Development 2.0--by Nadeem Ul Haque

With Shahid Kardar Happy days have returned. The privatisation process has been resumed in earnest. So goes Islamabad’s self-congratulatory declaration on the Rs38 billion raised from the sale of its 20 per cent stake in UBL. The authors of this article, who probably have been the strongest proponents of the free market in recent decades and have generally pushed for a more market-based open economy, should then be equally happy. We, however, feel that privatisation, done wrongly, can have perverse results. To this end, we refer to this deal to illustrate the several questions that should be widely debated so as to inform the government’s privatisation policy. As mentioned above, we have long advocated the adoption of a more deregulated, open, market-based economy. Privatisation is but one step in that direction. Most public policy analysts would agree with the following principles of privatisation: a) The divestment should improve the efficiency and profitability of the operat...

http://magazine.thenews.com.pk/mag/moneymatter_detail.asp?id=6863&magId=10&catId=30

Adil Najam wrote a great thought-provoking article on privatization in The News in Pakistan on Saturday. Adil asks absolutely the right question, why are you privatizing? In theory ownership does not matter if the enterprise can be run efficiently. Even though I am from the University of Chicago and have been perhaps the strongest proponent of free market policy in Pakistan, our approach to privatization has always made me uncomfortable. Yet I found it very hard to discuss with my lazy economist friends who think that somehow privatizing everything will balance the budget and bring in efficiency. They do not see the SRO culture and how our private sector is more rent-seeking than competitive, more ready to make a buck from government handouts than market competition, and always ready to live off anti-consumer and anti-market practices.  The assets we want to privatize include decreasing cost industries such as discos, area monopolies such as the Sui companies, and larg...