It is now recognised that privatisation must be supplemented with a better management of public assets. Conceding that some public assets “could not or should not be sold,” The Economist admits that “Privatisation is no panacea for profligate governments. Selling assets is a one-off that provides only brief respite for those addicted to overspending.”

It further added, “There is no single model for managing public assets, but any successful strategy would include setting private-sector-style financial benchmarks, replacing cronies with experienced managers and shielding them from political interference. Not only is this good in itself, but it can also lead naturally to privatisation.”

This treatise outlines a strategy based on the opportunities created by modern information technology and management practices and our own successful experience in the 1980s. To cut to the chase, it is recommended to establish a Public Assets Management System, or PAMS — a private-sector-style system of financial benchmarks, like the state-owned enterprises (SOEs) management system pioneered and successfully operated in Pakistan in the 1980s that had converted loss-making SOEs into profit-generating ones — adapted, of course, to present conditions.

What would PAMS look like? In brief, it would consist of three component sub-systems — management information (MIS), performance monitoring and evaluation (PES) and corporate planning (CPS) — and supportive institutional arrangements.

First, management requires information. There has been an appalling neglect of monitoring (and publication) of data on SOEs in Pakistan. Until the 1990s, detailed operational and financial data on each SOE was published annually in two documents produced by the ministries of finance (placed before parliament with the budget) and production, respectively. The latter was based on an innovative MIS that had been developed to monitor enterprise performance against targets and provide timely signals for corrective actions. There is an urgent need to revive such an updated MIS for all state-owned assets.

Second, based on the MIS, the heart of the system should be an incentive-linked performance evaluation system (PES) — an updated “Signalling System” as it was called in the 1980s — designed to monitor and link managerial incentives to enterprise performance. Since then, with the emergence, among others, of enterprise resource planning (ERP) systems in the 1990s (updated to “post-modern ERP” in 2013), there has been a sea change in management systems and practices based on modern information technology. These should be incorporated in the proposed PES.

Briefly, like the old Signalling System, the PES should incorporate a four-point process. First, the performance criteria, the units in which they would be measured, and the relative weights to be attached to each criterion should be agreed between the supervisors and the managers. Second, a range of performance targets, and associated incentives, should be negotiated and established. Third, at the end of the year, based on audited accounts, the achievement of each unit should be compared to the agreed targets. Finally, on the basis of this appraisal, the agreed performance bonus should be allocated to the chief executive officers, who in turn distribute it among their managers.

There are many international models that can serve as a basis for establishing a new institution to look after all state-owned assets

Third, the MIS and the PES should be supplemented by a medium-to-long-term corporate planning system (CPS), to ensure that performance improvements are durable. Like the CPS set up in 1987 — based on a strategic planning model acquired from Arthur D Little, Inc adapted to our conditions — such a system would yield a strategic plan for each enterprise.

This plan would be based on an assessment of the competitive advantage of each enterprise in relation to the maturity of the industry and would incorporate a corporate strategy that identifies medium-term programmes for investments, operational performance, merger and acquisition and restructuring to achieve time-bound targets.

Finally, successful management is not simply a technical matter: it requires effective institutions both to manage and implement the three-point (MIS-PES-CPS) system, and to ensure that professional managers are appointed and protected from political interference. In Pakistan, this was done in the 1980s by the Experts Advisory Cell (EAC), under the Ministry of Production, which controlled 75 industrial enterprises under eight holding corporations.

Since 2005, when the EAC was dissolved, our SOEs have been adrift and profits have turned into losses. In addition to our own experience, there are many international models — from Singapore (Temasek Holdings), Malaysia (Khazanah Nasional) and China (State-Owned Assets Supervision and Administrative Commission) — that can serve as a basis for establishing a new institution to look after all state-owned assets in the national interest.

In sum, privatisation alone is no panacea. We pioneered in designing and successfully implementing a SOEs management system in Pakistan, which was replicated in other countries, including Mexico, Philippines and India, while we abandoned it for privatisation.

Even during the last three decades, when in the wake of the Thatcher-Reagan revolution privatisation has been promoted as an ideology, no country has failed to reform its public assets management system (PAMS) to strengthen public finances and improve returns on state-owned assets. It is high time that we established a PAMS in Pakistan. n

The writer is former chief of the Experts Advisory Cell and chairman of Zarai Taraqiati Bank

Published in Dawn, The Business and Finance Weekly, July 30th, 2018