- Pakistan’s Finance Minister, Abdul-Hafeez Shaikh
There is a catch in the much awaited admission of Pakistan’s Finance Minister, Abdul-Hafeez Shaikh, who has stated that ‘government interference ruined state-owned enterprises’. He still believes that the official policy of public-private partnership, as envisaged and approved by the federal cabinet, can rescue these enterprises. I am afraid that the catchy phrase of public-private partnership can only do more harm, both to the state and to the market. When the ownership remains with the state, management restructuring of state owned enterprises such as PIA, will only yield more disappointments. A commercial firm delivers when it fancies returns and fears risk. When the ownership still lies with the state, like the erstwhile ministries of defense and industries, there is no risk of failure. It has been famously said that when a business fails, it closes down; when a state agency fails, it increases its budget. Thus even in the presence of an apparently efficient management, though without assuming complete control of assets, political leadership may be compromised to take anti-business decisions. If we look at the 20 years long history of privatization in Pakistan, it is evidently clear that 99% of proceeds of the $9 billion received so far have come from sale of assets through tender and public auction and sale of shares through stock exchange. If we take out the controversial transaction of KESC from this bundle, we cannot cite even a single dollar earned from management contracts except those given to the employees of state owned enterprises. Thus the trick is not just management restructuring, it is transfer of ownership. Economic freedom is freedom from the government. A public-private partnership may still be half truth!
Submitted by Ali Salman
Picking up from what has been said, Public private partnership is one approach to leverage expertise and respective institutional advantages in a cost effective manner for the benefit of the consumer of what primarily used to be public services such as infrastructure, utilities etc.
The ideas are not in themselves flawed, its just when it comes to Pak govt implementing them, they “fail”. As I have observed there are three key reasons for this: 1) lack of clearly defined roles and responsibilities of respective parties; 2) inadequate planning and budget allocation; 3) non existent or negligble M&E, that is the mechanisms that would allow for transparency of operations and results and through which consumer can hold both private and public sector accountable for either their incompetence or their misuse of funds and position. In brief, its about public sector corruption, compounded with private sector opportunism and an uninformed consumer/citizen. This is the recipe to economic chaos as we have experienced to date. Technical projects/experts are bandaids or on these festering wounds or sores.
Solution: An aware and adamant consumer with zero tolerance for corruption; projects that support individuals who work with integrity, donors who do not endorse corrupt governments and their visible corrupt practice. And solidarity among Pakistanis. BISP is one example of a donor project that is further placing future generations hostage to external debt. But that is another theme…I will stop here. Please accept my felicitations on your blog as well. Wa salaam
@Ayesha: Very well said. I am generally more concerned with the rules that define and influence the conduct of individuals rather than the intentions and goodwill of the individual. In this respect, while I agree that there could be specific implementation related problems when it comes to Pakistan, but in general I am of the view that when it comes to responding to rules, such as slackness or promptness, Pakistanis are no more rational or no less irrational than others.
I wish our Finance Minister had qouted some success story of public private partnership in support of his argument. State interventions any where around the world in economy affairs has always resulted in economic collapse of the system.The most recent examples are that of the collapse of the soviet union and the most recent where state has tried to intervene and support an economic melt down but has miserably failed is the united states of america. The only viable solution to counter state interventions lies in Free Market Economy. Congratulations Ali for starting EFNP blog.
A belated initiative for EFN. Kudos to Ali for starting this blog. As far as my humble understanding is concerned, this concept of Public Private Partnership (PPP) is mainly utilized for infrastructure projects. Example can be given of toll roads, airports, seaports, etc., where concessions are given by the government. In such projects, PPP structure reduces the risk for the private operator. Now, how could we use this model in Pakistani SOEs in industrial sector? It will be a novel experience indeed. Hope to see another group of rent seekers devouring more from the carcasses of bleeding SOEs at taxpayers’ cost.
@Hammad, if you look into the working of a private sector enterprise, owned by an entrepreneur, or for that matter, shareholders, do you see as much corruption as you see in SOEs? Accountability comes with ownership and control systems. Without ownership, reform process would only work to the extent of efficiency enhancement, and that will not be lasting and would be personnel dependent.
Excellent initiative Ali. Corruption is deep in SOEs. Bailout packages are given without any accountability, board of directors are being appointed through references and pressures, I guess Finance Minister is helpless here, until a strong reform program is not introduced in Pakistani SOEs.