King Richard (aka the Lionheart) once declared, “I would have sold London if I could find a buyer”. London was spared; instead bishoprics were sold, gold and silver treasures of churches were confiscated and Carucage, a crushing land tax, was imposed to finance the Crusade.
On his way back from Jerusalem, a ship-wrecked Richard was captured near Vienna by Leopold V, Duke of Austria; 150,000 marks were demanded for his release. New taxes along with the older Saladin tithe (tax) helped secure the release prompting the message from King Philip of France to Richard’s brother and successor John: “Look to yourself; the devil is loose”.
A recent headline in these pages echoed the diktat ‘IMF wants fast-track privatisation of PIA’. IMF and World Bank loans are the gold-standard of international finance for countries in economic servitude. In the 1990s, the IMF and the World Bank, with respective government leaders as abettors, forced structural adjustment policies on Russia and many counties of Asia, Africa and Eastern Europe. In the garb of privatisation, state-owned enterprises (SOEs) were doled out to cronies.
Like our governing dispensations, privatisation in Pakistan has proved to be nothing but smoke and mirrors – obscenely enriching a select few. For the transparent sale of SOEs, as for every other facet of governance, strong regulatory and institutional oversight is imperative. Pakistan has seen two distinct phases of privatisation.
The first, started by Ziaul Haq, was focused on denationalisation as a medium of passing economic basis to a select few. Ittefaq Foundries bears relevance as to those in power today. The second phase, starting in the early 1990s, has been implemented by successive regimes from across the political divide.
The primary driver of both phases of this divestment policy, agreed upon with our self-imposed nemesis – the IMF and World Bank – has been the excruciating must-dos put forth as ‘fiscal support programmes’. Successive regimes have vigorously pursued this cherished conduit to crony capitalism. As a result, immense concentration of wealth and economic power has been created enriching the blue-eyed of those at the helm of affairs in respective times.
The PPP and the PML-N, the two longest serving regimes, represent about 83 percent of all privatisation transactions and 91 percent of the proceeds. Of this, in two tenures, the governments led by Nawaz Sharif completed 73 transactions of about Rs14 billion; the late Benazir Bhutto 28 generating almost Rs45 billion and Pervez Musharraf 66, worth about Rs417 billion.
This may seem innocuous; however, the business groups that acquired banks were also successful in acquiring other major industries. In many countries, ownership/control of financial institutions is an automatic disqualification from owning other major business concerns.
The feeding ground for concentration of economic power through crony capitalism was established in the privatisation round of the first Nawaz Sharif government. The criterion for bank ownership was loose and there was no restriction on control of banks by industrial groups. This lethal combination gave buyers of the first round an unfair advantage over the rest; the former acquiring multiple assets within and outside the privatisation process.
As a result, the business landscape of Pakistan has been profoundly impacted. A large number of industrial groups without a stake in banks have generally regressed while those owning banks boast the Midas touch.
There are genuine deep rooted fears in allowing industrial and business houses to own banks. These mainly relate to the fact that, given the political affiliation/patronage and conflict of interest, this merger of interests tends to undermine the independence and neutrality of banks. In Korea, subsequent to the Asian crisis, industrial houses (Chaebols) were barred from promoting new banks hence ensuring the segregation of banking and commerce.
Globally, many countries restrict blending the two. Given our rampant culture of political corruption and patronage, it is pertinent to beware of the pitfalls of this common ownership nexus.
The present government has announced a seemingly unachievable programme to privatise (transparently) 31 SOEs in less than three years. This involves some of the largest (and strategic) entities in respective sectors and the country including OGDCL, PPL, PSO, NBP, NICL, PIA etc. At almost one transaction per month, the juggernaut’s timeline is dictated by the IMF. Unless strong check and balances are implemented to minimise concentration of economic power, the influence of the select few is set to increase manifold. News reports warn that beneficiaries of earlier rounds are pre-positioning and lobbying for assets of their own choice. Unless total transparency is ensured, pressure to meet the aggressive timeline shall backfire increasing the stark economic divide and may well compound the prevalent social unrest beyond the tipping point.
No developed country achieved economic success and development without one form of protection or another. The Scandinavian countries faring constantly at the top of the living index, along with some developed ones are not capitalist or free market economies. Apart from a vibrant private sector, the state controls most sectors keeping the interest of its citizens at heart. Privatisation, with non-existent institutional and regulatory oversight and profit being the sole goal means an already proven monopoly, cartels, unemployment and run-away prices; we have had enough of that to last many life-times.
The nationalisation policy of late Zulfikar Ali Bhutto would have paid dividends; cronies and political appointees, then and today, have run the SOEs to ruin. Margaret Thatcher, with her massive privatisation drive, is credited for introducing the ‘privatisation’ word to official jargon. In later years, it also forced a multitude of Britons and media headlines to dub the Iron Lady as ‘the woman who divided a nation’ and ‘Thatcher’s popular capitalism enabled Britain’s rich to get richer’.
George Parker is labelled by many as the greatest con man America ever saw. Todd Robbins enumerates his exploits in his book ‘The Modern Con Man: How to Get Something for Nothing’. Parker ‘sold’ the Brooklyn Bridge, the Statue of Liberty, Metropolitan Museum of Art and the old Madison Square Garden. However, his most audacious ‘sale’ was that of the General Grant National Memorial New York, a mausoleum containing the remains of American Civil War General and President, Ulysses Grant and his wife, Julia Grant. To seal the ‘deal’, Parker posed as Grant’s grandson!
Prime Minister Nawaz Sharif is neither a Margaret Thatcher nor a King Richard (despite the common ‘lion’ denominator) and surely not a Parker. However, his past tenures and recent months do little to inspire confidence in ending our economic servitude. The looming privatisation process may well leave us again with the haunting and unanswered question of previous years; was it predation or privatisation?