http://www.dailytimes.com.pk/default.asp?page=2011\05\04\story_4-5-2011_pg3_5
Wednesday, May 04, 2011
COMMENT: Is privatisation the only alternative? -Jamil Nasir
There is no clear-cut theoretical case for or against public sector
enterprises. It is the governance, merit and transparency that matter. If a
government is unable to improve the efficiency of the PSEs, it is equally
likely that it will fail either to manage the privatisation process
Public sector enterprises (PSEs) in Pakistan devoured about $ 3 billion
during the fiscal year 2010. Their annual operational losses amount to about
1.5 percent of the GDP. The subsidies doled out to the loss-incurring PSEs
constitute about two-thirds of the annual defence budget of Pakistan. In this
background, the government decided to constitute a cabinet committee on
restructuring (CCOR) with the mandate to formulate and implement a
restructuring plan for the ailing public sector enterprises. The government
plan envisages complete transfer of ownership of PSEs to the private sector as
an ultimate objective. The new growth framework, a policy document prepared by
the Planning Commission of Pakistan, also recommends that the state should
divest itself from the public sector enterprises to reduce the ever-increasing
fiscal deficit. Further, the bureaucrats should not be in the business and let
the private sector come forward for the healing of these enterprises.
Privatisation of the PSEs is premised on the popular perception and
rhetoric that PSEs are necessarily inefficient compared to the private-run
enterprises and in order to make them efficient and profitable, it is better to
get rid of them. This thinking is, however, partly fallacious, as drawing
comparison between the private sector enterprises and PSEs is just like
comparing apples with oranges. Their basic objectives differ. The overriding
objective of the private sector organisations is profit-maximisation but the
PSEs may have multiple objectives and achievement of such objectives might be
equally important.
Contrary to the point that no reliable empirical evidence is on record
either in favour of or against the public sector enterprises, it is argued that
privatisation reduces economic inefficiencies and fosters competition. The case
is also made out for privatisation on the ground that the public sector is
inherently lethargic due to red tape, and it is exceedingly difficult for the
decision makers and managers in the public sector to think out of the box for
the solution of the problems the public sector organisations are faced with, as
the bureaucrats who generally hold the decision making authority in such
organisations find it difficult to by-pass the bureaucratic rigmaroles they are
groomed in.
Granted for the sake of argument that privatisation is the best policy
prescription to inject efficiency and profitability in the PSEs, the question
however remains whether we meet the prerequisites of an effective and
successful privatisation process. At least two conditions should be met: first,
a country must have a deep and well-developed capital market sector, and,
second, the general perception about the government undertaking the
privatisation process should be that of a clean government.
Is it possible that fingers will not be raised on the privatisation deals
especially in the context of several scams like Pakistan Steel Mills, National
Insurance Company Ltd (NICL) and Hajj that have surfaced in the past few years?
Even if the government exercises maximum possible cautions to make the
privatisation of PSEs transparent, the privatisation deals may finally land in
the courts merely on the accusations of corruption. The whole process of
privatisation may be put into jeopardy or at least delayed. In this way, the
costs of privatisation may turn out to be prohibitively high.
Further, contrary to the general perception prevailing in Pakistan,
global experience shows that the privatisation of the loss-incurring PSEs is
not an easy process. In this regard, privatisation experience of UK is a case
in point. The government of UK embarked on the privatisation process in 1980s
in the regime of Margaret Thatcher. In the initial phase of the privatisation
in UK, in most of the cases economically successful enterprises like British
Petroleum, British Aerospace, Cable&Wires and National Freight Corporation etc
were privatised.
Even the gains of privatisation in a country like UK are questionable as
the studies undertaken on the subject are not conclusive in their results. Some
of the empirical findings suggest that the efficiency gains that were achieved
immediately after the privatisation process were mainly due to rationalisation
of employment. Thus there is no clear-cut theoretical case for or against
public sector enterprises. It is the governance, merit and transparency that
matter. If a government is unable to improve the efficiency of the PSEs, it is
equally likely that it will fail either to manage the privatisation process or
perform its regulatory role effectively after privatisation.
Moreover, we have several examples, in developed as well as developing
world, where PSEs have played very vital role in the development of the
country. POSCO of Korea and Empresas Publicas de Medellin (EPM) of Colombia are
two very pertinent examples to make the point. POSCO emerged as a giant while
operating in the public sector. It was established as a joint venture in 1968
and continued to operate under the public sector till 2000 when it was
privatised. Globally it was rated as the most efficient producer in a number of
steel products.
EPM Colombia is the largest energy provider of Colombia and considered a
success story in the public sector. It ranks on the top of the list of public
and private companies in terms of efficiency and financial sustainability. The
point is that PSEs are not necessarily inefficient enterprises. Thus the
argument is that privatisation is not the only alternative to bringing in
efficiency and profitability amongst the PSEs.
Organisational/administrative reforms can be one of such alternatives.
The goals of the PSEs need to be re-examined critically with a view to
prioritise them and do away with the objectives hindering the growth of these
enterprises. Restructuring of the incentive system of the employees to link it
with quantifiable performance indicators of efficiency, productivity and client
satisfaction may be another target of broad-based organisational reforms.
Inducing competition between various regional or functional units of the
organisation can also be a viable option to improve the efficiency of these
enterprises. In view of the hitches involved in privatisation, it would be more
prudent that other policy alternatives on the above lines are also explored
while formulating a strategy for the restructuring of the PSEs.
The writer is a graduate from the Columbia University, USA, in Economic
Policy Management and studied economic governance in the UK. He can be reached
at [email protected]
[Non-text portions of this message have been removed]
------------------------------------
Post message: [email protected]
Subscribe : [email protected]
Unsubscribe : [email protected]
List owner : [email protected]
Homepage : http://proletar.8m.com/Yahoo! Groups Links
<*> To visit your group on the web, go to:
http://groups.yahoo.com/group/proletar/
<*> Your email settings:
Individual Email | Traditional
<*> To change settings online go to:
http://groups.yahoo.com/group/proletar/join
(Yahoo! ID required)
<*> To change settings via email:
[email protected]
[email protected]
<*> To unsubscribe from this group, send an email to:
[email protected]
<*> Your use of Yahoo! Groups is subject to:
http://docs.yahoo.com/info/terms/
