Around 1940’s when the possibility of the partition of the Indo-Pak sub-continent
became evident, it was widely believed by the then economists that the living standards of the people of both
newly created countries (India & Pakistan) would not improve for a long time after separation because both the countries would have to incur exceedingly a high level of non-development expenditure in order to cope with the inherent security threats. Sixty four years after independence the predicament still holds true. No doubt the design faults are hard to come by.
At the time of independence, there were a handful of state owned enterprises including Railways, Telephone and Telegraph Department, the Post-Offices, Karachi Port Trust, Radio Pakistan and some coal and salt mines.
Right after independence it was realized that the private sector had no capacity to meet the basic needs of the people and therefore the idea of state-owned enterprises (hence referred to as public enterprises) took root as the obvious panacea to the problem. Consequently, Pakistan Industrial Development Corporation (PIDC) was established in 1950 with the aims:
“… to set up industries in such fields where the private sector was shy and where large amount of capital outlay with long gestation period was required. Secondly, the object was to set up industries in such areas, which were backward with a view to creating employment opportunities and removal of regional disparities. The operational strategy
was to set up projects on a continuous basis and transfer them to the private sector after successful operation, thus promoting the development of the private sector.” http://www.pidc.com.pk/home.html
Privatization, as a public policy tool, was first applied during the Ayub era (1958-69) when some industrial units that were setup by PIDC were
privatized. These included jute, paper and sugar mills. However, during Bhutto era (1972-77) a broad sweeping nationalization program, inspired by socialistic development paradigms of that time, was initiated in order to ‘reverse’ the then prevalent notion of ‘concentration of wealth in the hands of few’ which primarily was believed to have occurred as a result of the privatization during 1960’s. At that time, it was widely believed that there were only 22 odd families who owned maximum chunk of the ‘wealth of the nation.’ Just like Vilfredo Pareto had discovered that ‘only twenty percent of the people of Rome owned eighty percent of the wealth of Rome’, only Pakistan’s scenario was grimmer.
The idea expected to provide relief to masses, but the way it was implemented, left so much to be desired. It also resulted in the flight of capital and some strategists believe that only because of Bhutto’s nationalization program, today there is a situation of unemployment and underemployment in the country – the entrepreneur lost confidence. Subsequent regimes surprisingly also blinded themselves from this core issue.
The performance of the newly nationalized entities during Bhutto regime was marred with political appointments and bureaucrats participated in this synthetic plunder with matching zeal that of the politicians. Narrow-based idea of welfare through employment for youth eliminated the chances for carrying-out larger good which these public enterprises were actually meant to realize in line with their raison d’etre.
Things would have been better if the political appointees in the public enterprises were given proper training and orientation and these public owned entities were steered through good administrative practices. But due to criminal negligence, corruption, vested interests and incompetence of those who mattered, the desired results from public enterprises could not be materialized. One fails to understand why not the plunderers did well, where they could have, particularly where there was no clash in their & public’s interest.
Another important thing to note that today one has to invest a lot of money in studies and equip oneself with so many skills in order to get a job which barely satisfies day to day family needs. On the other hand, those who did not pass even the secondary school exams but were employed in public enterprises on political basis today fare so well in terms of financial and non-financial modes of compensation. Had there been performance-based incentive practices in the public enterprises things still would have been different.
Army would have gained more from financial health of the public enterprises because dividends from these entities would have provided for a lucrative revenue source for the government and hence percentage-wise allocation for defense forces in the budgetary framework would have been comparatively far better – fruits without guilt, but nothing much happened during both Zia & Musharaf’s regimes to make public enterprises perform for the people of Pakistan. The decision of privatization of Pakistan Steel Mills was reversed by the Supreme Court on the initiative of the labor union after it was proved that the privatization process was not transparent and the public assets were being disposed-off at grossly undervalued prices – disturbingly, the government did not mind selling it cheaply!
This year a fiscal stimulus of PKR300bn is required by the loss making public enterprises – the white elephants of Pakistan, to carry on with their operations. Last year the amount was said to be around PKR250bn. What a pity… the state built the infrastructure, developed capacity and injected the initial capital outlay with the idea that these public enterprises will operate on self-financing basis afterwards, once established, while satisfying both the profit and surplus (welfare) motifs, but every year these aging public enterprises expect Government to provide financial support as they have been unsuccessful in achieving acceptable levels of productivity ever and also failed miserably to achieve the desired welfare goals expected from them– in fact they have caused more harm than good!
Government should privatize (transfer of ownership from public to private) these public enterprises as early as possible. A word of caution though – valuation of these public enterprises should be carried out by reputed financial security companies and the details of assets of these public enterprises should be made public. There are different modes of privatization. Government
should adopt an approach whereby it should surrender all sorts of ownership rights from these ventures rather the Government should totally get out of the public enterprise business. A transparent process for privatization should be adopted so that it becomes impossible for the individuals with corrupt minds to get any sort of benefit from the privatization proceedings. Moreover, there are ways to ensure the well-being of the employees of these public enterprises in the event of transfer of ownership or management rights.