Pakistan is mired in a heated debate on privatisation that’s underway
It isn’t going to produce the desired yield, as people generally tend to look at it as a double-edged sword: they know, the government isn’t doing enough and they fully know that privatisation isn’t the panacea they were looking for.
People’s trust in private hands taking charge in different sectors is also diminished by basket cases like PTCL, KESC and Pakistan Steel Mills (PSM), which didn’t happen after the deal was done. Another worst case is that of ‘Take or Pay’ contracts between Government of Pakistan and IPPs (Independent Power producers), which are cannibalising a big chunk of money, despite the fact that the government isn’t buying a single unit of electricity from them, but is obligated to pay them under the terms of the contract. Despite zero production, the IPPs continue to receive hefty amounts as capacity payment, which not only doubles the circular debt, but also seems to act like an albatross round the neck of the common consumers.
The end result is ominous; the government is passing this burden onto the ordinary customers, who didn’t have any say in the matter.
So the problem isn’t privatisation or government regulations, but the dearth of efficiency and adequate delivery by both. Nevertheless, privatisation always stirs up debate, including many dilemmas. It involves multiple dilemmas, which don’t purely fit into the hardcore economic domain. These dilemmas raise a flurry of questions.
Some of these ethical dilemmas that are taking centre stage in Pakistan, of late, pertain to festering wounds that are already numbing social and economic life. Some of the potential risks that go with this unbridled privatisation drive in the long run are:
— Inequitable access to essential services.
— Prioritisation of profits over public interest.
— Lack of accountability and transparency.
— Exacerbation of existing social and economic inequalities.
— Corruption and conflict of interest.
These consequences billow more questions regarding the reliability of the concept of increasing efficiency through privatisation. Fine, in some cases, it has delivered, but that doesn’t permit the state ceding too much space on many matters that should fall under its purview for the larger good of all. Too much tinkering with economic sovereignty could have drastic consequences for the state sovereignty as a whole.
However, the pro-privatisation brigade, armed with loads of economic theories is launching a barrage of arguments against their anti-privatisation counterparts.
The other side is also laced with an equal payload of counter arguments, dubbing it a budge from state to efficiently manage its people and fulfill its mandated constitutional obligations. Their argument asserts that, it’s the government’s job to expunge irregularities, and end the official gridlock to ease the lives of people. Rather than rectify structural flaws within a non performing system, the government is seeking asylum under the corporate umbrella by privatising everything that in an ideal world, the government is supposed to manage.
The pro-privatisation brigade says that structural reforms are cumbersome, and in an economically interwoven world, increased efficiency can only come about when private market forces are given a free run. Efficiency in the corporate world simply means to increase the demand first,and then the supply, which largely overlooks the fact that a drop in aggregate demand could lead to a boom and bust cycle in the market, for which, a common man has to pay in the shape of inflation,despite the fact that he is a mere bystander in the entire process.
In classical economics, Adam Smith favoured Privatisation citing the following reasons: “The invisible hand of the market’ ensures that self-interest leads to socially beneficial outcomes. Companies prioritize efficiency and innovation to maximise profits, benefiting society as a whole.”
To some extent, he was on point as well. For instance, Dutch East India company and the British East company strove to outpace each other in marketing their products through innovation and incentives. That was privatisation in its primary manifestation. Even then, their corporate covetousness also led to wars,and human slavery in the shape of colonisation.
Microsoft is another example in our times of a company that made technology more accessible to everyone. The market’s invisible hand in both examples seemed to work perfectly well by introducing us to a stream of new, life-changing technologies. But at the same time, pseudo-democratic regimes are now inventing new means to cut this technological accessibility to size, deeming it a covert threat to their fiefdoms. Plus, the flood of innovation in the market under the corporate world in the spirit of cosmopolitan culture is hailed first, only to be lambasted afterwards for its lack of sensitivity towards cultural relativism.
Could just one success in some avenue be regarded as the final stamp on the success and inevitability of the entire process? And can we afford to overlook the dark side of the corporate wish to wallow in profits over social welfare, which is the foremost task of the state?
Privatisation, despite being intrinsically appealing has a downside to it, that has shown up dangerously at different points in time, culminating in partial economic collapse in the USA twice that brought it to a precipice.
During the great depression(1929),toxic lending by banks in the absence of adequate regulations resulted in the banks over lending, which couldn’t be retrieved,all of which led to a perfect storm, with a crash in the stock market first, followed by paucity of the credit in banks, and mass unemployment throughout the USA.
To understand this privatisation-propelled annihilation, John Maynard Kennes dived into the depths of these forces that had pushed the panic button.
From his subsequent reflections on the issue, one could infer that all of it was caused by:
— Corporate greed.
— Deregulated Market, with no one playing the referee in it.
— That the essence of the state lies in providing its people a balance between earning, and spending, which no profit-mongering corporation can substitute.
— Finally, the government should have a strong presence in the market,but it should allow healthy competition, that’s not oriented towards too much market risk.
In his own words, John Maynard kennes summed it up as follows:
“We have a magneto trouble”, which alluded to externalities that we’re glossed over in the haste to make big money.
Furthermore, in what way does it justify that the governments relinquish everything to the corporate bottom line? In what way does it increase efficiency, when the fundamental purpose of the state itself is to take charge of the lives of its inhabitants and help them live a perfect life.. After all, the concept of government is nothing more than people paying taxes to be re-paid better by the people they have elected to run affairs on their behalf.
Too much reliance on privatisation could have volatile ramifications. Firstly, why should any country opt to step out of the race of providing its people with basic and better necessities? Can corporate wisdom and efficiency do it better than the collective wisdom of thousands of people, who elect their representatives, hoping to live better?
Secondly, isn’t privatisation used by inefficient governments to mask their failures, when their priority should have been to undertake the best possible approach to supplement their people’s belief in their skill of running their affairs perfectly?
Thirdly, the state has an eternal responsibility to look after its people, ensuring that their well-being enjoys supremacy in its political and economic calculus, which is not the motive of the corporate sector, that thrives on profits, rather than social welfare. But, the neoliberal urge to erase the footprint of government from everything is largely driven by some myths, which need to be debunked.
Some of these historically prominent myths churned out are:
Myth 1: Privatisation leads to increased efficiency
Privatisation is often touted as a panacea for inefficiencies in the public sector. Proponents claim that private companies, driven by profit motives, will inevitably optimize operations and reduce costs. However, this assumption is based on a flawed understanding of how privatisation works in practice.
In reality, private companies often prioritize shareholder interests over public needs, leading to cherry-picking of profitable segments and neglect of essential services. Moreover, the profit motive can lead to cost-cutting measures that compromise service quality and worker welfare.
Debunking the myth
The notion that privatization inherently leads to increased efficiency is a myth. In reality, privatization can lead to a focus on short-term gains at the expense of long-term sustainability. For instance, private companies may reduce investment in maintenance and infrastructure to boost profits, ultimately leading to decreased efficiency and service quality. Furthermore, the profit motive can create perverse incentives, such as overbilling or exploiting consumers. A more nuanced approach recognizes that efficiency gains can be achieved through public sector reforms and accountability measures, rather than relying solely on privatisation.
Myth 2: Privatisation promotes competition
Another myth surrounding privatization is that it fosters competition, leading to better services and lower prices. However, this assumption overlooks the reality of market concentration and monopolization. In many cases, privatization leads to a handful of large corporations dominating the market, stifling competition and innovation. Moreover, private companies may engage in anti-competitive practices, such as predatory pricing or exclusive contracts, to maintain their market share.
Debunking the myth
The idea that privatisation promotes competition is a myth. In reality, privatisation can lead to market concentration, reducing competition and innovation. For example, in the energy sector, privatization has led to a few large players dominating the market, resulting in higher prices and reduced investment in renewable energy. Moreover, private companies may prioritize profits over consumer needs, leading to decreased service quality and accessibility. A more effective approach recognizes the need for robust regulatory frameworks and public sector engagement to promote genuine competition and protect consumer interests.
Finally, Pakistan needs to tread this path carefully..Noam Chomsky rightly observed: “Privatisation is a way of transferring wealth from the public to the private sector, and it’s a way of concentrating wealth and power in the hands of a few individuals”.
As a nation, we can’t afford to compromise our economic sovereignty.
The author is a freelance columnist