In the early days of the creation of Pakistan when the private sector was not ready and willing to invest or do business, the Government established Pakistan Industrial Development Corporation (PIDC) which owned, managed and operated a number of industrial establishments through out the country. However, with the growth and development in this country the private sector started investment especially in Sindh and subsequently in Punjab.
This trend was partially retarded due to the policy of nationalisation. At present internationally all are of the view that it is not the business of the government to get into all business, but let the private sector do what it can best do, namely, innovation, creation of jobs, grow the national economy, thus be less dependent on aids and assistance from the foreign governments. Presently, only three national institutions - Pakistan International Airlines (PIA), Pakistan Railways (PR) and Pakistan Steel Mills (PSM) - run into accumulated losses of Rs 200 billion or more. The government, it appears, has no plan to privatise these three institutions, apparently fearing that it will result in unemployment. This is only a misconception and an attempt to fool this country. The ground reality is otherwise.
Recently, accumulated loss in public sector enterprises (PSEs) and its financial impact on the people of this country in particular has been the subject matter of discussions and analysis both in the print and electronic media through out the country. It is claimed that Pakistan Railway, PIA, Pakistan Steel Mills, Pakistan Electric Power Company, Pakistan Agriculture Storage and Service Corporation and Utility Stores Corporation of Pakistan collectively loosing Rs 365 billion (approximately) a year. This means that on an average this loss is Rs 100 crore a day, every day of the year. Since the government does not have this much of money, it begs, borrows, steals and prints notes. According to the Bureau of Transportation Statistics, the ratio of efficient management in any airline of employees for every aircraft is in the proportion of 95 employees for one aircraft. Pakistan has at present 40 aircraft but only 29 are presently operational. These operational aircraft can be attended to by about 3000 employees. As against this, there are over 18000 employees presently working in PIA. In a recent article by Dr Farrukh Saleem, it was reported that PIA is incurring a loss of Rs seven crore per day. Pakistan Railways is loosing Rs five crore per day. PIA's liability has gone up from Rs 62 billion in the year 2005 to Rs 200 billion in 2009. Net loss has gone up from Rs 44 billion in 2005 to Rs 350 billion in the 2008. In the end of 2009, Pakistan Electric Power Company's debts were Rs 300 billion. The power sector debts are Rs 485 billion. This country is presently losing approximately Rs 100 crore a day each day of the year. Rs 100 crore a day can finance 1000 hospitals or even 10,000 schools.
Privatisation should stir the entire Pakistan economy. Impact of privatisation will influence the Pakistani society a great deal. Economic liberalisation should necessarily imply relaxation and removal of control prevalent on the economy of Pakistan. Presently this control primarily has been exercised in significant areas, such as industrial licensing, import-export policy, foreign collaboration and technology transfer etc. They epitomise the entire gamut and quantitative restrictions evolved and is not achieving rapid industrial growth with minimum foreign dependence, nor encouraging balanced dispersal of industries or prevention of concentration of economic power in fair hands.
Strategy of industrialisation conceives of a specific role of the government and its intervention in the economic activities in the public sector enterprises, which presently form a part of the state policy. Liberalisation and import may inevitably effect the role and functions of private sector enterprises. Industrial Development of Pakistan has been slow specially for the last few decades. Decline in growth rates apparently is more pronounced in the capital goods sector. A diversified industrial base must be developed which presently suffers from three inadequacies, namely, high cost, relatively obsolete technology in some areas and poor quality products. Regulations and control of import substituting industrial strategy may be time consuming with approval being bogged down through the well-known bureaucratic red-tapism and corruption in this country. Thus internal competition is dampened. The business of internal competition will discourage uneconomic scales of production units to exist and protect the high cost industrial structure. No doubt that one way of meeting this situation as a liberalisation with the correct prevalent situation through the introduction of competitive market conditions by dismantling the quantitative restrictions.
It may be pointed out that one area where Pakistan, for reasons best known, is far behind is that they do not learn from the experience gained by other countries. Pakistan like India has a five-year plan. In India, the five-year plan documents are periodically published. In the 7th five-year plan document of India, in relation to the public sector, it has been observed as under:-
"The public sector has sustained and initiated the industrial transformation of India. It shall continue to play its pivotal role in modernising industry and in reducing the concentration of economic power. To perform its historic task, the public sector has to undergo basic structural changes to conform to the plan's priorities of efficiency and productivity. Only in the measure that public sector generates investable surplus can it play its indispensable social role of providing an adequate infrastructural base for the economy, being a vehicle for the introduction and absorption of new technology in the critical section of the economy."
Recently it was pointed out that Pakistan Steel Mills requires a sum of Rs 20 billion to survive and stand on its own feet. This is a sorry state of affairs. Three years back, Pakistan Steel Mills was the profit-making organisation. It is unfortunate that during these last three years, the profit-making public sector organisation has been reduced not only into a loss-making organisation, but to a situation where it requires Rs 20 billion for its survival. As usual those out to take advantage of such loss making organisation fall back on the plea that privatisation of Pakistan Steel Mills will result in unemployment of about 15000 workers. This plea is untenable, ridiculous and an attempt to fool this nation. If Pakistan Steel Mills is to be privatised, it will save not only Rs 20 billion for the government, which can be channelized into feeding poor people and for other nation-building activities but it will also absorb the labour employed by the other sectors. The plea that privatisation will result in loss of employment of 15,000 workers is hard to appreciate. No private sector employer can afford to remove highly qualified and technically trained employees. After all, he has to employ the workmen to run the mills. If there are surplus workers they will not be removed without giving golden hand shake benefits. The examples of privatisation of MCB Bank, UBL, HBL and ABL are before us. The private sector after privatisation retained honest and hard working workers and sincere employees, and those who were surplus thereafter, were offered Golden Hand-Shake severance payments. This is not only an encouraging trend for hardworking and honest workers, as through this means survival of banks and financial institutions has been brought about a turnaround of loss-making banks like the UBL into one of the most flourishing banks of Pakistan. Privatisation of banking industry its growth, absorption of employees is striking example of success of privatisation in Pakistan. These banks, privatised, unlike most of other banks in the Western countries have not collapsed during the economic depression in 2008 and thereafter. The banking industry in Pakistan survived this depression. Employment of workers has encouraged more hardworking workers to survive. If today privatisation is being asked to be discontinued in loss-making companies but resisted it is only because they have Collective Bargaining Agents affiliated with one political party or the other and therefore they want no privatisation only because their grip on the unions and workers will be loosened. This is not a national approach but a personal approach, based on the party being more dear than the country.
No employer will bid for privatisation of state-owned enterprise only for the purpose of retrenchment of employees and closing down the establishment. No doubt such privatisation should be free and fair and above-board. The objective of privatisation in the context of labour should be to clarify the concept of privatisation in the light of its historical growth. To find out the ways and means to reduce the pressure against privatisation in the context of our social and economic condition, identified major areas require clarification, research and study with a view to formulate a well-understood and defined policy framework.
It has been observed that whilst effecting privatisation, the government does not undertake due diligence in most matters pertaining to labour. One area of research and work that must be necessarily undertaken by the Privatisation Commission is to collect all past settlements and agreements with the CBA. Through legal opinion is to be determined as to how far they are binding on the employers to find out how the terms and conditions of service of the employees could be modified by subsequent agreements and what are the current terms and conditions of employment of the workers. Areas where prospective buyers, on the eve of privatisation, would possibly be suffering due to privatisation and the problems pertaining to labour, must all be identified. Short-term political advantage should be kept in the back burner. Exploitation of labour through hollow slogan must be avoided. Utilising labour, in State Owned Enterprises, as a weapon to further strengthen the political objectives of the political parties should be avoided. National interest above party's interest should be guiding motive.
In his thesis titled "Privatisation Evolution of Indian Thought" by R. K. Mishra in India, the learned Author has evaluated this issue, and has identified certain factors responsible for review as to the role of the Government with marked preference towards privatisation and has formulated five issues as under:
i. The macroeconomic environment resulting in recession or slow recovery was partly attributed to the expanding role of the State and the limits imposed on free flow of trade and capital;
ii. The pressures on the budgets with increasing tendency towards deficits and consequent inflationary pressures forced the government to look at ways of pruning the budget burdens, and one of the relatively easier ways of reducing the budget pressures was perceived to be a reduction in the role of the State in general;
iii. It was felt that the unions in the public sector have developed as a powerful lobby cornering the benefits in the economy disproportionate to their contribution. The Government felt that the only way of reducing this burden without serious political repercussions was to privatise enterprises and where possible functions performed in the government.
iv. Certain technological developments that have taken place, particularly in areas like telecommunications, have opened up possibilities for competition (hence private ownership also) and consequent efficiency that did not exist before;
v. The evolution of organisational structure and information revolution has brought about greater opportunities for regulating the functioning of the market system by the State and promoting the private sector to provide services in a socially acceptable and more efficient way compared to the past.
Without going into merits and demerits of these factors, for the present purpose, it is proposed to indicate the policy package that logically follows from accepting the thrust towards privatisation of loss-making organisations should be formulated followed by enumeration of the actual policy packages. As a policy package, privatisation starts with the premise that strengthening the market forces in the form of introducing competition would result in a greater level of operational and allocative - efficiency and involves the following elements:-
i. This would imply regulation to the extent of removing the barriers to entry and the barriers to exist. At the same time, it might imply regulation to ensure a continued atmosphere of competitiveness (ie at least contestability).
ii. The prices have to be right, reflecting the relative scarcities. The prices should reflect the relevant scarcities not only in the domestic market but with reference to the international situation also;
iii. The state element has to be replaced by a private element in production and/or funding of the economic activities. Privatisation need not be restricted to the commercial or potentially commercial areas only but could extend even to other areas, if necessary voluntary and non-governmental agencies could replace government. Such a process of privatisation can take place with reference to establishment and/or operation of such a production/funding facility. Private ownership and control is, in the final analysis a necessary but not sufficient condition though private control or operation can surrogate for ownership to some extent.
(To be continued tomorrow)
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