powerhouse. Despite his scathing anti-West outbursts, he remained a voice of moderation, a crusader against religious fundamentalism and an ardent advocate of tolerance.

Now that he has bowed out, his legacy appears to be in trouble. The division between moderates and fundamentalists among Malay Muslims seems to be aggravating. The key issue raised by the fundamentalists is whether modernization, liberal democracy and a secular constitution (that brought stability and racial peace and tremendous economic progress under Mahathir) are compatible with the demands of ‘political Islam’. Of late, there has been a rise in the popularity of Pan-Malaysian Islamic Party which has been a minor party in the recent past but made substantial gains in 1999 elections. It outrightly rejects any co-existence between secularism and Islam.

So the Malaysians are being subjected to severe pressure to choose between moderate Islam as espoused by Mahathir’s United Malays National Organisation (UMNO) and radical Islam as defined by the Pan-Malaysian Islamic Party (PAS).