CALL IT CRONYISM
The government is devising ways to offload state-owned companies' shares according to a new Daily Star report (March 17, 2017). According to another report, it is also considering the privatisation of loss making state-run banks that have wrecked havoc in the country's economy, much of the effects of which, we are yet to fully experience because of the 'time-lag effect' (The Daily Star, March 20, 2017).
State-owned companies whose shares the government is trying to sell include gas and power companies and is meant to raise funds from the capital market. Meanwhile, it is contemplating the privatisation of state-owned banks as they they continue to be in shambles. This is because despite the repeated bailouts the government has given them (for giving out dubious loans, i.e., corruption) using taxpayer's money against their own will. Which means that in spite of what the government had said, the bailouts proved as effective as providing blood transfusions to a corpse — a total waste of taxpayers' money (as everyone opposing them said they would).
In regards to offloading shares of state-owned companies, it is important to mention that privatisation does not always lead to greater efficiency and should be considered 'an option' to the many public sector ailments rather than 'the one' (particularly without considering other alternatives).
A perfect example of privatisation gone wrong is that which took place under Margaret Thatcher in Britain, where nationalised companies were operating inefficiently and had to have their losses covered by the government like the banks' losses today. The results of privatisation, however, were not as promised by the Thatcher government.
Michael Hudson, a research professor of Economics at University of Missouri, Kansas City, and a research associate at the Levy Economics Institute of Bard College, had this to say: “Prices did not decline proportionally to cost cuts and productivity gains. Many services were cut back, especially on the least utilised transport routes. The largest privatised bus company was charged with cut-throat monopoly practices. The water system broke down, while consumer charges leapt. Electricity prices were shifted against residential consumers in favour of large industrial users. Economic inequality widened as the industrial labour force shrunk by two million from 1979 to 1997, while wages stagnated in the face of soaring profits for the privatised companies. The tax cuts financed by their selloff turned out to benefit mainly the rich” (Let us glory in our inequality, April 8, 2013).
So, the eventual outcome of privatisation in Britain was the same as that of bailing banks out here (and throughout the world) — 'benefitting mainly the rich'.
Surely though, that is not why the government had bailed out banks, and let the 'professionals' who had made 'amateurish' mistakes – like failing to do their due diligence – get off scot-free, is it?
Well, if not, how else can you explain its actions when even the finance minister had said that the loans scams were like dacoity (robbery)? What was the logic behind bailing banks out for abetting robbery, by failing to do their required due diligence — their job?
The answer is quite simple. You cannot. Because even the government could not have been incompetent enough to not know that bailing banks out would not yield any positive results (as has been the case all across the world), which indicates that the only reason for them was to simply prop up the banks, while those responsible for the dacoity were bought enough time to make their quick getaways.
When each and every sector of our economy and government is infesting with such corruption, can one be too positive about the privatising schemes that the government is proposing? Who is to say that they will not benefit special interests? For now, although the government, in reality, never bothers to explain itself to the public for what is going on in state-owned companies, at the very least, these companies are still, on paper, legally owned by the public. The only thing privatising them will do now is do away with even that.
For those going, “isn't privatising them more in line with the concept of free market?” My answer is, “not necessarily”. The concept of the free market is all well and good (in my opinion the best and only workable long-term economic model). But the greatest threat to the free market in our modern world is 'cronyism' disguised as 'free market', which then encourages people (who don't really bother to study economics or its history) to criticise the free market, rather than the cronyism itself.
For example, had corruption and outright robbery been prevented (or those responsible held accountable) in the banking sector, the government would not need to offload shares of state-owned companies to raise funds. And who paid for that? The general public (minus special interests). Whose ownership in state-owned companies will now be reduced? The general public (minus special interests).
And who is responsible for the public losing out both times? Not the market, but the government (state socialism anyone?). Why do financial commentators keep blaming the free market then? Option 1: They are lazy and don't understand finance or economics; Option 2: They are bought and paid for by the government and/or special interests. You pick.
Eresh Omar Jamal is a member of the Editorial team at The Daily Star.
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