Economic schizophrenia - By Saroop Ijaz - February 2, 2011

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THE recent reinstatement of over 4,000 employees of the Karachi Electric Supply Company is being termed by the government, opposition and the media a success.The termination had led to violent protests and pressure for reinstatement from the opposition, media and civil society.

It is worth remembering that the KESC has been privatised and the federal government now holds approximately 24 per cent of the shares. Hence, it has no significant managerial control over the KESC.

Privatisation at a very basic level is the process by means of which ownership of an enterprise or public service is transferred from the public sector (the state or government) to the private sector. The primary argument for privatisation is that it allows market forces to efficiently deliver goods or services better than governments due to laissez-faire competition. The economic rationale is that the government has minimal incentives to ensure that state-run enterprises are profitable, since there is a dearth of competitors providing either the incentive or the yardstick to ascertain performance.

Additionally, it is argued that state-monopolised function is prone to corruption as the decision-making process is governed by political, and not economic, reasons. The absence of elaborate state bureaucracies and transparency are amongst the other multiple factors cited in support of privatisation. This argument pre-supposes the role of the state as non-interventionist in the marketplace. Though one may be ideologically opposed to the model, it is a theoretically defensible model that is widely implemented globally.

The primary argument of those who are opposed to privatisation is that democratic governments do have incentives to maximise efficiency in nationalised companies due to the pressure of future elections. Failure to do so would result in losing votes. The other arguments are macro-level ideological arguments such as that certain public goods and services should remain primarily in the hands of the government in order to ensure that everyone has access to them, such as healthcare, law enforcement, etc. A natural corollary of nationalisation is a centrally planned economy guided by a state and the government possessing a leading activist role. The argument against privatisation or for nationalisation can be disagreed with, and attacked theoretically and ideologically. However, similar to the alternate model these arguments remain persuasive for many, and can be theoretically justified.

There is a third, rather novel, model employed by the government in the case of the KESC. Existing mainstream economic nomenclature does not yet have a term to adequately describe it. In brief terms, it is the model whereby the government gets to act whimsically to momentarily placate political opposition, regardless of economic policy and consequences.

The KESC episode should have been an opportunity to bring into the public discourse the political and economic rationale for or against privatisation. The limits of government intervention in private enterprise in Pakistan are yet to be debated, much less reached a consensus on. The need for a comprehensive and coherent economic policy is manifested by fiascos such as this. Employees are reinstated because the government has the power to interfere at a policy level in the managerial decisions of a substantially private enterprise. In the absence of a policy this argument is not intuitive.

The intention of the government to privatise more public enterprises causes further confusion. The government is either willing to let private economic entities take over and run public enterprises or it is not. The government cannot privatise public corporations and then intervene to make managerial and policy decisions as a way of releasing political pressure.

The rationale for the existence of a Ministry of Privatisation and the privatisation board should have been questioned and debated. If the KESC episode represents the government’s stance, then the Ministry of Privatisation should be the first casualty of ‘rightsizing’.

If I am a foreign investor to whom the privatisation board is hypothetically pitching the sale of Pakistan International Airlines or Pakistan Post, I am understandably baffled. The Pakistan government is ‘rightsizing’ the cabinet as a part of broader austerity measures, which suggests that it is moving towards a smaller, non-interventionist government. Meanwhile, the government is restraining private entities from ‘downsizing’, which is a classic indicator of an expansionist, economic-interventionist role. As a foreign investor, I can agree to any one of the roles and have agreements drafted and executed which cater to that particular role. The primary rationale for having contracts is to bind the parties to a set of obligations and hence accord stability to the outcome of the transaction.

However, I cannot possibly make a contract with a government that has a schizophrenic economic policy. After the KESC episode, the message to anyone looking to invest in Pakistan is that when there is political heat, anything goes.

There is admittedly a human dimension to the episode. More than 4,000 people’s employment was terminated, and logically this entails over 4,000 households affected. And hence this incident should have provided the impetus for a debate pertaining to employment laws in Pakistan.

The Industrial Relations Ordinance (2002) needs to be revisited in order to incorporate more safeguards for the employees of private enterprises in terms of tenure security. The powers and functions of Collective Bargaining Agents need to be revised, empowering them to conduct meaningful negotiations with managements. Instead, we have coerced a substantially private enterprise to re-employ over 4,000 people that it clearly does not want to employ.

The employment laws regulating private enterprises should be revisited. Addressing institutional and policy questions instead of isolated incidents is imperative. All industrial and/or private employees in Pakistan are vulnerable to risks similar to those faced by the KESC employees. However, those who are not terminated in large numbers from enterprises located in urban, politically sensitive areas are unlikely to get similar attention.

The KESC episode should be viewed as being symptomatic of a systemic flaw and hence attempts should be made to develop consensus on whatever direction the government deems fit for the economy. However, the government and opposition decided to view it in terms of 4,000 votes only.

The writer is a lawyer.

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