The Privatization of the Public Industrial Enterprises in Pakistan

The present study examines the case for the privatization of public industrial enterprises in Pakistan, where the term 'privatization' is defined as a transfer of ownership from the public to the private sector. The focus of analysis is to compare the efficiency levels in public and private enterprises producing similar goods. It has been shown that, in general, allocative and productive efficiency is primarily associated with the quality of management rather than with the locus of ownership. The study corrects a popular misconception by showing that as some public enterprises showed losses, most of them made sufficiently large profits, and that their high rates of profit cannot be attributed to the high rates of protection. Indeed, the average rate of effective protection for industries in the public sector, as a rule, is lower than that for the industries in the private sector. Furthermore, the popular argument that the public enterprises indulge in monopolistic practices cannot be sustained because they, in fact, face competition both from the imports and the private investor; and because they typically enjoy high rates of capacity utilization. The fiscal argument in favour of privatization is also weak, because profit rates in most public enterprises tend to exceed the interest rate on public debt, so that their divestiture may increase the fiscal deficit rather than reduce it We also argue that privatization may not lay the foundation of the so-called people's capitalism in view of low incomes of the workers and the practice of insider-trading in the stock exchanges of Pakistan. At any rate, the value-added by the public industrial enterprises is such a small proportion of the Gross Domestic Product that not many growth points can be added on account of privatization.