Zafar Mahmood - The writer is a former federal secretary.
Strangely, my baptism in the ill effects of nationalization started in Larkana, Zulfikar Ali Bhutto’s home constituency. After training in the academy, I was assigned to interior Sindh to be exposed to district administration. The Bhutto government had earlier nationalized the banks and heavy industry, and cotton ginning factories and rice husking units were recently added to the list.
Khalid Kharal, Deputy Commissioner Larkana, was a hardworking administrator whose doors would always remain open. It was late evening in the stuffy August weather. The Deputy Commissioner was narrating the interesting stories of local political intrigues to his protege.
The attendant brought in an old hari (farmer) who complained about the demand for bribery from the manager of the local rice husking unit. The energetic Deputy Commissioner lost no time. He settled the matter after visiting the factory in the next half an hour.
On his return, the Deputy Commissioner shared that though the factory manager was at fault, he would still retain his job because elections were near and he was the son of an influential politician. Disappointed by this information, I was eager to know the rationale behind the government’s decision to assume control of minuscule industrial units. Khalid Kharal was frank and forthright.
He said the decision was part of Z.A. Bhutto’s politics. Nationalization was a means to extend political patronage to the party’s supporters. It shocked me. Till last year, I was a student of Economics and Politics at the Government College in Lahore. My academic training viewed control of the means of production differently.
This issue was at the heart of the conflict between capitalism and socialism. The policies of the U.S. were historically shaped by Jeffersonian politics and the philosophy of Henry David Thoreau, who famously said, “That government is best which governs the least.” Communism, on the other hand, believed in giving ownership of industry to the state to save it from the clutches of greedy capitalists who misappropriated the labor surplus.
Karl Marx’s philosophy became popular after the successful October Revolution in the Soviet Union. The Depression of 1929 introduced Keynesian Economics and the government’s involvement in economic management. After the Second World War, the common man brought the Labor Party of Britain into power, leading to industry nationalization.
Control of the economy by the state thus became legitimate even in the capitalist system. At the same time, newly independent colonies wanted rapid economic development. The success of the Soviet example influenced the leaders to adopt five-year plans and state control of primary industries.
Pakistan, after independence, also realized that the private sector did not have the resources and entrepreneurial capacity to invest in industries with long gestation periods. In 1950-51, state investment in the industry started with the formation of the Pakistan Industrial Development Corporation (PIDC) and continued in the following years.
To augment investment in hydel resources, the Pakistan Water and Power Development Authority (WAPDA) was established at the beginning of 1958. Ayub Khan’s government, after the imposition of Martial Law, encouraged the private sector but continued investment through the PIDC platform.
Z.A. Bhutto’s policy was not undone by Zia-ul-Haq, who denationalized the rice husking and cotton ginning but did not return the heavy industry to the private sector except in a few odd cases.
Sooner or later, state-owned industries start incurring losses that taxpayers ultimately bear. The reason is simple. Whereas the private sector enjoys flexibility, government-owned enterprises work under financial discipline, strict judicial oversight, procurement regulations and stifling surveillance of government auditors.
Also, politicians use them for corrupt practices and providing jobs to their supporters. Gradually, the world realized that “the state has no business to do business.” In Pakistan, the process of privatization and denationalization started in 1991. A separate ministry was established for the task. However, except for the banks, the state-owned enterprises remained with the government.
Over time, Pakistan International Airlines (PIA) became overstaffed and acquired the dubious distinction of having the highest number of employees per passenger seat. It was obvious that the loss-making industry needed to be privatized. However, the beneficiaries of the status quo opposed such efforts. The case of WAPDA illustrates this point.
The electricity generation (except hydel), distribution and transmission companies were to be privatized a long time ago. However, the hemorrhage of public funds continued with ever-increasing circular debt on the pretext of restructuring or induction of professionals in the management boards.
Privatization and denationalization are not impossible. With single-minded determination, Margaret Thatcher, the Prime Minister of the United Kingdom from 1979 to 1990, privatized the industry that was nationalized in 1948 . She faced stiff opposition but bulldozed her way.
Electricity generation, Royal Mail, and British Gas were offloaded, and her government paved the way for the privatization of British Rails in the time of her successor. Similarly, President Turgut Özal of Turkey, a technocrat with support from the military establishment, could privatize most industries and open up the country for foreign investment in sectors reserved exclusively for the government.
In Pakistan, till last year, the absence of consensus on the economic agenda, the presence of assertive trade unions and the cavalier approach of the superior judiciary in deciding economic matters painted a bleak picture for privatization.
According to the Ministry of Finance estimates, released at the end of 2023, the aggregate losses of state-owned enterprises in the last five years were more than five and a half trillion rupees. There appeared to be no hope for stopping such a massive hemorrhage of public finances.
The government was expected to continue supporting the loss-making units through equity injections, grants, subsidies and loans. No escape from economic instability appeared in sight.
Suddenly, new signs are on the horizon. A five-year plan is on the table. The PIA, insurance companies, utility stores, and state-owned engineering and industrial units are under the hammer. More importantly, Pakistan’s economy may eliminate circular debt by privatizing power sector distribution.
I was in the process of finalizing this article when a knowledgeable person saw its content . He asked mischievously, “Have you ever heard of Hafiz Ka Halwa?” I nodded innocently. He smiled and remarked, “It is the new therapeutic cure for stopping the hemorrhage of public finance. You will witness its curative effects in the days to come.”