OF late at the various chambers of commerce across the country there has been great effort on the part of the entrepreneurs to self-congratulate and place accolades on the success of private enterprise as the panacea for all our economic ills. It has been argued by major industry owners that efficiency and profitability are a result of private enterprise. That is only half the truth, and masks the possibility of achieving similar results with state ownership.

Privately-owned business is generally believed to be the initiator of innovation. Following the Second Great War, economists in the West, faced with challenges of socialism, relied heavily on the argument that innovation, cost-reduction and price stability are the handiwork of the private sector and that the state should have no direct role either in owning assets or even managing them. This view at best was myopic. This very argument is being espoused by our industrialists.

If efficiency and reducing costs is the most singular reason for private enterprises to flourish, some proposal must be considered to privatise, say, the prisons, where there is not only high maintenance costs but also rampant corruption. And in the spirit of competition, there can be reduction in the number of the inmates! Shall we?

There is nothing wrong in state ownership per se. Problems arise when the state begins to manage business. Capitalism does not distribute prosperity equally, but socialism ended up distributing poverty equally. With this understanding, Pakistan back in the 1970s went for nationalisation. Commercial banks were no exception. It was the creation of the Pakistan Banking Council (PBC) that created havoc. Much to the chagrin of the State Bank of Pakistan (SBP), it became over time the ultimate supervisor.

The real malaise set in during the 1980s. In the financial industry, compromised bankers yielded to politicisation. There was expansion in hiring, which grew by 50 per cent, the number of branches grew by over 78pc, political loans were granted, and appointments were done based on various parameters except merit. All this was done through the toothless PBC, which had become a pawn in hands of the ministry of finance.

State ownership alongside state management is a lethal combination for the ugliness of corruption to prosper. It is a folly to think that state-owned enterprises (SOEs) can never be profitable. They can be efficient and profitable if the management is independent and proficient. All they have to do is to apply the basic principles of management that the private sector does; deliver or go home. What hampers the profitability of SOEs is political expediency at the cost of skill and talent.

According to data available, the Chinese SOEs in the first eight months of 2021 logged in $275 billion in total profits; up 87pc year-on-year, compared to 34pc in the private sector. Besides many factors, it is essentially the quality of management of these SOEs that helped deliver such fine results.

We can make our SOEs profitable without privatisation by simply setting aside the element of political expediency. Can we? There is a distinction between wealth accumulation and wealth concentration; the former should be promoted and the latter must be checked. It is not rocket science, actually.

Sirajuddin Aziz
Karachi

Published in Dawn, February 8th, 2022