Swinging pendulum

The wisdom of the late 1980s and the 1990s, loosely termed as the Washington Consensus, was that the government should get out of all areas and let the private sector do what it is best at doing: production, distribution and provision. The government could only come in the way of the private sector, slow it down, make it inefficient and so on. And the government, even when its intentions were good, and that became debatable as well, could only cause ‘government failure’. Let the markets and private enterprise and private initiative rule: that was the cry. And let private vices be the cause of public virtue: that was the hope.
Under the leadership of the IMF, the World Bank and other multilateral and bilateral players, this message was relentlessly drilled into the policy makers of the developing countries as well. Even if there were no markets in an area, were severely incomplete or inefficient, the message was that we should rely only on these and reduce or eliminate governments role in all areas. Privatisation, liberalisation, and decentralisation became the main buzzwords and policy talk was all about markets and unleashing the potential of the private sector. In the zeal to take this message to new limits governments in the developing countries were told to reduce their role even in areas where governments in the developed countries retained significant roles. Primary and secondary education is one such area. But even in areas related to agricultural subsidies, higher education and so on, the role of the government was more significant in some of the developed countries than what was pushed for in some of the developing countries.
And many countries did follow these prescriptions, some more than others, some in letter as well as spirit while others were a bit more reluctant, some more willingly than others. But the power of the international purse, in the form of the multilateral strong arm, was powerful enough to force most developing countries to move in the direction recommended by the Consensus.
Pakistan was no exception. We privatised, liberalised and decentralised throughout the 1990s and well into the 2000s. Our privatisation programme was quite broad. From selling cement plants, ghee plants and other production facilities, we went all the way to banking and insurance markets. The role of the government has been reduced significantly in almost all of these markets. The government acted as the price maker in the cement market some years ago, today it can only watch cement prices from outside as the price is set by the cement cartel. In banking, apart from National Bank all other public banks have been privatised.
In addition the government allowed new private parties to enter almost all areas that were previously considered to be the domain of the government only. This was part of the liberalisation drive. Telecommunications, road transport, air travel, insurance, banking, electricity generation, higher education and even primary and secondary education, and infrastructure construction are all good examples. It is not the case that these steps were not needed. Many of them were indeed needed. There were areas that needed liberalisation, and there were sectors in which government did not need to own and run factories, but the zeal with which the objectives were pursued had more to do with the pressure that was coming from outside than with economic rationale and economic thinking/analysis done in and for these areas or sectors.