Privatization is a process of change in the ownership
of any entity which is owned by the government. It could be done by selling
shares in the stock market to the private investors or selling the entire
organization to a private sector. It can also be done by selling few
departments to private sector while holding the key positions. Another way
which is not popular in this region is to give vouchers of books to the
citizens which represents share in the state owned enterprises.
One of the potential benefits of
privatization mentioned in the literature is increase in efficiency. Moreover,
there is a possibility that private owned firm will invest in innovating ideas
to enhance their profitability. Therefore, innovation and reduction in cost
both lead to higher economic growth. Dr Akhtar Hasan Khan (former
secretary Planning) in his book said that only 20 percent of the privatised
units become more efficient, which is an alarming number considering the past
efforts of privatisation is concerned.
Since the decisions in SOEs are taken considering vested
interests, and other rhetoric concerns and not following economic benefits,
therefore, apart from the efficiency and innovating ideas privatization may
help government in reducing the impact of corruption. Moreover, procedures of
accountability in SOEs are not transparent and effective compared to the
privately owned companies.
Pakistan has been following privatization policies for
the last three decades. However the process is very slow and ineffective
according to many studies done. One of the major issues highlighted by Dr. Akhtar
Hasan Khan is transparency. For transparency he wrote that proper
advertisement, proper reserve price, proper pre-qualification of bidders and payment
in short period of time are the important components which are unfortunately
not devotedly followed. While giving the example of an advertisement he
mentioned that among the major Privatization of HBL the selection of foreign
newspapers was not appropriate.
It
is generally argued that privatisation efforts reduce the burden of total debt
of the country by using the money earned from privatisation on retiring the
debt. Furthermore, it also reduces the expenditures incurred by the government
on the loss making companies. By privatising the loss making SOEs has double
impact, (i) by less spending on those SOEs and (ii) earning money by
privatising and further using it to reduce budget deficit further. Fiscal
consolidation by this practice has not been successful in many countries
including Greece. In Pakistan debt was not
reduced, poverty numbers went up and fiscal deficit was higher in the nineties.
One of the problems which were discussed in general is that we have privatised
profit making institutions and kept the loss making institutes. Hence
expenditures of the government remained the same but revenue had gone down
which increased the budget deficit.
The above story is history now. Question is that do we
need a policy of privatization? Do we need government owned institutions? Are
our privatization policies on the right track? What to privatize and how to
privatize? Dr Khan said that we should privatize by selling the shares in the
stock market. However, our stock market is not developed and the main objective
of selling the shares to many people may not be achieved. Nevertheless,
possibility of firing workers from their jobs will be lessened. But can we sell
the entire entity by selling the shares in stock market?
One of the major flaw of the privatization policy is
that we are not clear that what sector to privatize. This is important because
private sector then invests freely in that sector without any hindrance. Government
is confused and trying to reform the part of SOEs so that they can make them a
profitable organization and sell part to the private sector. However, the
attempt of reforming the organization has not been productive apparently until
now apart from few smaller success stories.
Monopolistic exploitation could be another reason of
the apparent confusion. Although in the presence of Competition Commission
(CCP) it is difficult to do. The answer to this simple problem is “regulations”
and CCP can act as a regulator. Dr A R Kemal, ex-Chief Economist and
Ex-Director PIDE found in his paper that after privatization growth rate of the
firms has declined and prices have increased which shows the monopolistic power
of the firms. He stressed the importance of regulations that removes the
possibility of monopolistic exploitation. Nonetheless, emphasized on the lesser
regulations to give them flexibility to make their own decisions. Price caps
were one of the suggestions which may regulate the privatized firm better. In
UK this practice was adopted to regulate privatized firms.
In several other papers Dr Kemal wrote that
competition is necessary to increase the efficiency. Thus,
tariff rationalisation, anti-trust laws and control of monopoly are plausible regulatory
frameworks that must precede privatization. Automatic systems to check the
monopoly powers need to be built into the system so that there should not be
any chance of exploitation.
At present few SOEs are not getting billions of rupees
in subsidies and intellectuals are advising government to privatize them.
However, donors and government want to revamp those organizations such as
Railways and PIA. One of the old PDR’s paper witnessed the same issue that privatization
in the power sector may not eradicate the problem of inefficiency. Nonetheless,
it needs reforms irrespective of whether it is owned by public private or
jointly by the two. Therefore, it is good to implement institutional reforms
and ADB is helping the government in their reform package.
Privatisation efforts
in the last few years are evidently non-objective oriented. It seems that when
government wants to increase their spending they privatise some assets. It is
quite similar to the situation where a member of a household starts selling their
household objects to fulfil their daily needs. If this is true then it’s a mad
policy.
From my mentors I
learnt two possible actions after the previous privatisation practices were
failed. Those are; (1) following neo-libertarians government should not involve
in the business venture thus privatise everything, have very few regulations
and let the private sector work (2) ask private sector to invest in a
particular sector, where government wants to divest in future. As a result
efficient workers will move to the private sector. When government does not
invest in that sector the SOEs will go further into loss. Wait for the private
sector to establish a little and then give golden handshakes to the rest of the
employees and close down the enterprise. Other than the above two possibilities
government may have the hotchpotch policy which is not clear to them as well as
to the others.
From the above discussion the following lessons are
learnt
1.
Previous privatisation attempts were not
successful
2.
The important components of
privatisation were not strictly followed, i.e., proper advertisement procedures,
proper reserve price, payment in a short period of time and proper
pre-qualification.
3.
The outcome of privatisation is not
coherent with the objectives of privatisation
4.
To prevent monopolistic exploitation
regulations is necessary
5.
Competition Commission needs to play its
role vigorously
6.
Policy
of tariff rationalization (cascading with reduction) enhances competition
7.
Current eating out the earning through
privatisation is a mad policy
