The Privatization of the Public Industrial Enterprises in Pakistan

Syed Nawab Haider Naqvi, A. R. Kemal


The present study examines the case for the privatization of
public industrial enterprises in Pakistan, where the telDl
'privatization' is defined as a transfer of ownenhip from the public to
the private sector. The focus of lIlalysis is to compare the efficiency
levels in public IIld private enterprises producing similar goods. h has
been shown that, in general, allocative IIld productive efficiency is
primarily associated with the quality of management rather.than with the
locus of ownenhip. 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 th8Il that for the industries in the private sector.
FunhelDlore, 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 OIl public
debt, so that their divestiture may increase the fiscal deficit rather
than reduce iL We also argue that privatization may not lay the
fOlDldation of the so-called people's capitalism in view of low incomes
of the wOlken and the practice of insider-trading in the stock
exchlllges 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

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