Daily Times

You can take Gullu Butt off the
street, but not out of the PML-N it seems. Through its handling of the PIA strike, this government has descended to new levels of infamy with its brutish violence against employees who were protesting the airline’s privatisation. It appears to have learned nothing from the previous Minhajul Quran massacre at the hands of its security forces. But there is something else besides these atrocities that the PML-N will be remembered for. And that is the blunder it looks set to be making in economic management, particularly with respect to ongoing privatisations. Without harbouring any pretensions about being an expert on the airline industry, I wish to provide a challenge to the government’s privatisation of PIA from a common sense perspective.

The rationale of handing over PIA to the private sector, it is expected, is that a new management, on its own incentive, has a chance at turning the company around and, moreover, will take some financial burden off the shoulders of the government, a burden of approximately Rs 30 billion a year. But making an airline succeed is tough business and not so easily done simply by handing it over to a private buyer because it is a ‘best price’ industry and also because short-haul (city-to-city) trips tend to be loss-making activities if the airline is not built from the ground up to cater to them specifically.

If privatisation succeeds in creating a competitive airline, it will become an enterprise that will provide good services for money. What might a ‘best case’ scenario for this look like? The new owners will fire employees and cut costs. A coincidental increase in air travelling consumers brought from increased economic activity from the economic corridor and when the energy crisis ends will help its revenues, a circumstance not of the company’s own making, but one that it will benefit from nevertheless. The government may save close to Rs 30 billion a year. As inept and corrupt as it is, what it will do with that money is anybody’s guess. If we are lucky, it will blunder its way into another needlessly expensive mega project in a prime constituency. The privatised airline will send some money to the government as taxes, or maybe not, depending on the concessions offered to the buyer during negotiations. We can expect the buying process to include bribery, corruption and enrichment. This is the unlikely, best case scenario.

If, on the other hand, privatisation fails to create a competitive airline, and it is easy to fail, the buyer will either have to close down the airline, which the state will object to because of its essential services, hand it over to another private buyer or give it back to the state, which is back to square one.

In either case, whether a privatised PIA succeeds or fails, by going on this route, Pakistan will be following the prescriptions of international institutions like the IMF, whose roadmaps for privatisation are widely discredited across the world for causing economic disasters wherever they are unleashed. Perhaps the fortunate new owners of PIA may enter into the ranks of the one percent, who, according to Oxfam, now own more wealth than the not-so-fortunate 99 percent of all people on this earth. In lieu of large-scale foreign investments of the type that built West Germany, Japan and South Korea, worldwide historic trends of forced privatisations have a bad track record for national economic turnarounds and the result for Pakistan in the short and medium term could be no different.

It is also unlikely there will be a net addition of jobs from this privatisation because, while traditional economic theory suggests that employees downsized from privatisations can re-skill themselves and find jobs elsewhere, this scenario mostly applies to advanced countries. It may not be so easy for employees who have been let go to move on with their lives in a country like Pakistan where high unemployment and widespread underdevelopment exist.

Such risks should add a cautionary, critical hue to the government’s approach towards privatisation and expand their inquiry into long-term ramifications. Instead, the arguments on the fate of national assets show a tendency towards confirmation bias. Those who support privatisation will readily cite examples where it has succeeded or generally cite the success of the private sector in making money.

Of course, it is beyond dispute that by and large privately run companies are profitable; this is indeed the basis for the continued existence of capitalism around the world. On the flip side, those who want to maintain the national asset under state ownership will cite examples where the state sector outperforms the private sector. And very clearly there are many such enterprises and sectors to be found around the world, particularly in countries like China where the state-owned airlines are financially successful as opposed to their privately-owned loss-making American and European counterparts.

Thus, the argument over whether PIA, a nationally owned airline, can be successful or not cannot be settled merely by framing the debate in such a simple manner, by using dogmatic analogies or platitudes that sound as if they are informed by economic theory. The permutations that go into making a company or industry successful are in fact complex. They involve worldwide and local economic conditions, consumer purchasing power, demographic shifts, competition, managerial competence, the spending budget, the regulatory environment, the state of technology and so much more that is often outside the control of individuals and governments. In other words, the unique set of circumstances facing the enterprise must be analysed. Clichéd arguments that the private sector is the answer wherever the existing government setup cannot manage an enterprise must be avoided.

The sort of complexities mentioned above are the slightest glimpse of the realities that must be acknowledged to determine the honest and right solution in a debate on why an airline needs to be privatised. The ruling PML-N government has made no effort to communicate or explain its decision in terms of any such analysis. It instead caused a crisis through its brutish handling of protesting employees.

Moreover, there is virtually no evaluation on the perspective that a national airline ought to be viewed from. They are called ‘essential services’, which hints at their strategic importance, but typically assets of strategic importance are not handed over to private interests. The larger issue, larger than the local perspective of the profitability of the individual enterprise, that civilian populations must democratically decide is: what role should enterprises fulfil in society? Should they be for the benefit of a few or should they be for the benefit of all?

Thanks to the way the government has handled the crisis and the way broadcast media hosts debates, we are nowhere near an intelligent solution to the larger problem of whether privatisation is at all the answer to our economic woes.

The writer is a business professional with an interest in political affairs