The major difference between the public and private sector is that the private entrepreneurs recognise merit as the touchstone for success, but in the public sector (as in bureaucracy) merit can often be a disqualifier.
The public sector can be roughly equated to a hereditary monarchy, with heritage, nepotism and favouritism being the prime ingredients for career advancement. While the private sector is not completely free from the use of connections and influence for being upwardly mobile, merit commands far more weightage in rewarding performance.
The major reason for privatisation and denationalisation is to provide better management, inculcating a corporate culture dedicated to cost-effectiveness devoted to a positive balance sheet, in effect more (profit) for less (overheads).
The Supreme Court of Pakistan (SC) has given a stinging indictment of the process adopted for the recent sale of the Pakistan Steel Mills (PSM) with "indecent haste," to quote the SC judgement. The inference of wrong-doing is based on technical grounds that have been violated in fulfilling the privatisation process.
With due respect to the Honourable Justices of the SC, elaboration of corrupt practices (the "smoking gun") was required for due process of law. If criminal intent was inherent, those violating the law should automatically go to jail, whoever they may be. Divergent opinions being mostly political rather than legal, one thing is certain, this privatisation ending in failure will act as a deterrent to foreign investors targeting the potential in industry and commerce in Pakistan.
There is merit in getting "foreign direct investment" (FDI) into Pakistan. There are many examples of public sector units being turned around and made profitable after a transparent process. The name of the game is how to achieve this without losing sovereignty, the fear expressed by one of the plaintiffs in the PSM case.
One has to define "strategic interest," and not put it on the auction block for fear of falling under the control of forces inimical to Pakistan.
The PSM sale had bad timing, it coincided with the take-over battle for Arcelor by the Mittal Group. The Indian bogey (and the Russian connection) was exploited to the full by those opposed to the sale. Patriotic fervour is not confined to Pakistan alone. Across Europe, particularly in France, latent nationalism reared its head to oppose Arcelor's merger with Mittal.
Resigning before the PSM sale, Dr Abdul Hafeez Shaikh, had done an excellent job as Federal Minister for Privatisation. During the World Economic Forum Summit in Sharm Al Shaikh recently, one heard with pride the Jordanian minister, heading the King's Office, praising Hafeez Shaikh's privatisation initiative in 1996 for the telecom sector in Jordan. Praise for Pakistanis comes with a premium in this world! The only real hiccup in our privatisation history has been the employee take-over of the Allied Bank.
The wonderful process of "Employee Stock Option Plan" (ESOP) was criminally corrupted by unscrupulous senior managers defrauding the hapless rank and file, not that NAB has done anything against these white collar criminals lining their own pockets. In contrast ESOP has been very successful in the private sector as the ENGRO model shows.
When BCCI's assets were seized world-wide, the BCCI branches in Pakistan were taken over by the government of Pakistan (GoP) in 1991 and given the new nomenclature, "Habib Credit and Exchange Bank" (HCEB). Nominated as a director during the first step of denationalisation in 1998 when the majority shares were taken over by the Dhabi Group, headed by Shaikh Nahayan bin Mubarak Al Nahayan, it has been my privilege to watch at first hand what the private sector can accomplish with the straitjacket of the public sector control removed.
One has been fascinated by the vision and entrepreneurial skills of his highness in macro-managing the bank effectively through the board of directors, leaving day-to-day micro-management to senior managers in the field.
From three branches in 1998, the bank has grown to encompass 150 branches throughout Pakistan, not including an off-shoot of 15 branches dedicated to "Islamic banking."
The initial "golden handshake" reduced some redundant employees, the number has now risen from 600 to about 5,000 today.
Total income increased eight-fold, from Rs 1.84 billion to Rs 14.49 billion, with shareholders' equity rising from Rs 859 million to Rs 6.74 billion, an 8-fold return on investment. Not a single foreigner has been a salaried member of the management. Supported by his highness, the achievement has been 100% Pakistani. Can our public sector get the same efficiency out of its employees to get the same profitability?
When Shaikh Nahayan became Chairman of UBL, his brother Shaikh Hamdan bin Mubarak Al Nahayan continued his corporate practices as chairman in making Bank Al Falah one of the major banks in Pakistan, opening branches in Bangladesh and Afghanistan. Plans are at a fairly advanced stage for UAE, Bahrain, India, China, and many countries of Africa.
Shaikh Nahayan has been principally advised and aided by Bashir Tahir, this Pakistani being assigned the sensitive task of co-ordinating all issues between the chairman's office based in Abu Dhabi and the management of the bank in Pakistan. Day-to-day control in Pakistan is in the able hands of Mohammad Saleem Akhtar, the CEO, an extremely experienced banker.
On the strength of the bank's outstanding return on investment for shareholders, Bashir Tahir masterminded Shaikh Nahayan's launching of Warid Telecom, Wateen Telecom, etc, and making huge investments in real estate projects in Pakistan.
Shaikh Nahayan's investment initiative has become a beacon for FDI by others. Both Bank Al Falah and Warid now have also entered the Bangladesh market.
The President has awarded Sitara-i-Imtiaz to Bashir Tahir, yet the State Bank of Pakistan (SBP) has reservations about his joining the board of directors of Bank Al Falah in spite of the bank's phenomenal success because of this man's skills, drive, and ingenuity.
Does Pakistan reward merit, or is merit a disqualifier in Pakistan? This incongruity is an example of how, and why, the public sector is sometimes blind to recognising merit.
If SBP had independently come to the conclusion one would at least be satisfied, but there is a nagging suspicion this has been done under external influence. Mine is an objective observation. Despite having had quite a few professional differences with Bashir Tahir over the years, I must put on record his enormous contribution, not only as a banking professional par excellence, but also as a Pakistani dedicated to boosting Pakistan's economy substantially by pragmatic and meaningful FDI.
The difference between the public sector and private sector is in the way the human potential is allowed to operate, and how merit is rewarded as an incentive so that management and commercial expertise can fully exploit the potential of our stagnant industrial and economical units.
(Ikram Sehgal, a former Major in Pakistan Army, is a political analyst and columnist.)