With bated breath

NOBODY now knows how the current “judicial” crisis is going to end. Both sides accuse each other of politicising what is essentially a legal issue, yet both have made every attempt to do exactly that. The presidential reference against Chief Justice Iftikhar Chaudhry was filed on March 9 and since then the country has been in a state of turbulence. On Thursday, Mir Zafrullah Khan Jamali expressed the anguish of the entire nation when, with folded hands, he appealed to the two sides to move away from the confrontation. The confrontation the former prime minister spoke of has thrown the country into its worst political crisis since the military takeover of October 12, 1999. Even though he belongs to the ruling party, Mr Jamali had the good sense to speak his mind and criticise the government for its role in the crisis. Minister for Parliamentary Affairs, Sher Afgan Niazi, also seemed perturbed when he pleaded with the two sides to do nothing that could let “a third party” profit from the present crisis. Seen against Pakistan’s history, the remark seemed to refer to the coups by Yahya Khan and Ziaul Haq following the movements against Ayub Khan and Z. A. Bhutto in 1969 and 1977, respectively, the only difference being that a general is already in power on this occasion.

The gun fire on the home of Supreme Court Bar Association chief Munir Malik on Thursday has added to the tension in Karachi. While these lines are being written, no change has been announced in the planned rallies by the Muttahida Qaumi Movement and the lawyers’ associations today. Unless there is a last-minute change, a city of over 10 million remains hostage to the two sides’ obduracy. If there were some who in the initial stages rallied round the Chief Justice for upholding the supremacy of justice, they have either diverted their energies into the wrong channels or been outwitted and outmanoeuvred by those for whom the presidential reference came in handy for advancing their political agenda. Some lawyers have also expressed their anger against the government for being unkind to their paying clients, who pay fees for, say, getting them bailed out or expediting a given case. Instead, the repeated boycott of the courts has hurt not the government but the common litigant or perhaps some innocent citizens wrongly involved in criminal cases. Let us not forget that Mr Chaudhry himself had, prior to being made ‘non-functional’, made repeated references to the backlog of cases. His supporters now seem to be adding to the problem of pending cases. Although this may be for a greater cause, the common citizen is the sufferer.

As for the government, its handling of the situation has been an unmitigated disaster. While the MQM, a coalition partner, is holding a rally in Karachi today, President Pervez Musharraf is to address a huge public meeting in Islamabad. On April 24, Chaudhry Shujaat, chief of the ruling Muslim League, organised as massive a show of force in Islamabad as a counterpoise to the street demonstrations by the lawyers and opposition parties. After organising these rallies at a huge cost to the public exchequer, the government cannot claim it is occupying a high moral ground. If the pro-CJ elements are being accused of behaving irresponsibly, the government’s record is even worse. Sanity demands the judicial-cum-political drama end peacefully; unfortunately, neither the government nor the opposition seems to care much.

Tony Blair to bow out

TRUE to his word, Britain’s prime minister, Tony Blair, has announced that he will stand down on June 27. With his personal popularity at its lowest —thanks to Britain’s role in the senseless Iraq war — Mr Blair’s exit is somewhat anti-climactic. It marks a sad end to the political career of a leader who made a promising start -- transforming the face of the Labour Party, going on to win three general elections in a row by a landslide and giving economic prosperity and stability to Britain by creating more jobs and lowering unemployment. Coming after 18 years of Conservative Party rule, Labour’s arguable claim to improved healthcare and education for the average Briton is not entirely baseless, though it is contested by quite a few. That is because public expectations were unrealistic and structural constraints prevented a radical approach to the problems of the health service, urban decay, crime, etc in an age when socialism is out of fashion. Mr Blair won kudos for the Good Friday accord on Northern Ireland though the peace process had already been initiated by his predecessor.

But there were failures as well which proved to be disastrous. Criticism of what one observer called Blair’s style of “sofa government” and his dependence on “spin doctors” pales into insignificance before the scathing opprobrium he has earned for his military adventure in Iraq. He failed in two ways. First, he could not comprehend the geopolitical realities in Iraq and George Bush’s selfish motives in going to war. The myth of Saddam possessing weapons of mass destruction was created and Mr Blair was forced to resort to deception to justify his own decision. The second failure was his refusal to sense public sentiments in his own country. The massive anti-war marches on the eve of the war in 2003 did not alert the prime minister who was blinded by his adoration for the US ally. The Iraq follies have come home to roost and the Labour Party suffered serious reverses in the local elections last week. Mr Blair’s successor, Gordon Brown, has two years to go before the elections. Will he pull out British troops from Iraq to undo Mr Blair’s blunder?

Reuse of syringes

AT a recent seminar in Karachi on the need for greater awareness of HIV/Aids, concerns were exposed over the reuse of syringes. These are valid fears, for the reuse of contaminated syringes and needles are responsible not only for the growing incidence of Aids but also of other blood-borne diseases like Hepatitis B and Hepatitis C. In fact, health authorities have observed that 90 per cent of blood-borne hepatitis cases in the country are caused by the reuse of syringes and needles. Which is to say, there would be fewer cases of these diseases if uncontaminated syringes and needles were used. A small proportion of the 750 million or so syringes used every year in the country are imported —the rest are produced locally under unhygienic conditions.

There is no easy solution to the problem, especially as our medical units are averse to the proper disposal of hospital waste that would see used syringes and needles being destroyed. Nor do they properly sterilise medical devices. In the absence of implementation of rules pertaining to the safe disposal of hospital waste, the situation can only get worse. The extent of the problem can be gauged from the findings of a survey conducted in Karachi last year that showed that out of nearly 3,000 medical outlets in the city, less than 150 were abiding by the rules of proper waste disposal. It is about time the health authorities took serious note of the widespread use of disposable and unsterilised syringes and needles, and monitored hospitals, clinics and labs to ensure that they refrain from such an unsafe medical practice. Without recourse to strict action, the incidence of blood-borne diseases will continue to rise.

Why corporate sector remains stunted

RECENTLY, there has been a sudden increase in international focus on the Indian corporate sector. This has been triggered by significant events like the acquisition of Arcelor by the Mittal Group and Corus Steel by the Tata Group. This has brought increasing realisation in Pakistan that the Indian corporate sector is now in a different league as compared to Pakistan’s corporate sector.

Some have considered it important to go through a process of introspection for identifying reasons for the relatively poor state of Pakistan’s corporate sector. Apologists for the delinquent performance of Pakistan’s corporate sector have frequently held Zulfikar Ali Bhutto’s nationalisation policy responsible. Mr Shahid Javed Burki is one contributor to this line of thinking, not realising that proffering “soft alibis” is not only music to the ears of our business leaders but masks the real cause behind the lacklustre performance of the corporate sector.

This article tries to put the nationalisation policies of the Bhutto era in a proper perspective and delineates the real reasons behind the prevailing malaise in the corporate sector. It is particularly important to set the record straight since the Indian experience confirms that despite nationalisation in India and a large public sector, the corporate sector has continued to march forward. It is natural, therefore, to ask why the position is different in Pakistan.

According to conventional wisdom, private sector management is inherently superior to public sector management. However, there is little empirical evidence to support the veracity of this hypothesis in Pakistan.

A brief survey of the corporate landscape in Pakistan reveals that while the banking sector does, indeed, represent a successful transformation triggered primarily by change of management from public to private sector through privatisation, other corporate achievers like PSO, PARCO, OGDC and the two Suis are all in the public sector as was the National Refinery till recently.

It is also important to look at the post-privatisation performance of privatised enterprises. Performance of privatised banks supports this hypothesis, as does the post-privatisation performance of Millat Tractors, Balochistan Wheels and D.G. Khan Cement.

At the same time, there are countless examples of units showing deteriorating performance in the post-privatisation phase. These include Bankers’ Equity, Zeal Pak Cement, Ghandhara Industries, Pakistan PVC and Sind Alkalis, not to mention others shut down after privatisation.

Another common fallacy explaining poor corporate performance is that nationalisation retarded the development of managerial and technical skills. A serious examination reveals that nationalisation, in fact, enlarged the pool of professional managers.The most significant aspect of nationalisation during the 1972 to 1974 period was the clear strategy to take over ownership control but not the management of nationalised industries. In that early phase, nationalisation did not imply the replacement of professional managers by bureaucratic nominees.

As a deliberate policy, the first step after nationalisation was to replace the owner chief executives by the senior-most professional managers in the nationalised enterprise. Serious efforts were also made to induct outstanding professionals and distinguished entrepreneurs in senior management level positions.

This strategy generated a huge reservoir of commitment and enthusiasm from professional management. As a consequence, there was a turnaround in performance in nationalised units with peak levels attained in 1974-1975. Since then, there was a gradual but perceptible deterioration not only because of whimsical changes in key personnel but more importantly because of the failure of the administrative structure (ministry of production/BIM) to effectively monitor performance and evaluate outcomes linking these to an appropriate incentive system.

Despite this environment, some public sector-managed enterprises continued to perform well because of the individual chief executive’s commitment and integrity. At the same time, however, even the best of professional managers under public sector management continued to be victims of policy imperatives.

Let us analyse the nature of manufacturing enterprises nationalised in 1972. These were largely modest in size and in operations. Another common feature was the near absence of professional management. Even in the case of the National Refinery, owing to product monopoly, no need was felt for establishing any marketing platform. In the automobile sector, companies were largely assembly operations. In other sectors — cement, light engineering and chemicals — the manufacturing processes were simple and there were few marketing challenges, given a captive local market and high tariff barriers against imports.

In terms of financial performance, some of the companies had done well, but principally on account of very high tariff protection, subsidised raw material prices, tax incentives and near-oligopolistic positions. Financial performance, therefore, was not a reflection of entrepreneurial ability or managerial skill.

With import substitution as the mantra of Ayub Khan’s policies and the “bonus voucher scheme” providing the facilitating mechanism, many of these industries continued to make financial profits even while operating considerably below the optimum capacity utilisation.

While many economists continue to wax lyrical about Pakistan’s industrial success during the Ayub era, there seems to be reluctance on their part to reflect on the benefits of that era to the country. When evaluated against revenue generated for the government in terms of taxes, benefits for the workers in terms of wages and working conditions and benefits to minority shareholders in terms of distribution of dividends, the so-called golden decade of the 1960s does not show a pretty picture.

It follows, therefore, that beyond ideological commitment, the government of Zulfikar Ali Bhutto had practical reasons to consider nationalisation as a viable option for a transformation of the industrial base of the country.

The broad objectives of nationalisation of his government included introduction of professional management, enhancement of local value addition and control on prices. Let us examine the extent to which these objectives were achieved.

The demand for professional management increased with nationalisation and this was met both through in-house training as well as by public sector institutions. There was a conscious effort at increasing local value addition. Prices were also kept in check as evidenced by price stability over a long period in at least two commodities: cement and vegetable ghee. The other societal benefits included increased revenue for the exchequer and better working conditions for labour. No, nationalisation was not the unmitigated disaster that Mr Burki and others make it out to be.

It is important to identify the underlying causes for the stunted growth of our corporate sector. The underlying causes are easier to identify if we focus on one important sector — textile — which never faced the sword of nationalisation. This sector, in which Pakistan enjoys an inherent comparative advantage, has been the most favoured child of the state throughout our history. It has been showered with a wide range of “concessions” including low import duty on machinery, high levels of protection against import of textile products, area-specific income tax exemption and concessional project financing.

Yet, the textile sector is crying out for more state crutches to compete internationally. Reared on subsidised raw cotton and created through state licensing mechanism and surviving on concessions, there has never been any incentive for the sector to grow and compete with “adults”.

The textile business is cyclical in nature. Consequently, there are good years and bad years. In good years, surplus profits are set aside and partially invested in upgradation for enhancing productivity and efficiency so that in lean years businesses can live with lower margins.

In Pakistan, the pattern has been very different. Surplus profits during good years have neither been distributed to shareholders, nor retained in businesses, nor used for upgradation or modernisation. They have either been stashed away out of the country or wasted on conspicuous consumption.

During the bad years, there has been a familiar stampede in running to catch hold of the coat-tails of the government and pleading for more concessions. The most frequently used tactic is the threat of large-scale shutdown of manufacturing units. The state has been more than accommodating in responding to these distress calls. In 2006 alone, the loan write-offs and other forms of financial relief by the five largest banks (NBP, HBL, MCB, UBL, ABL) to textile companies aggregate to over six billion rupees.

The sector is in crises yet again and the government is reportedly putting together yet another “concession package”. These are not likely to redress the fundamental structural problems. The sector is segmented with a large number of units of small size, lacking managerial capacity and marketing infrastructure, poor quality control and absence of the requisite skill sets among production workers. It is in the aforesaid areas where we have slipped sharply against international competitors.

Unfortunately, there are no easy or quick solutions. Any effective turnaround would require a fundamental change in the mindset of textile magnates. They need to transform from a rentier class to one of entrepreneurs. Only then can they come to terms with the permanent change in the global trading paradigm in the post-MFA, post-WTO environment.

The corporate leaders in India were not born in a day. They have been reared on the tradition of pursuing entrepreneurial flair, a high propensity to re-invest and to expand and diversify. The ramifications of globalisation were fully understood and the corporate sector was adequately geared to maximise opportunities. This confidence was based on the large size of individual corporate groups and the availability of a large pool of managerial manpower. It was, thus, only a matter of time before Indian corporates acquired a global status.

Pakistan, on the other hand, both at the government and private sector level, has been far less prepared. This is the principal reason why we face this dilemma.

Is there hope of a transformation? Sadly not. Our corporate sector has neither the vision nor is attuned to performing the role of entrepreneurs while lacking the requisite managerial and technical manpower that could enable us to graduate from a commodity producer and exporter to a producer and exporter of specialised products. There is hardly any other sector where the scale of operations or the level of technology can place Pakistan in the same league as India.

It is not that we were destined to fall by the wayside. The private sector has consciously chosen to shy away from preparing itself to prosper in a competitive environment while the government has failed to create the human resource platform — an essential element of the enabling environment.

The writer is chief executive of a financial sector company in Lahore.