Privatisation of Pakistan International Airline (PIA) is one of Prime Minister Shehbaz Sharif’s top priorities. After taking the oath, the PM is pursuing relevant stakeholders to expedite the process.
It was assumed PIA privatisation PIA would help government convince IMF and other donors Pakistan is on the right track to reform its economy. It will be followed by privatisation of other enterprises/industries like Pakistan Steel Mills. In this way the country will be able to get new programmes from IMF, which will pave the way for engagement with other donors and countries.
Despite severe differences among political parties and other actors, they are unanimous in their support of privatising national assets. Subsequent governments made efforts to convince people business is not for the government. They promoted the private sector as the ultimate solution, hoping privatisation would help the country. This is a half-truth. Privatisation can only help for the time being. In the long run, it hurts the State and the people. We can find many examples, even from the developed world. Argentina is a classic example to understand the impacts of privatisation.
It is common knowledge State-Owned Enterprises (SOEs) help states on multiple fronts. These are the primary vehicle of non-tax revenue, which is required to run the State and meet people’s needs. It helps the government keep the economy under control and not allow the private sector to exploit the people. It also ensures sovereignty of the government and State. It does not allow private sector to get so strong to dictate its terms. It can be a source of foreign exchange earnings if it is run professionally. It helps create jobs and provides decent livelihoods, which are prerequisites for building a prosperous and peaceful society.
It strengthens the hands of the State and government to fight back in emergency situations by having direct control over the supply side. For example, during Covid-19, we witnessed private stores increase the prices. Even the price of masks increased to benefit from the demand and supply forces of the market. Active participation of SOEs discourages hoarding practices and helps government keep markets functional by implementing the laws in true spirit.
Unfortunately, the State or government is not ready to accept or even discuss these dimensions or roles of SOEs. First, the State denies its role in job creation or livelihood opportunities. It propagates it is the private sector’s job to create livelihood opportunities. Here is a question: if the creation of livelihood opportunities is not the job of government, then what is the role of government? It is the primary responsibility of the State to provide decent livelihood opportunities. It helps people secure food and access to education, energy, health services, etc.
Second, if the government privatises SOEs, it will create unemployment putting hundreds and thousands of people at risk of poverty. How will the government tackle this issue? Will the government create another Benazir Income Support Programme (BISP) to assist these people? If yes, from where will the government arrange financial resources for the new BISP?
Third, non-tax revenue is also required to run the State, including defence and services such as education, health, etc. Privatisation weakens financial revenue, and the State has to look for alternative sources like taxing people or indirect taxation. Pakistan is already on this course. It has substantially increased taxes on the middle and salaried class. On the other hand, indirect taxes are constantly on the rise, which has exacerbated inflation. The prices of essential services and commodities like electricity, gas, petrol and food are on the rise.
Fourth, a financially strong country can appropriately handle the pressure of domestic and international private sector. The private sector cannot dictate its terms and has to work under the law of the land. The State can get a better deal for the country and its people.
In summary, State-Owned Enterprises are essential to ensuring non-tax revenue. If the State still wants to pursue privatisation, it will have to ensure a few things: it should not provide subsidies, direct or indirect (tax concessions), to the private sector; if private sector is competent enough, let them compete. If subsidies are bad for SOEs, how are subsidies good for private sector? How can the State or experts justify them?
This does not mean the State should discourage or create problems for the private sector. Instead, it must make efforts to resolve the problems and ensure a fair system. The State must make the system efficient to solve problems and assist the private sector in executing its plans in a timely manner. It should also invest in reforming the system, improving the “Easy of Doing Business” indicators, and creating a business-friendly environment. There should be no irritants for the private sector.
The State should do everything to create a lucrative environment for the private sector, but not at the cost of SOEs. And the private sector’s aspirations and SOEs’ role should get balanced.
The SOEs should be run on economic rationale, not political preferences. The analysis of SOEs indicates the major problems are governance and political preferences. There is a need for a complete overhaul of the governance structure of SOEs, from the recruitment of employees to the operational system.
The most significant change must be in the structure and governance, and political interference should be eliminated. The board of directors should consist of professionals, not State servants or business interest groups. Moreover, no enterprises or companies should be allowed to organise board meetings outside of the country.
The situation demands a change in policies, practices and systems. The current liberal system is not delivering. Pakistan needs to devise its own system according to the ground realities and needs of the people. For that purpose, the country must apply indigenous wisdom and be free of donors’ influence or their designated experts, more precisely, advocates.
Unfortunately, Pakistan has become a lucrative market for donor-driven experts or consultants and retired staff of the World Bank, IMF and other institutions. The problems are compounding with time, and the country is losing independent space for economic management.
