Perhaps most of us associate state ownership with corruption, nepotism and inefficiency. This view stems from our limited experience of nationalisation, which stalled our economy for the longest time. Hence, we tend to take a very negative stance towards state owned enterprises.
Perhaps most of us associate state ownership with corruption, nepotism and inefficiency. This view stems from our limited experience of nationalisation, which stalled our economy for the longest time. Hence, we tend to take a very negative stance towards state owned enterprises.
The late seventies and early eighties were years when, “Thatcherism” was popularised. The British Conservative Iron Lady, Margaret Thatcher, who served as Prime minister of Britain from 1979 to 1990, gave economic and political philosophy, whose underlying basis was the advocacy of privatisation of nationally owned industries and businesses. She remained to carry this thought consistently, as the Conservative Party leader from 1975 to 1990.
The three economic models that operated then were capitalism (free enterprise and free markets); socialism (controlled economy with most assets being under state control) and then there was an amalgam of these two extreme thoughts, referred to as, “mixed economy”.
Socialist economic model was a fad of the decades of the sixties and seventies, therefore in fairness, no wonder that the populist leader, Z.A.Bhutto, sold to the masses the concept of ‘each according to his/her needs, instead of ‘each according to his/her abilities’. Soon after assumption of power/office in 1971, December, ZAB undertook the step of nationalisation of key industries.
But to remain judicious in evaluation of this strategy, it needs to be contextualised and appreciated, that ZAB did not pollute the business environment with corruptive practices or by way of mass political appointments or by influence upon the financial institutions to grant political loans. Only professionals were selected to run the state-owned financial institutions. The malaise, deterioration and corruption took roots during the Zia years. The general exploited religion in the economic context too, like no rightist party had done ever before and simultaneously, taking advantage of nationalised institutions resulting from ZAB’s leftist economic policies, brazenly political appointments were made, that gave impetus to nepotism and incompetence. A disease that we haven’t been able to rid ourselves and it continues to haunt us even today.
Towards the end of the decade of the eighties, the world witnessed the collapse of the Berlin Wall in 1989 and this was followed in quick succession, with the undoing of the Union of the Soviet Socialist Republic (USSR).
Alongside, the world was opening up to libertarianism that provoked the maximisation of autonomy, political freedom, promotion of equality in the context of law, civil rights, encompassing freedom of association, freedom of speech, freedom of thought and choice. Libertarianism doesn’t necessarily mean that it is a right-wing doctrine; what belies such opinion is the fact that at least on two essential elements, firstly in relation to social issues, libertarianism tends to be more ‘left wing’ and on the other side of this spectrum of thought, libertarianism is not up against either the socialist ideology.
Mikhail Gorbachev who initiated the openness of the USSR, fell victim to his own concepts of Glasnost and Perestroika. The latter was a political and economic reform movement within both the Communist Party of USSR and the state of USSR; while the earlier, that is Glasnost, meant, ‘transparency’ in policy reforms. The idea to give to the masses firstly to discuss publicly the problems, issues and weaknesses of their political systems created social chaos. Ignoring economic reform was a critical mistake of Gorbachev.
Glasnost took precedence over Perestroika and hence what emerged was both political and economic turmoil. Openness, without tools of harness attending to it, gives birth to revolutionary and radical responses. Consequently, the protests on the streets of Moscow, coupled with the long queues of people waiting to get a loaf of bread, became unmanageable. The giant USSR started to crumble under the weight of its economic and political mismanagement.
China on the other hand had by choice and determination ignored ‘political reform’ and instead embarked with great ambition for economic reform and remodelling. The pragmatism and sagacity of their political set up handled well, the uprising of the youth in 1989, when on the 4th of June of that year, the Chinese government dealt a deadly blow to the students’ movement. Tiananmen Square that housed several hundreds of thousands of students for well over eight weeks was cleaned up overnight. Order was restored.
With the decline and ultimate collapse of the Evil Empire (Ronald Reagan had coined this term for the Soviet Union), the Socialist Thought and those professing were looked upon as an enigma. (Mikhail Gorbachev did to the USSR what the US and other western powers couldn’t achieve since the October 1917 revolution. He delivered on a platter, and so began the era of the unipolar world).
Annexed to this achievement was the concept of ‘privatisation’ as an alternative to state ownership that gained momentum and became the norm for economic growth. Many countries bounced back towards rapid economic development.
China in 1978, took a bold economic decision under Deng Xiao Ping, to create four Special Economic Zones, which were meant to be laboratories for testing the capitalist system. Later to this concept, thirteen principal coastal cities were added to evaluate this concept.
While most industries, trade and commerce remained under state control, but liberal policies were framed for the private sector to flourish alongside the state-owned enterprises. The intent was to induce and invite capital from adjoining countries and territories, like Hongkong, Thailand, Taiwan, Malaysia and both the historically detested Japan and South Korea. Major investments moved into Shenzhen and other SEZ’s. Several joint ventures were set up. Hongkong witnessed a major shift of their industries moving into South China ... primarily the province of Guangdong and Fujian got the most attention of investors from Hong Kong and Taiwan.
The experiment was a resounding success. Today if the barbed wire that divides and serves as the boundary between Shenzhen and Hong Kong is removed, it will be difficult to know which side of the border one is stationed. Shenzhen, like Hong Kong, is a city of skyscrapers.
A healthy combination of private enterprise and state-owned enterprises has yielded China a major positive economic advantage.
Countries that are on the precipice, suffering from leaders’ indecisiveness of what economic system to pursue, need to learn from both the Chinese way of conducting the economy and British Thatcherism. A fair balance between private and public enterprise is more likely to give higher dividends in the long run. There is no need to adopt the extremes of Socialism and Capitalism or free enterprise. Pakistan is a case in point of such confusion, of choosing between alternatives.
Regrettably, due to the disastrous results of the nationalisation programme of ZAB in the mid-seventies, our policy makers find ‘State Ownership’ a repugnant economic thought. There is therefore invariably and perennially the discussion on privatisation of PIA (the national airline), Pakistan Steel Mills, and several other units currently under government ownership. Privatisation, per se, is not a panacea for our several and severe economic ills and ailments; neither is complete repugnance to state ownership is a worthwhile route to adopt.
As Pakistanis, we must ask, why are the Chinese State-Owned Enterprises profitable and not ‘white elephants’ for the Chinese economy? The answer doesn’t reside only in the ownership structure; the obvious answer is that most of the SOE’s are run by professionals and not family members. In our corporate sector there is predominance of family-owned businesses. These business Houses can have the best policies developed but inherently there is reluctance to improve their attitudes and governance skills. They believe in their business judgements and largely consider all their employees as ‘doers’ only. Thinking “is the owner’s domain.” Hence, we see the disintegration of most family businesses by the third generation, at best.
The major commercial banks of Pakistan which were nationalised earlier, today stand in the private sector. They have been privatised. They are vulgarly profitable. So why are they different now? Under state control, most were bleeding and needed capital infusion, every few years… They had a burgeoning pile of non- performing assets (NPA’s), all arising out of political loaning or considerations arising out of nepotism and favouritism. The quality of staff had taken a nosedive; again, a consequence of mass political hiring, at all levels, and opening unproductive branches, done to favour the favourites. Competence was given a seat in the last row of national priorities.
Today the same financial institutions are a powerhouse of progress, with profitability touching new peaks of achievements. Precious foreign exchange is remitted out as dividends. So, what’s the difference or where did we go wrong? The same entity behaves differently just because of ownership! Nay, it isn’t ownership, it is management and leadership, that’s making the difference.
Pakistan Steel Mills is again an excellent case to cite, it was profitable under stable management, when there was no state interference in its operations, productivity and management. To turn around institutions, one needs a decisive management structure, that harbours neither an attitude of fear nor of favour. The board, CEO and the senior management have to undertake bold decisions under guidance of a professionally selected board of directors. The BOD must frame policies as soonest possible after constitution. The board members are not necessarily from the civil services; they can be from amongst, the private sector entrepreneur, or the banker or the AI specialists, the economists or tech savvy people should be selected for the board positions. The freedom to frame policies and do a re-evaluation of business strategies must depend upon few well qualified and trained professionals.
There is nothing wrong with having state owned enterprises, these can equally be dynamic, market oriented, HR focussed, with highest standards of profitability ... only if their professional management is left alone to strategise, rebuild franchise and not breathe down each other’s neck.
It is therefore not a sine qua non for any entity to be successful that they should have to remain in the domain of private ownership. We need to improve governance and accountability standards only; there is no need to sell our family silver. We are an intelligent Nation and can turn the country around, only if meritocracy is allowed to prevail.
The writer is a freelance columnist
