The case against privatisation

Nadir Hassan
A nifty trick adopted by those who argue in favour of Nawaz Sharif’s privatisation agenda is to simply assume that profit is the only metric of measuring the success of a venture. We have been so marinated in the corporate model that it is no longer possible to conceive of any social good that state-owned enterprises may be engaged in.

The perfect case study here would be PIA. Everyone agrees that the national airline is bloated, beset by bureaucracy and losing far more money than it should. But is selling it off to the highest bidder – if anyone does bid for it, that is – the best option available to the government? 

We first need to study how PIA can be made profitable, or at least less of a loss-making entity. The most obvious step would be to, in the parlance of the day, start ‘downsizing’ the airline. This means tens of thousands of jobs lost at a time when unemployment is already dangerously high. It would also mean breaking the backs of the unions, who would naturally oppose such a move. 

The private sector has been largely successful in destroying whatever labour unions remain; if the few effective unions at state-owned enterprises are also left to the mercy of the private sector then we are essentially admitting that profit is more important than the rights of workers.

PIA brings with it another special wrinkle: it performs a valuable public service by plying routes that are unprofitable. Should we privatise the airline it is a sure shot bet that any route that does not pay its own way will be shut down. This again may make sense for a profit-making entity but would be a great loss to the country. The same is likely to happen should the Pakistan Railways be privatised since few routes other than the main Karachi-Lahore and a few inter-Punjab routes will be profitable on their own.

Certainly, all things being equal, the losses being sustained by many state-owned enterprises are of concern. The answer, though, must lie in better management rather than new ownership. This is what the government has promised, saying that it will reform state companies and demonstrate that they are profitable before selling them off. But that raises an invariable question: if they somehow do become profitable then what is the point of selling them off?

The main argument presented in favour of privatisation – under the ‘profit is everything’ mantra – is that private-sector managers are by definition better stewards of a company than government bureaucrats. This ignores the fact that the government itself could hire these managers and also dreams up an ideal capitalist society where the corporate sector thrives without government help or hindrance. 

Studies into the last mass privatisation in 1992, for example, found no evidence that the private sector was any better at running the companies they bought more profitably. For supposedly hard-headed bean counters, the privatisation advocates have certainly bought into the myth of the efficient private sector without any data to back up their claims.

The reality is that private sector profitability is often made possible by government, and by extension taxpayer, support. Entire industries, like the auto and textile industries, are reliant on protectionism and subsidies for their profit. They then use their money to buy off regulators and make even more money at the expense of the public. Even such self-proclaimed privatisation success stories such as KESC (K-Electric) have thrived with the continued injection of public sector resources and the guarantee of a monopoly.

Under Nawaz Sharif’s privatisation plan there will be no need to buy off regulators since the regulators themselves will either be sold themselves or systematically dismantled. Most agencies that could provide independent and important dissent to the privatisation agenda have been left without heads even as the government rushes to sell off assets. The reason it wants to do this clear. To make its budget look nicer for the likes of the IMF, it is yearning for this one-time cash injection rather than pursuing the difficult task of permanently raising by going after tax dodgers, many of whom are allies of the government.

Another privatisation worry specific to the PML-N government is the fear that state-owned enterprises will be sold off not to the bidders who put in the most attractive offers but to friends, relatives and cronies of those in government. The secretive manner in which privatisation has been foisted on the nation hints at deals being conducted in the proverbial smoke-filled rooms. By weakening the regulatory state so much that it is being run on an entirely ad hoc and caretaker basis, the government has ensured there will be little oversight as it goes about selling the nation.

Even if the government were to be open and transparent in its fire sale, there is a good chance that many bidders would be from overseas, especially the Middle East. That might be seen as beneficial since they will be making a one-time foreign currency injection but the benefit to the public will be less clear since any profits that are made will invariably be repatriated back to the home country. Then there are those unscrupulous buyers who want only the land owned by a company so they fire all the employees, shut down the business and make more profitable, if less socially valuable, use of the land. 

The Pakistan Steel Mills may be a white elephant but surely something productive like that, no matter how much money it’s losing, would be preferable to another country club?

The writer is a journalist based in Karachi