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Saturday June 15, 2024

PML-N’s volte face

What does it mean to keep OGDCL and PPL on the privatization list?

By Sarmad Khawaja
June 08, 2024
A Pakistan International Airlines (PIA) plane prepares to take off at Alama Iqbal International Airport in Lahore.  — Reuters/File
A Pakistan International Airlines (PIA) plane prepares to take off at Alama Iqbal International Airport in Lahore.  — Reuters/File

It is great to see the pragmatism shown by Mr Ishaq Dar earlier this month in the matter of state-owned enterprises (SOEs). Taking out – or trying to take out – profitable SOEs, including OGDCL and PPL, from the privatization list vindicates his pragmatism.

Yet, in the circumstances, saving OGDCL and PPL from privatization is a tall order. Because this is not the path the government is taking. And so, on this matter Mr Ishaq Dar was given short shrift by the finance minister. Which begs the question: does this dissonance within the PML-N mean a volte face on economic policy? I think it does. But I will come to this later and how it bears on our politics.

First, what does it mean to keep OGDCL and PPL on the privatization list? It means the finance minister has scant regard for public interest. Because the case for privatizing profitable SOEs is clearly wrong on the merits. And it is bad housekeeping. Not just because these companies are hugely profitable –- their profit last year was Rs321 billion, and in the past seven years it was a whopping Rs1.7 trillion – and it is hard to see what magic the private players deliver; but also, because past privatization has been a dramatic failure.

For example, my article ‘The privatization dilemma’ (May 1), published in these pages, shows that privatizing PTCL in 2006 made us, the people of Pakistan, poorer by Rs170 billion, just by the fall in its share price from Rs70 before its privatization to Rs15. Mr Hafeez Shaikh, who privatized PTCL, had no idea that reality would strike back this hard.

We should judge a policy by what it delivers, and public figures from the arguments they make. The receipts of privatization are crippling. And the argument for privatization rests solely on the mantra – business is not the business of the state. And being a mantra, it is repeated till it is all you see and hear. As such, it prevents the finance minister from seeing the ground reality. Few believe in this out-of-the-wind mantra except for right-wing charlatans. They cannot be the basis of public policy. Because to do so is foolhardiness if not outright scandalous.

So, keeping this and the past in mind, a pragmatic way forward is to pause and relent, and seek new ways forward to deal with SOEs. Yet, far from recoiling from selling profitable SOEs, the finance minister enthusiastically embraces it. And since privatization is the beating heart of his policy, and pragmatism is an outlier, it means things are poised to get worse.

But the real scandal here is that Mr Dar’s economic approach has been sidelined. Which marks a decisive break from the PML-N’s past. So, Mr Dar’s strong rupee, ‘bricks and mortar’ economics or ‘muscular state intervention’ – investing in the nation’s future, motorways, growth – no longer rules the roost.

Effectively, a right-wing free-market cordon sanitaire has been drawn to asset-strip the state. Its consequences are far-reaching. It means that once a coalition of a broad swathe of moderate viewpoints, the PML-N has been taken over by its extreme right-wing. The PML-N’s economic policy now is as different from its nemesis PTI’s as Tweedledee from Tweedledum; their similarities are more revealing than their differences – though they battle on with no let-up in rhetoric.

This is a mistake. Here’s why: Mr Ishaq Dar’s strong rupee kept the cost of imported capital equipment low which shores up small businesses – the middle-level entrepreneurs – in Sialkot, Wazirabad, Gujranwala, Faisalabad, Mardan, Quetta, Jamshoro, etc. With him at the helm, these businesses grew rapidly. These small- and medium-sized family-owned businesses making surgical equipment, sports goods, pharmaceuticals, steel-rerolling, parts for automobiles, tractors, etc. are really important for Pakistan.

They are family-run, embedded in their communities, and focused on the longer term, rather than quarterly returns. They decisively impact socio-economic change throughout the country. They are our Mittelstands – the pride of the Pakistani industry. And the PML-N’s political ballast. They should be promoted, grown into national and international champions.

A weakening rupee and privatization shift the focus of public policy away from the Mittelstands, and towards the handful families anointed since the 1960s by fiscally right-wing regimes for special loans and financial support. They grow on the government’s largesse. By swallowing SOEs at fire-sale prices, their companies have morphed into sprawling conglomerates; they control banks and nation-wide corporations. Right now, they have lined up to swallow PIA. But swallowing SOEs only creates more wealth for them. And unlike our Mittelstands, their predatory capitalism has little effects on the rest of the country.

Mr Ishaq Dar kept them at bay. But now, the government deck is again stacked in their favour. But its policies are already unravelling with deleterious implications for the country and the PML-N: growing income inequality, low investment and low growth. The economy is on life support. And the PML-N faces serial electoral blows.

The writer is a freelance contributor. He can be reached at: Khwaja.Sarmad@gmail.com