The media hype created against the agreement might have been in good faith, but was at any stage the disputed arrangement with Turkish Air assessed independently for merits and demerits?
The Logic of Collective Action: Public Goods and the Theory of Groups is a book by Mancur Olson, first published in 1965. According to Olson, interest groups pursuing public good will inevitably include free riders, individuals who piggyback on the efforts of others.
To understand this, let us take the example of environment. A clean environment is a public good. How often do most of us participate in efforts to protect our environment? I, for one, confess while I support all efforts for a clean environment, my support constitutes reading about events in the newspaper and appreciating the people who actually participate. If they do succeed, I will obviously enjoy the benefits of a clean environment. However, should the cause have a private impact with the benefits accruing directly to a select group, which includes me, I would be willing to organise a walk for a cause on the moon.
Olson goes on to identify that organising a large interest group for protest would be a logistic nightmare and a costly affair while it would be easier to get a small interest group together to pursue a common objective. In Olson’s defence, when he wrote his book social networks on the internet did not exist. However, interestingly, while the internet may have been instrumental in getting the Egyptians together in Tahrir Square, who took care of the logistics? Somebody had to feed those thousands of people and, well, you did need clean toilet facilities, other wise the protest in the square would have failed due to pollution alone. The protest required excellent management and financing skills.
The intent here is not to colour a brilliant moment in history for our Egyptian brothers by implying a conspiracy theory, but to explain Olson’s findings. Contrary to the prevalent concern during his time, Olson theorised that in a democracy rather than the majority oppressing the minority, it would be the other way round because of the free riders and the difficulty in managing a larger interest group. In Pakistan today, this is exactly what seems to be happening.
Recently, the KESC management took a decision to terminate the employment of 4,000 employees that they considered redundant. Immediately, the affected hardworking employees took the ‘only’ available route, a strike at KESC head office. Why the peaceful path of challenging the decision in the courts was not adopted is a mystery. Was it because of lack of faith in the courts or lack of substance in the case, we will never know. Notwithstanding, the strike was well organised and was able to solicit the support of a multitude of segments of society, including the politicians and the media. The management relented after receiving veiled threats from the city administration and the terminated 4,000 employees were finally reinstated.
Some analysts in the media now warn of the adverse impact on foreign direct investment (FDI) because of these actions, but who cares about FDI? The bigger problem is that these 4,000 employees have a cost which has to be recovered from the KESC’s customers, most likely through a higher tariff. After all let us not expect the poor investor to foot the bill as well. So the millions in Karachi will now have to pay for the cost of this decision to pressurise the KESC management into rehiring 4,000 employees. But Olson was right, who will take the responsibility for educating the citizens of Karachi of the impact on their tariff? In such a large group, no one; because of the logistics and free riders, the majority will continue to pay their electricity bills quietly.
Imagine for a minute that if a strike could be organised and the people of Karachi did get together to protest the cost of higher tariffs, who would the administration side with? Practically, with the millions of protestors, this should have been the logical decision in the first place.
Let us take another example. Around 500 PIA pilots organised a strike for four days resulting in hundreds of cancelled flights and 50,000 stranded passengers. Apparently, this had to do with the arrangement reached with the Turkish Airline which, if implemented, would have resulted in a few hundred losing their jobs. The strike was a phenomenal success; the managing director was given the boot and the agreement with Turkish Airline is probably history. The good news is that we can now retain 500 pilots for 40 aircraft and in any case it was the managing director’s job to make PIA profitable, let us pray the new one is more competent.
The media hype created against the agreement might have been in good faith, but was at any stage the disputed arrangement with Turkish Air assessed independently for merits and demerits? What is puzzling is that if such an assessment was done, there were two logical options, either to rescind the agreement or educate the media and the masses of the benefits thereof. Maybe the entire episode could have been avoided.
Nonetheless, again there was no one to organise the 50,000 suffering passengers to strike against the strikers. What is worse, these four days are estimated to have cost the exchequer approximately two billion rupees. Who is going to pay for this? All of us! If subsidies like these continue to increase, the problem is not whether further taxes will be imposed — that is inevitable — the problem is how much. Imagine more than 90 percent of the population probably will never travel by the PIA and will end up paying for this cost. Rest assured if there was someone to arrange a protest against this cost, most of the poor, irrespective of the free riders, would be on the road demanding action against those responsible.
The bigger risk going forward is that all interest groups have realised that the best course of action is to strike. It should not be difficult for the car manufacturers to organise their employees to go on strike in protest against the government’s decision to allow import of used cars. The impetus being that loss of business may result in lower profits for car manufacturers with consequent retrenchment. Will the government again buckle under pressure? What if the car dealers than decide to go on strike to support the import? What would then be the government’s course of action? Will it depend on the more powerful lobby or will a decision finally be taken on merit in the better interest of the populace at large?
Relying upon available data, subsidies to public sector entities relating to protection of interest groups have crossed Rs 250 billion, apparently excluding the circular debt which is another few hundred billions. How long will the majority suffer and meekly pay for these costs?
Inevitably, as time passes, unnatural decisions will be reversed. KESC management is more likely than not to pursue its strategy to cut costs. If PIA continues to lose money, it will not be in a position to continue with the burden of 17,000 employees. Unfortunately waiting for the evolutionary process to correct anomalies is a costly option. Our democratic government either realises that or the majority will eventually register its protest in the next election. After all, the majority should not be expected to digest that the minority is authority!
The writer is a chartered accountant based in Islamabad. He can be reached at syed.bakhtiyarkazmi@gmail.com
Source : http://dailytimes.com.pk/default.asp?page=2011\04\14\story_14-4-2011_pg3_4
The Logic of Collective Action: Public Goods and the Theory of Groups is a book by Mancur Olson, first published in 1965. According to Olson, interest groups pursuing public good will inevitably include free riders, individuals who piggyback on the efforts of others.
To understand this, let us take the example of environment. A clean environment is a public good. How often do most of us participate in efforts to protect our environment? I, for one, confess while I support all efforts for a clean environment, my support constitutes reading about events in the newspaper and appreciating the people who actually participate. If they do succeed, I will obviously enjoy the benefits of a clean environment. However, should the cause have a private impact with the benefits accruing directly to a select group, which includes me, I would be willing to organise a walk for a cause on the moon.
Olson goes on to identify that organising a large interest group for protest would be a logistic nightmare and a costly affair while it would be easier to get a small interest group together to pursue a common objective. In Olson’s defence, when he wrote his book social networks on the internet did not exist. However, interestingly, while the internet may have been instrumental in getting the Egyptians together in Tahrir Square, who took care of the logistics? Somebody had to feed those thousands of people and, well, you did need clean toilet facilities, other wise the protest in the square would have failed due to pollution alone. The protest required excellent management and financing skills.
The intent here is not to colour a brilliant moment in history for our Egyptian brothers by implying a conspiracy theory, but to explain Olson’s findings. Contrary to the prevalent concern during his time, Olson theorised that in a democracy rather than the majority oppressing the minority, it would be the other way round because of the free riders and the difficulty in managing a larger interest group. In Pakistan today, this is exactly what seems to be happening.
Recently, the KESC management took a decision to terminate the employment of 4,000 employees that they considered redundant. Immediately, the affected hardworking employees took the ‘only’ available route, a strike at KESC head office. Why the peaceful path of challenging the decision in the courts was not adopted is a mystery. Was it because of lack of faith in the courts or lack of substance in the case, we will never know. Notwithstanding, the strike was well organised and was able to solicit the support of a multitude of segments of society, including the politicians and the media. The management relented after receiving veiled threats from the city administration and the terminated 4,000 employees were finally reinstated.
Some analysts in the media now warn of the adverse impact on foreign direct investment (FDI) because of these actions, but who cares about FDI? The bigger problem is that these 4,000 employees have a cost which has to be recovered from the KESC’s customers, most likely through a higher tariff. After all let us not expect the poor investor to foot the bill as well. So the millions in Karachi will now have to pay for the cost of this decision to pressurise the KESC management into rehiring 4,000 employees. But Olson was right, who will take the responsibility for educating the citizens of Karachi of the impact on their tariff? In such a large group, no one; because of the logistics and free riders, the majority will continue to pay their electricity bills quietly.
Imagine for a minute that if a strike could be organised and the people of Karachi did get together to protest the cost of higher tariffs, who would the administration side with? Practically, with the millions of protestors, this should have been the logical decision in the first place.
Let us take another example. Around 500 PIA pilots organised a strike for four days resulting in hundreds of cancelled flights and 50,000 stranded passengers. Apparently, this had to do with the arrangement reached with the Turkish Airline which, if implemented, would have resulted in a few hundred losing their jobs. The strike was a phenomenal success; the managing director was given the boot and the agreement with Turkish Airline is probably history. The good news is that we can now retain 500 pilots for 40 aircraft and in any case it was the managing director’s job to make PIA profitable, let us pray the new one is more competent.
The media hype created against the agreement might have been in good faith, but was at any stage the disputed arrangement with Turkish Air assessed independently for merits and demerits? What is puzzling is that if such an assessment was done, there were two logical options, either to rescind the agreement or educate the media and the masses of the benefits thereof. Maybe the entire episode could have been avoided.
Nonetheless, again there was no one to organise the 50,000 suffering passengers to strike against the strikers. What is worse, these four days are estimated to have cost the exchequer approximately two billion rupees. Who is going to pay for this? All of us! If subsidies like these continue to increase, the problem is not whether further taxes will be imposed — that is inevitable — the problem is how much. Imagine more than 90 percent of the population probably will never travel by the PIA and will end up paying for this cost. Rest assured if there was someone to arrange a protest against this cost, most of the poor, irrespective of the free riders, would be on the road demanding action against those responsible.
The bigger risk going forward is that all interest groups have realised that the best course of action is to strike. It should not be difficult for the car manufacturers to organise their employees to go on strike in protest against the government’s decision to allow import of used cars. The impetus being that loss of business may result in lower profits for car manufacturers with consequent retrenchment. Will the government again buckle under pressure? What if the car dealers than decide to go on strike to support the import? What would then be the government’s course of action? Will it depend on the more powerful lobby or will a decision finally be taken on merit in the better interest of the populace at large?
Relying upon available data, subsidies to public sector entities relating to protection of interest groups have crossed Rs 250 billion, apparently excluding the circular debt which is another few hundred billions. How long will the majority suffer and meekly pay for these costs?
Inevitably, as time passes, unnatural decisions will be reversed. KESC management is more likely than not to pursue its strategy to cut costs. If PIA continues to lose money, it will not be in a position to continue with the burden of 17,000 employees. Unfortunately waiting for the evolutionary process to correct anomalies is a costly option. Our democratic government either realises that or the majority will eventually register its protest in the next election. After all, the majority should not be expected to digest that the minority is authority!
The writer is a chartered accountant based in Islamabad. He can be reached at syed.bakhtiyarkazmi@gmail.com
Source : http://dailytimes.com.pk/default.asp?page=2011\04\14\story_14-4-2011_pg3_4
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