Shakeel Ahmed Ramay
Privatization became buzz word after the Margaret Thatcher’s government. She started the process of liberalization of economy and minimizing the interference of government in business. UK earned £29 billion from selling national industries and £18 billion from council houses. European countries followed the suite and started the privatization. France went on selling industries and utilizes, Germany also tried to grab its share. In France a group of cronies emerged, and they started to grab major chunks of privatized companies and utilities. The group of cronies was well known, and people called them “cash grabbers”.
United Kingdom and European countries deemed it necessary to revitalize the economy. It was considered pre-condition to enhance the efficiency of industries and human capital. In early days it helped to improve the efficiency, but it created other problems. It gave rise to in-equality and dominance of private sector in decision making. Multinational Companies started to bargain with governments and accrued major benefits in the form of taxes. Small medium enterprises started to face setbackand big companies (MNCs) began to capture the local markets. Inequality shaken the trust of common people and movement across the world started to emerge. It also triggered the surfacing and rise of right wing or nationalist parties.
Yellow west is most recent movement which halted the France and government had to give significant concessions to the people. President Macron reversed his decisions of increasing fuel prices and lying off of 200000 civil servants. He also offered a plan for retired people and promised to increase spending (11 US$) for low income groups. UK government is also under pressure and trying to carve out a way to tackle the issues of lower class and rising in-equality. Mr. Jeremy, opposition leader, even proposed to re-nationalize some utilities and services like Royal Bank of Scotland, Railway etc. It has been estimated that it will cost about $210 billion.
Germany is also facing similar pressure. It has started to increase social service spending. Marcel Fratzscher, German Institute for Economic Research, clearly spell out that Germany cannot rely on good economic growth and generous social welfare system. State has to fundamentally change the structure of economy and society and put efforts to empower people. It is a pledge in another way to combat the in-equality in the society. Germany also has adopted a new industrially strategy to protect its’ domestic industry from the global impact. A strategy has been adopted to counter acquisition by offering to purchase some stakes in companies. This is opposite to the liberal economic order.
We can count the countries across Europe and other regions. People are pushing their governments to re-look the policies and strategies of liberal world order. Even the USA, the leader of liberal world order is trying to protect domestic business by introducing a number of tariffs and other measures. Trump’s administration is also feeling pressure from its base to enhance taxes on cooperate sector and give relief to low income group. After the financial crises of 2007-08 USA offered bailout packages to different groups. Portugal, Spain, Poland, Denmark, Greece are also under pressure to re-look its social welfare system and role of cooperate sector.
The starting point of current movement is rise of China. Before, the rise of China, everyone was educated and forced to believe that “Liberal Economic Model” is only recipe of economic growth and development. China broke the old believes of not only about capitalism but also of communism. China showed the world that mix of capitalism and communism can better serve the interests of every stakeholder. China also proved that state enterprises can also exhibit best efficiency.
What China did differently? China asked all state-owned enterprises to compete with each other. For Example, China Mobile was competing with China Unicon. Competition compelled the companies to perform efficiently and produce the better results. It also urged companies to invest in research and development and go for more innovation and better services. State assumed the duty to provide relief and better life to people. State put equal focus to welfare of people. China brings out 700 million people out of poverty and now working to graduate them to move up the ladder. Simultaneously, private sector was also encouraged to grow and giants like Ali Baba and Hawaii emerged at global level.
People realized that if China can create efficiencies with state-owned enterprises and help people to improve their life then why not other. People now start to believe that China model is better in term of social welfare and economic development. Therefore, the voices have started to appear in west, even oldest champion of new liberal world order, UK is also experiencing it. First of all, UK lifts the European Union through Brexit. Now Mr. Jeremy is calling to nationalize the few utilizes and some services.
Unfortunately, Pakistan is trying to take another route. Pakistan does not understand the changing dynamics of global economic order. Pakistan is considering that privatization will solve the problem of state-owned enterprises. IMF, the champion of liberal economic order, is pushing to go for privatization, but it is not presenting any solution to enhance efficiency. People are questioning if government has to provide cheap services to private sector to keep them competitivethen why government is privatizing the national assets and services?The concept of privatization for enhancing efficiency seems questionable. There is no doubt and question that private sectors should be promoted by providing them incentives, but not at the cost of national assets and companies.
Analysis of Pakistan’s economist history shows that these all government service and companies were profitable. Pakistan International Airlines were among the best airlines of the world. Steel mills were profitable. In 1960s industry was expanding without privatization and private sector was also thriving. WPADA was providing good profits despite the provision of electricity at lower rates. But unsatisfactory governance and policies of successive government led to destruction of state-owned enterprises. The major mistake for electricity production was made in 1994. In 1994 government introduced the IPP and fossil fuel base electricity production in the country. By knowing the fact that Pakistan is energy deficient and does not have much fossil fuel reserves, it was a huge blunder. Today the major item of import is fossil fuel which consumedUS$18 billion in 2018. This is one of the prominent reasons of current account deficit. It was inadequatePolicy decision which is impacting Pakistan at all levels, costly electricity, environmental degradation and low competitiveness of industrial sector.
The other real cause of amateurish performance of economy is lack of focus on the productive sectors like industry, agriculture and mining etc. From 1950 onward GDP growth rate remained attached to consumption. Consumption led growth is not bad, if the demand is being met by domestic production. With exception of few years industry and agriculture remained ignored in economic agenda of governments.
Industry and agriculture were treated as abandoned children of state. It led to deterioration of both sectors. Instead of fixing the real issues of state-owned enterprises and private sector, government is trying to sell old wine in new bottle. IMF is trying to sell a product which has lost its value among the creators of the product. So, Pakistan needs to adopt a strategy which can ensure the revival of economy on sustainable basis. Pakistan should not go for cosmetic surgery.
Government should immediately build the confidence of private sector by providing enabling environment and better services. Right now, manufacturing sector’s share in national GDP is 20 percent and it pays 70 percent of total tax. There is need to fix this problem of high tax. However, the most urgent step for the revival of economy is to invest in agriculture sector. It has the potential to give immediate impetus to economy and reduction of poverty.
The author is Member Advisory Board CGSS and Executive Director
Zalmi Foundation, Pakistan
