Daily Times

The age-old question of whether the state should run businesses or not may be ready to hit us with renewed vigour. Even in the debate on privatisation of state enterprises, the ghosts of the 1970s’ nationalisation are invoked here and there. The pro-business group says that the nationalisation of the 1970s was an utter disaster and the state has no business running business enterprise. Marxists on the other hand think that state controlled enterprises are the holy grail of equitable economy. Just as in the case of any other economic debate, these sides have taken maximalist positions without realising that in economics there are no right answers and each policy and decision has to be taken on a case-to-case basis. For this reason, one cannot endorse nationalisation as a cure for all ills but at the same time one cannot rule out nationalisation as a needed interventionist tool.

Those claiming to be disciples of Karl Marx or Adam Smith fail to realise one key similarity between the two great economic thinkers of human history: both were trying to solve the same problem of the Industrial Revolution. Both realised that distribution of capital can get skewed, which leads to an inefficient utilisation of resources. Adam Smith’s solution for this was to create a perfectly competitive open market where market forces themselves would take care of inefficiency and the skewed distribution of capital through mechanisms like supply and demand based wage rate and individuals’ respective competitive skills. Karl Marx on the other hand thought that human nature could not allow for market forces to correct on their own and thus required an external interventionist element in the form of the state. What Smith missed was the basic human instinct of being a capitalist hegemon leading to monopolies and cartelisation. What Marx failed to realise was that the power the state yields in the process makes those at the top of the state become hegemons and thus lead to the creation of an oligarchy.

In reality, both offered solutions that were workable but were not the perfect solutions and, as the historical progression of the human race has shown since, economic progression has occurred as a result of switching between the two theories as and when the need arose. For instance, in the most open of markets — the US and UK — in the aftermath of 2008 financial crisis it became essential that the government take control of some of the largest financial institutions because without that the economy, financial system and even those institutions would collapse. And in the world’s most populous socialist economy of China, the state realised it had to open up the economy gradually to let entrepreneurial zeal drive the most robust growth in human history. Neither did the US opt for nationalisation as the sanctum sanctorum of the state nor did China shun its socialist ideals where the state still remains the final decision maker in allocation of resources.

There is no doubt that private entrepreneurs have more zeal and incentive to grow a business contributing to the growth of the economy through more efficient utilisation of resources in an entrepreneurial economy. But, at the same time, entrepreneurs like all individuals are focused on instant gratification and profit maximisation, and thus will fail to focus on developing sectors necessary for long-term growth and will also overlook elements essential for long-term social benefit. Many were surprised when, in a recent talk, Bill Gates, arguably the greatest entrepreneur of our time, asked the US government to take a more proactive and direct role in the energy sector, citing how it was not possible without the government to have the internet or many of the cures on which the healthcare industry runs and a vast swath of humanity benefits from.

Similarly, the debate around the 1970s’ nationalization process in Pakistan needs to be more reality-centric than rhetorical. One can argue that nationalisation was the maximalist of tools in the arsenal of the government to intervene and that the government should have relied on other, less disruptive tools to manage the problem of cartelisation and unequal distribution of resources. But one has to also take into account the social apathy and anger of the time to realise the context in which the government was operating. And just when, in post-1977, because of the corruption that plagued society from thereon, the state’s enterprises became a drain on national resources, it has to be attributed more to the corruption and lack of skill development than on nationalisation per se. It was the rot of the bureaucracy under Zia that led to mass scale corruption leading to the collapse of public sector enterprises and not nationalisation alone.

Lest we forget, Mr Bhutto’s choice for running the largest nationalised operation of the National Fertiliser Corporation was none other than Syed Baber Ali, showing the vision of ensuring transparency and business acumen in public sector enterprises. Just when nationalisation ensured democratisation of capital, leading to the rise of many small merchandises and industries into large business houses because of access to capital, its failing lies in not having a plan on gradually exiting out of those enterprises. For he was hanged prematurely, one cannot say if Mr Bhutto planned to gradually turn back to more private an economy or not but that strategy was needed when the times changed and the negative factors that contributed to nationalisation removed. The economy will always be a seesaw. Thus, successful states will have to slide between being more interventionist and less hands-on. Who knows; with the growing graft in DISCOs (power distribution companies), lack of transparency in IPP payments and rising dollar denominated payment burden, we may be forced in times to come to have a maximalist government intervention in generation companies. The debate is not of state control versus free market; the real debate is whether either of them is focused on more equitable distribution of resources or benefiting a handful cabal. The former will make both Smith and Marx happy.

The author can be reached on twitter at @aalimalik