Economic managers in third-world countries like Pakistan remain enamoured by the promise of the free market. For over two decades, the international financial institutions (IFIs) and the first world have been preaching the laurels of privatization and the need to roll back the state.

The results of the so-called structural adjustment revolution in Pakistan, like much of the third world, have been unambiguously disastrous. Among other things, poverty and unemployment have increased steadily.

Thirty million people in rural areas are now reported to be land less. Industry has declined steadily since the 1980s and the vast majority of new employment opportunities are in the highly insecure service sector. Nonetheless, the neo-liberal free market brigade continues on its merry way.

The most high-profile planned privatization in Pakistan at present is that of the Karachi Electricity Supply Corporation (KESC). For over a decade, successive governments have promised the IFIs that KESC will soon be divested and the decades of mismanagement, inefficiency and poor service will finally come to an end.

In fact numerous loan agreements have been signed with KESC's sale prominently featuring as one of the major conditionalities. Till now, the promises have remain unfulfilled, much to the chagrin of our gracious donors and many people who remain utterly convinced of the clear advantages of shifting ownership of one of the country's major utility providers from the state to private hands.

But beyond the rhetoric, what will the privatization of KESC really mean? In the first instance, it is important to de-construct the myths surrounding KESC's fall from grace. Only two decades ago, KESC was an autonomous state agency that operated on a healthy annual margin.

Then military ruler General Zia ul Haq -- for reasons that were not entirely clear -- decided to strip KESC of its autonomous status and merged its administration with the federal Water and Power Development Authority (Wapda).

Subsequently, KESC was instructed to purchase furnace oil from Pakistan State Oil (PSO) to meet its requirements. In the 1990s, KESC was forced to start purchasing power from the disastrous Independent Power Producers (IPPs) at rates far in excess of power that KESC could itself produce. Importantly, at least two of these policy shifts were undertaken at the behest of the IFIs.

By 1995-96, KESC was in the red, losing Rs468 million in that fiscal year. Total accumulated losses now stand at Rs49 billion. The fact of the matter is however, that KESC's losses have far less to do with any widespread corruption than with the imposition of the afore-mentioned policy decisions that have greatly increased the agency's operating costs.

Meanwhile, by virtue of the agency still being in state hands, only a portion of this increase in costs has been pushed on to the consumer. When such agencies are owned by the private sector, it is common knowledge that increases in recurrent costs are transferred to consumers almost in full.

And if mismanagement and electricity theft are now rife, it must be asserted that the vast majority of Karachi's electricity is stolen in the affluent areas of Clifton and Defence, a fact that every meter reader in Karachi can testify to.

In any case, given that KESC is now in serious deficit, the question is whether privatizing it will actually lead to a reversal in fortunes. The privatisation myth is based on two popular assumptions.

First, that privatisation separates owners and managers and thereby allows the latter to function purely on the basis of allocative efficiency. Second. the quality of services provided is enhanced greatly and the ordinary consumer benefits unambiguously.

The question of allocative efficiency in KESC is ultimately contingent on minimizing input costs other than labour. Specifically, without an end to the policy of purchasing furnace oil and power from PSO and the IPPs, there is no question that KESC's costs will decrease sufficiently for it to become profitable, regardless of its ownership status.

As for the logic of improved services, even if this is the case, the real question is one of affordability. Already in the past three years increases in utility prices have created a huge burden on ordinary taxpayers, let alone increases in tariff rates that will be a necessary outcome of privatization.

As for the popularly propagated issue of theft, recent events around the world have proven that nepotism and corruption are more widespread in the private sector than in the public sector.

Numerous examples of the unholy nexus between the private sector and political power that have unfolded in the first world are testament to this fact. In any case, given that electricity theft in Karachi is most glaring in the affluent areas of town, it can hardly be surmised that privatization will radically alter the situation.

The Pakistani elite has managed to accrue so much power that it does not have to pay taxes, abide by laws or put collective interests ahead of its own interests. Besides, evidence from privatized utilities around the world - in both the first and third world - suggests that the burden of increased revenues falls squarely upon lower income groups.

There is also another fundamental contradiction in the logic of the proponents of privatization. Given that revenue collection woes are typically advertised as a major reason for privatizing state enterprises, it is not entirely clear how government's compensate for the loss of major revenue generating units such as public utilities.

In the case of KESC, as has been highlighted above, revenue-generating possibilities for the state are significant provided that centralised and ill-designed policies that have forced the agency into loss are reversed.

Besides, the privatization experience in Pakistan has proven that whether in the case of banks, industrial units, or utilities the final sale price tends to be far below market value. KESC's sale is likely to fetch the government Rs60 billion, a pittance of the organization's actual value.

In general, the myth of privatization speaks to the much deeper problem of how the dominant neo-liberal economic paradigm has systematically led to contractionary effects on third world economies, exacerbating the very problems that the IFIs profess to alleviate.

The dominant paradigm is only as damaging as it is because of the willingness of our economic managers to continue ascribing to policies that have failed consistently.

Rather than liberalise and privatize freely at the behest of donors who over time have proven that they operate on largely fickle considerations, our economic managers need to take bold initiatives based on the specific needs of ordinary citizens.

In much of Latin America, the neo-liberal consensus is being rejected by people and governments alike. We should not wait for our economies to collapse as happened in Latin America before we make the much needed shifts in our policy discourse.