Privatisation – The Way Forward | Tariq Iqbal Khan

The government’s primary role is governance and regulation, not to manage and operate businesses. The government works in a manner that there is a shared responsibility which is demonstrated in decision-making through cabinet, assemblies, standing committees, hence no single person makes a decision and the decision-making is carried out through collective wisdom.

In businesses, the boards are responsible for policy framework while the executives are responsible to carry out the day-to-day operations in light of the policy framework. Sometimes the decision-making in the businesses is done where two to three people would make a decision in light of the policy framework laid down by board and rules and regulations made there under.

Due to the above differences of working, nationalization has not succeeded in any country and any jurisdiction. At the moment no country is following classical model of socialism or capitalism where the base is that all industrial production is carried out through nationalized industries.

In Pakistan, key industrial growth was witnessed during the period from the Independence up to 1966-67. The capital was made available by the industrial and investment banks. There was another instrument in the shape of PIDC which was entrusted with the job of industrialization.

PIDC’s charter was that after establishing the industry and after operations of a couple years the PIDC was required to disinvest whether the project was in profit or loss. The basic reason was that the limited resource once employed should be recovered back from disinvestment (privatisation) and the same capital was to be re-employed to install and establish further units.

The policy was that whenever there were profits and the area was not underdeveloped, private sector was establishing the industry, while the underdeveloped areas and risk industries, the PIDC will lead the way. The system worked well as the growth of Pakistan’s economy was much better than the whole South Asian region.

It is a known fact that after Korean War, Korea adopted these policies and now is one of the leading economies of South Asia. In contrast, India was following a very socialistic pattern of industries and all the industries which were established under the British rule were doing well but further growth was not very impressive.

Then we witnessed the 1966 political turmoil, 1971 – fall of Dhaka, 1972 – the beginning of PPP government, and consequent nationalization right, left and center. The first nationalization was done on January 1, 1973 and the second in 1974.

The major industry was nationalized and the management was entrusted either with bureaucracy or the workers of PPP. Since they had no experience of management and operations, the industries started going into losses, and those losses were either financed by the banking industry or in certain cases by the federal government out of national budget.

The final blow was delivered in the shape of nationalization of cotton ginning, rice milling and flour milling industries, and suddenly the whole country came to a standstill. These were small businesses and sometimes they were being managed by the family itself, especially rice.

The basic theory is that when some industrialists accumulate profits then although they may spend on personal expense and showing off but they would definitely embark upon that accumulated surplus in the same or new industry that contributes to national exchequer, new jobs are created for labor, the competition serves the consumer and of course some of the same is spent on welfare.

China and Russia have followed the privatisation path and benefited and the whole Europe has stopped the industrial ownership by the government. In Karachi, the private entrepreneur has spent a lot of surplus capital in health and education sector which is far greater than the government spending.

Here another fact merits some discussion which is that whenever some disinvestment or privatization is made there is a fear that people would lose jobs. We have seen this happen in case of Pakistan Steel Mills where the then management of PSM got contribution from the steel dealers and run very vibrant campaign against the privatization.

The whole nation was swept by that campaign and the privatisation of PSM was annulled on flimsy grounds. From that time onwards, around 6 to 7 percent of the total national income is given to the steel mill each year, and up to the current year, the losses are 200 billion. So effectively, a small amount of say 700,00 taxpayers are contributing towards employment of few thousands inefficient workers of PSM. Similarly, the PIA had suffered a loss of 20.55 billion in nine months till September 2015, while the accumulated losses are more than 300 billion rupees. So again, another 7 percent of the national income is spent on operations of PIA.

In case of privatisation, theoretically, the operator would end up making profits and these 30-35 billion rupees will be saved from national income, while there is a possibility that 3 to 4 billion rupees will be contributed by the organization to the exchequer.

We have seen a lot of maligning recently in the case of privatisation of MCB, which was privatised in 1991 and was awarded to the highest bidder of that time. What the NAB is inquiring nowadays is very interesting as they are inquiring completely irrelevant issues in this regard.

The basic question would be that if any law which is applicable in this matter is income tax law where you are required to keep the records for 10 years, so under which law NAB can ask a person to produce record after 10 years?

Can anyone remember these minor details after 25 years? If such methods are followed, it would set a very dangerous trend and go against the process of privatisation.

(The writer is former Chairman National Investment Trust and former President Pakistan Banking Association)

Source: http://www.brecorder.com/articles-a-letters/187:articles/18232:privatisation-the-way-forward/?date=2016-02-20