Romance for socialism?

Legal eye

The writer is a lawyer based in
Islamabad.

Punjab Assembly has just passed the Punjab Private Educational Institutions (Amendment) Act 2016. It is the successor of an ordinance with the same title, promulgated in 2015. This law requires private schools and colleges to register with a registration authority as a means to rein in fees charged by them.

While the registration authority is yet to be created, the law orders private schools to apply no fee increases for the year 2015-16 and further declares that the government’s registration authority will approve fee increases for each school each year from here on and never more than five percent.

While this is a populist move and Shahbaz Sharif, the Jalib-reciting unswerving CM of Punjab, has bulldozed it through, what does it say about PML-N’s approach to: (1) the role and responsibility of the state vis-à-vis fundamental state responsibilities such as access to education, (2) regulation of economic activity more generally, and (3) promoting investment in the education sector? Other than establishing that the PML-N has responded to a demand by our chattering classes, who wish to send kids to private schools but not pay the fees demanded, what economic and political philosophy is this move backed by?

Is the PML-N embracing democratic socialism? When was the last time we in Pakistan had a serious conversation about terms we love to bandy about – socialism, capitalism, liberalism, secularism etc? When did we last debate the desirable relationship between state and citizen – ie optimal size of government, activities state should engage and interfere with, scope and manner of such interference and the areas state must steer clear of? When did we last scrutinise the political and economic policies of our political parties for logical consistency?

We seem stuck with an intellectual and political elite that gained its socio-political consciousness in the 60s and 70s, when post-decolonisation, democracy, socialism and empowerment of the individual came to be seen as a package deal in our part of the world. The PPP emerged as the mainstream champion of student and labour rights, democracy and socialism. It was under the PPP’s rule in the 70s that we embraced the disaster of nationalisation.

With the ouster of Bhutto’s PPP and advent of Zia’s martial law, our attention came to be possessed by our civil-military divide. Focused on return of electoral democracy and breaking free of military rule, we seemed to have missed the wider debate across the world around capitalism and communism, the tearing down of the Berlin Wall and the success and perseverance of economic activity outside state control. While the PPP returned to power in 1989 as a ‘liberal’ party, it came without an apology for its nationalisation drive or an explanation of when state control of the economy was forsaken for support for free enterprise.

So here we are in 2016 faced with a paradox: the romance of the generation presently in charge of the state (that gained consciousness in the 60s and 70s) for Jalib and revolutions and socialism lives on, along with its love for free-market profit-making and privatisation. Look at the PML-N for example. When it comes to personal businesses, the Sharifs are all for free market. When it comes to balancing the books, the PML-N supports pulling the state out of commercial activity and privatising enterprises such as PIA. But when it comes to populist demands, it wants to get into the business of price fixing.

Article 18 of our constitution guarantees freedom of trade, business or profession, but allows (a) “regulation of any trade or profession by a licensing system”, (b) “regulation of trade, commerce or industry in the interest of free competition therein”, and (c) “carrying on [by the state]…of any trade, business, industry or service, to the exclusion, complete or partial, of other persons”. The legislative intent is clear enough. The state can exclude private activity and monopolise a trade or business if it so chooses, as it did in the 70s through nationalisation. (We know how that experiment turned out).

The state can regulate a trade or profession by a licensing system. We have laws regulating provision of services by lawyers and doctors. The state grants licences for mining, for provision of telecom services, for running TV channels etc. But regulatory regimes within a free-market system never seek to fix prices or cap profits. The main argument critical of free-market (in view of economic recession in developed economies over the last decade) doesn’t support the state assuming control of economic activity or fixing prices, but redistribution of wealth thorough progressive taxation.

Licensing and regulatory regimes are not a counter to the demand-supply logic. They are also not meant to eradicate profit-maximisation as the factor motivating economic activity and replace it with charitable intent. Regulatory regimes are meant to create a level-playing field, prevent growth of monopolies and abuse of dominance. That is why Article 18(b) speaks of regulation “in the interest of free competition”. The logic is that where no actor is allowed to abuse dominance or prevent new players from entering the field, competition between evenly placed rivals will enhance quality of goods/service and rationalise prices.

Getting back to the school fee debate, the demand-supply gap in the education sector is not due to existence of monopolies. And the ability of private schools to enhance fees is not abuse of dominance. (You can find schools charging Rs500 a month and those charging over $1000 a month). The demand-supply gap exists due to near complete exit of the state from the business of providing half-decent education. In a country with a young growing population and 25 million kids out of school, existing schools can keep raising fees because demand in every bracket of the education market exceeds supply many times over.

There is no effective competition in the market capable of running out of business overcharging and underperforming schools. But the solution isn’t use of the state’s coercive power to freeze fees or fix prices, but to get state priorities in order, commit required public funds to education and do what our constitution mandates: creating facilities to provide free education to all children between ages 5 and 16. Once free state schools provide decent education, why would anyone pay prohibitive fees to private schools? Private schools would live on and remain more expensive than state schools. But only those that provide quality education.

If the state doesn’t have the funds, the fallback option is to attract more private investment to the education sector to generate more competition, and not drive the existing investment away through hare-brained price-fixing regimes. The argument that education is a fundamental need and justifies price-fixing is bogus. Aren’t right to life and access to justice fundamental needs? Why don’t we fix the fees of doctors and lawyers? The argument that schools are making excessive profits is equally absurd. What is a legitimate profit margin and have we fixed profit limits in any other area of economic activity?

Bottom line: the new Punjab law is an unmitigated disaster. It might provide instant relief to parents with kids presently in private schools. But it will be at the expense of our collective interest in a decent and sustainable education sector. Why should owners run private schools on low margins and not divert funds to commercial enterprises that promise higher returns? Why won’t schools increase number of children-per-class, cut extra-curricular activities and curtail staff salaries? Will that enhance the quality and quantity of educational facilities in a country suffering an acute education crisis?

If Thomas Picketty’s critique of the capitalist enterprise is persuasive, let’s also heed his proposed solution to fix growing wealth inequality in Pakistan: redistribution through progressive taxation. If we wish to subsidise education for all, as we must, let the state invest in education. And let the state generate funds by taxing all wealth alike, whether produced by private schools, steel mills, cement factories, dairy farms or real estate.

Email: sattar@post.harvard.edu