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Thursday March 28, 2024

More short-cut economics

While Wall Street burns and an entire generation of lefties celebrates a latter-day redemption, deve

By Mosharraf Zaidi
October 14, 2008
While Wall Street burns and an entire generation of lefties celebrates a latter-day redemption, developing countries like Pakistan shamelessly continue down the spurious Siraat-e-Mustaqeem of the private sector, and free markets.

Shaukat Tarin, bless his heart, is a phenomenal banking talent. But he's no Amartya Sen, or Joe Stiglitz. While the rest of the world is quarantining bankers and their irrational pursuit of executive perks and board member privileges, having been bitten by one Shaukat, when push came to shove, Pakistan has handed the keys to another. How very Pakistani indeed. Mr Tarin's significant abilities are not in question. The paradigm of depending on a now fully exposed (and bankrupt) approach to economics is.

The jazziest additions to the cacophony of the formerly unproven and now debunked free market and private sector supremacy legends are the ubiquitous "public-private partnerships". Among the several dimensions of Mr Tarin's appointment is that he now takes over as the chairman of the board of the enigmatic and mysterious Infrastructure Project Development Facility (IPDF).

While Pakistani aunties and uncles spent the last week fretting about the fate of their lockers and foreign currency accounts, and Pakistan's non-deodorized masses spent the last month worrying about how to score roti and how to wash whatever kapra they have left, the Pakistani state was busy playing ostrich, as its best and brightest fell over each other to get to the airport and head to Washington DC, to pay ode to Bretton Woods. Analysts and pundits are uniformly predicting some kind of a default within the next quarter. So what response do Pakistan's economic planners and czars have to the impending default?

Well aside from the ever present option of performing Umrah, there is always the Central Development Working Party (CDWP). On Saturday, October 11, the CDWP approved Rs50 billion worth of investments across 47 different projects. Of those, 18 are said to be in the roads and highways sector. Desperate to pull rabbits out of pagris and burqas, the CDWP formally inducted the Board of Investment and the IPDF into the CDWP structure. Ostensibly, the IPDF and the Board of Investment have been tasked with bringing in "private investors" into the business of building infrastructure that will power Pakistan into the "next" century (almost 9 years late).

The induction of the IPDF into the CDWP is a cataclysmic event in the sad and miserable story of the declawing of Pakistan's bureaucracy and the erosion of the Pakistani state. The IPDF is a company, not a government entity. It is ostensibly owned by the government of Pakistan, and gets all its money from public funds, yet it is neither accountable to parliament, nor accountable to the auditor general of Pakistan, nor subject to review by the Public Accounts Committee of Pakistan. Among its six-member board of directors are three members of the "private" sector, the secretary for finance, the secretary for planning and development, and the chairman -- the adviser to the prime minister on Finance.

There are few, if any, explicit mechanisms to control conflict of interest in Pakistan's very interesting public sector, but the cancerous proliferation of these companies has introduced a whole new dimension to the potency of "two-for-the-price-of-one" rent seeking behaviour. Let's leave aside questions about how Shaukat Tarin will ring-fence himself from decisions that may affect his significant business interests in the very area that he is now czar of: banking and finance. There are no Michael Bloombergs in Pakistan. Besides, no one asked Salman Shah, or Shaukat Aziz, so it is fair to leave Mr. Tarin alone.

A much more realistic pursuit of public sector integrity would require some effort to deal with the question of how the "non-government" members of the IPDF board are selected. How can a Pakistani citizen be confident that the three "private" sector members won't get themselves and their families' sweetheart deals? He or she simply can't. Not the way the IPDF is currently structured.

The IPDF of course is not alone. The myth of private companies doing the job of government better is a popular one, not because of some newfound ideological movement among Pakistan's bureaucrats and politicians about the efficiencies of the private sector. It is popular because it is a free pass, a green channel that enables contract awards without the cumbersome tendering procedures that are supposed to define relationships between the public and private sector. Those processes are not meant to be cumbersome to slow down the path of progress. They are cumbersome so that the taxpayers' money is protected from the abuse that would be a natural corollary of individual discretion. Of course smartly-dressed young economists will attempt to razzle dazzle with ridiculous smoke and mirrors about private enterprise having to share the risk with government, and the long record of government inefficiency. They couldn't be further from the truth. Even the World Bank-hired firm that advised the IPDF on how to do its business couldn't brush over Pakistan's abysmal record of public private partnerships. Its reports detail the debacle of the Independent Power Producers (IPPs), and describe the severe paucity of parties interested in Pakistan, as a result of that debacle.

More importantly, if governments were so inefficient, how did they manage to produce the entire edifice of western civilization as they have? Every country that has produced an economy worth writing home about has got there on the back of governments that were not afraid to invest in their people. Whether it is the US or Europe, or China, Brazil and India, these countries are products of heavy public sector investments in infrastructure, in education, in health and in social services.

If governments have no business involving themselves in the affairs of entrepreneurs, why is former Wall Street shark Henry Paulson nationalizing US banks faster than you can say Caesar's Palace and the MGM Mirage? Why is New Labour (Maggie Thatcher's greatest achievement) printing manuals on how it nationalized Northern Rock in stealth, and replicating the model on a half dozen new banks?

The truth is that while the government truly has no business at all, running businesses, it does have a fiduciary and moral responsibility to create an enabling environment for its citizens to achieve their potential. This means the government must deliver value for taxpayer money and produce outputs that are fit for purpose.

All the evidence in the world is pointing Pakistan in the direction of building a capable, responsive and accountable state. Yet instead of rolling up its sleeves and getting to work, Pakistan is handing off its responsibilities on the one hand to the IMF, whom it will yet again crawl toward, in full begging pose, and on the other hand to the "private sector" that has always failed the country.

If parliamentarians want to be really scandalized, they should stop pretending to be interested in the war on terror. It seems no horror will jolt Pakistan into getting into the terrorist-hunting spirit that Sarah Palin seems to inspire in fewer and fewer Americans every week. Just like in the US and the rest of the world, Pakistanis gotta eat before they can fight the good fight. The war should be Pakistan's, but it isn't. Everybody will have to get used to it. The top shelf belongs, as it always has, to the economy.

Handing the keys to another banker, asking private businesses to build the country's infrastructure and starting up a public relations stunt called the Benazir Income Support Fund do not inspire confidence. It is unfair to expect economists from the 1980s and bankers from the 1990s to come up with solutions for the 2010s. When they run out of ideas, they clearly think that handing off the entire burden of public policy formulation, implementation and accountability to "companies" is the way to go.

The real questions serious parliamentarians need to ask are how many "companies" the government has set up in the last decade? How much public money has gone into those "companies" over that time frame? Who audits the funds that the government gives to these "companies"? And most importantly, what have the Pakistani people got out of those investments in these "companies"? Rome has been burning for a while now. We're giving the hoses and buckets to the arsonists. Brilliant.



The writer is an independent political economist. Email: mosharraf@ gmail.com