Privatization Reduces Poverty

Privatization Actually Reduces Poverty

It may seem paradoxical at first sight but privatization actually reduces poverty! Having fewer resources and services under the control of the government leads to a general uplifting of the standard of living of the masses. Pakistan is fraught with the public control of all the major resources and services. The result of this has been an evaporation of productivity due to low efficiency and high wastage. The recent drive for the privatization of government owned enterprises is an attempt to right the rudderless ship.

There isn’t much incentive for government employees to innovate and take strategic risks. If things stay the way they are, nobody blames them; but, if they try to improvise and end up making things worse, they get severely reprimanded. So the best way to survive in government is to not take many chances, and to keep things the way they have been for years and years. In a private enterprise if the performance and service is not up to par, the funds are withdrawn by customers, and people take their business to a competitor. In case of the government owned business on the other hand, when something fails, more funds are provided in an attempt to improve that very service that is under par. In case of public ownership the risks and rewards are not properly aligned and encourage stagnation over innovation. There are layers upon layers of management, while there may be fewer real employees doing real work. Even if a competent employee happens to  identify a way to improve something, it would still take a long time before a change is approved, assuming it is survives the grueling paperwork.

Nestle Water Bottles

Fresh Water

The path to privatization bodes better for the future of Pakistan, better than how it has been, however, the culture does not. Scores of people have been brainwashed to believe privatization is some evil, hell bent on destroying the poor to enrich a select few. What people worry is how the poor are going to get anything without the help from the government? Others question whether this unbridled privatization is going to suck the country dry.

To find out how how these developed countries got so wealthy in the first place we need not look very far. Our very own prophet Hazrat Muhammad (PBUH) excelled in private business, and so did his wife Hazrat Khadijah. The business involved trading with other people and regions. Trade and commerce has been at the heart of Islam from the beginning. The earlier prosperity of Islam owes a lot to this free trade and commerce. The same free trade and commerce Muslims so excelled at also allowed the West to expand their power. The developed countries of today used sea routes to trade with remote parts of the world. Private ownership and commerce has been the key to success in increasing the standard of living in the developed countries. It’s about time Pakistan this true seed of wealth adopted this practice instead of using tariffs, taxes, and subsidies to restrict the business environment.

Despite taking this first step in the right direction, 10% of privatization is but a drop in the bucket. The government in other words still holds 90% of the control. What business does government has in providing, water, rail, electricity, oil, gas, agricultural, security,  internet, telephone, cellphone, hospitals, education, judiciary and all other services that can be provide much more efficiently, effectively, and cheaply by the private groups? Those of us who can recall how badly managed and expensive PTCL had been before the market was opened up for competition. A call to USA cost around Rs. 50 per minute before conditions got better. As soon as competition was allowed the prices started dropping and the quality of the phones and other services improved considerably. The cost is now Rs 1 or 2 per minute, and this doesn’t even include the massive devaluation of the rupee over the years. Now, even a poor milk man has has a cellphone, something unimaginable a few years ago.

Another example of private competition would be in the availability of water. It’s too great a risk to drink the government provided tap water. The chance of getting some kind of ailment is exceedingly high. Purified water is becoming abundant. No one is forced to drink the purified water, but the option is available if one chooses to, and that in essence is the result of privatization. More goods and services are made available by the private enterprises to cater to the needs of the consumers. If the consumers don’t want or like a product, they simply don’t buy it, and the losses are a clear enough signal for the provider to reform or go out of business.

smartphones

Abundance of cellphones

The path forward is to continue to privatize more of the assets that government has taken possession of. There are going to be growing pains from this, and more likely than not the prices are going to rise at the beginning, leading to greater profit margins. The growth in profit margins, assuming government doesn’t impose other restrictions, is going to attract more competition, leading to an eventual lowering of the prices and an increase in quality. It is due to this lowering of the price and having higher quality product that the public is going to have more funds available that could be used or saved. It’s the availability of these goods and services that raises the standard of living of the rich and the poor. Privatization reduces poverty, and leads to abundance.

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