The Privatization policy of PML(N) on the State Owned Enterprises (SOE) continues to draw mixed reactions, both from economic analysts and the public in general. The notion that the government should not be in the business of running businesses, though partially true, needs to be looked at from the perspective of the ‘history of economic management’, which tends to define the strengths and weaknesses at a given period of the government’s role in a management chain. The history of the dawn of capitalism is full of ventures where governments took upon themselves to assume investment risks for services and product innovations that would otherwise have been non-starters or at best, remained confined to only a few select segments. Over time, the industrialized nations of the West, mainly the US and Western Europe, realized that since efficiencies are primarily driven by installing managements that are committed to maximizing shareholders’ return they gradually went about facilitating ownerships that ensured selection of such executive, thereby aligning the interests of both, the private sector and the masses. While the underlying assumption of this endeavor was that the interests of businesses and nations ultimately coincide, the challenge it presented was ensuring that while businesses got the freedom to pursue economies of scale, they did not at any stage compromise on national interests.
Lately though, the crisis of Western liberal capitalism has coincided with a challenge of a different kind: the rise of a powerful new form of state capitalism in emerging markets. State capitalism tries to meld the powers of the state with the powers of capitalism. It depends on government to pick winners and promote economic growth by using capitalist tools such as listing state owned companies to ensure management’s accountability and by embracing globalization. Nearly two to three decades back (depending upon the country), as western states abandoned the commanding heights of their economies in the name of privatization and deregulation, it looked as if these public-private hybrids were doomed. Today they are flourishing again in the world’s emerging dynamic economies and also striding out onto the global stage. State-owned companies account for 80% of the market capitalization of the Chinese stock market, more than 60% of Russia’s, and 35% of Brazil’s. They make up 19 of the world’s 100 biggest multinational companies and 28 of the top 100 among emerging markets. Under the new rules of globalization, the earlier notion citing ‘states should not be in the business of running businesses’, is increasingly being shunned by the developed and developing world to instead opt for public companies to build value for the long term.
Sadly, the concept of state’s role in the corporate arena and subsequently the selling and managing of state’s assets in an economy is a phenomenon that continues to be mismanaged in Pakistan. The various managers (managing the national privatization portfolio) failed to understand that the scope of privatization is not limited to sale of state’s companies or assets. In fact the opposite is true. The real duty of the Ministry of Privatization is to optimize government’s return on its assets while disposing-off undesirable portfolios. In essence, the Privatization Commission (PC) should be overseeing M/s Corporation Pakistan like a management board that uses multiple tools like: private-public partnerships, stock swaps, liquidation where necessary, international joint ventures, strategic portfolio build-ups, mergers and acquisitions, managing agency contracts, instilling professional management, market-share leveraging, etc to ensure that not only does the government overcome its overall deficit in its corporate affairs but also generates revenue from its interests.
To gain an international foothold through a combination of State’s resources and professional corporate governance, the example of the airline industry comes to mind. The airlines from the Gulf and the Middle East today seem to be dominating the global aviation business and strangely, it is the US’s airlines who are crying foul. Only recently, we have seen a development where they have joined hands and are asking for the US government’s help to counter the challenge from airlines like Emirates, Etihad, Qatar, etc. Ironically, one remembers when, not too long ago, they successfully made a case of breaking up Pan Am to pave way for the private airlines to take up the space vacated by the American national carrier! Analysts who do not fully grasp the practical side of the corporate world often limit their scope of corporatization to merely the private sector. We have heard criticism on the business interests of the Pakistan Army; that they shouldn’t be indulging in corporate ventures, without realizing that institutions all around the world (especially the armed forces) use this corporate face of their operations not only to supplement their resources/income, but to also sharpen management efficiencies and innovation within the organization. For example, the Pentagon’s Defense Advanced Research Projects Agency (DARPA) has the longest standing track record of radical invention in history.
Over the past 50-plus years, DARPA has produced an unparalleled number of breakthroughs, including the internet, global positioning satellites, stealth technology, MEMS, and carbon composites. The agency’s advances are now used in everything from smart-phones to sporting equipment to artificial limbs, and it has played a central role in creating a host of multibillion-dollar industries. What makes these accomplishments even more impressive is DARPA’s swiftness (its programs last only three to five years), a relatively tiny organization (about 120 permanent staffers), and a modest budget (about $3 billion annually for roughly 22 programs).
Finally, the real challenge today for our Privatization Commission lies in coming up with a vision and strategy that highlights the role of state owned enterprises in dispensing good economic governance. In first endeavoring to find ways and means to turn around the strategic national organizations in case a particular sale is absolutely necessary, to then transparently share (with the public) its comprehensive disinvestment plan on how the sale will become a win-win for all stakeholders. Also, most importantly, it needs to lead the way in creating the political will to undertake corporate turnarounds, since such endeavors require tough and unpopular decisions. In addition, the PC will do well by realizing that externally driven reforms have proved rather ineffectual in improving boards’ managerial oversight. They should instead be concentrating their efforts on strategy formation, talent-oversight, board composition and international board swap arrangements to enhance the quality of the board’s management skills. The challenge lies in turning around the key public sector enterprises to use them for safeguarding and promoting larger national interests – Some of these portfolios may be irreplaceable or difficult to replicate and therefore, these investments not only need to be retained by the PC in this regard, but also need to transparently work out tangible values on their management rights to ensure that they are not doled out as political favors or for self-enrichment purposes. Critical sectors, like for example, oil and communications and mainstay corporations like the PSO (Pakistan State Oil) are too important to be handed over to foreigners or to a few individuals. Imagine a scenario where the Pakistani government completely pulls out of the healthcare services or if NHS in UK was to be wound up or if Obamacare is asked to survive without the help of the US state? History tells us that when the power of the state to exercise its writ and to bring about people friendly reforms gets seriously marginalized, the state sooner or later fights back to claim its rightful balance and whenever this happens, it is not a pretty exercise.
The writer is an entrepreneur and economic analyst.
Email:kamal.monnoo@gmail.com