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Business Commentary/Ashok Mitra

Private sector is no angel, so govt has business to be in business

Naivete, or knavery, or a mixture of both? The freemarket cavaliers are unconcerned, what is euphemistically known as ground reality is no part of their paraphernalia. The procedure they recommend, they are dead certain, leads to the optimum use of inputs and therefore epitomises economic efficiency.

The world's under-developed nations have remained under-developed, they do not have the least doubt, because of the failure to ensure the most efficient use of the resources given to the system; remove impediments to optimum factor utilisation, such as trade union intransigence, the economy will take off along the optimum path of growth.

As if the workers are not a constituent factor of production and Adam Smith himself had not some biting comments to offer on the waywardness of private employers; the propensity of the latter to deal unfairly with the working class, Smith had hinted, threatens to destabilise the economy. The first half of the twentieth century coincided with the realisation that the idealised free market is a fiction.

The analysis of the morphology of imperfect markets, by Edwin Chamberlin and Joan Robinson, was an admission of the ground realty. If John Maynard Keynes had not intervened with his general prescription of large-scale state intervention, it would have been curtain call for Western capitalism, on the eve of the First World War itself.

Two generations later, it is a totally transformed picture. Developments, particularly over the past decade, have spawned euphoria of a sort among free market lovers. Since the other side is vanquished and the cold war has been decisively won, it would be puerile, it is stated, not to admit that there is no viable alternative to the capitalist order.

Give up all regulatory controls, let the factors of production be free to move in and out of different markets, let demand be similarly liberalised, let government activism be cut down to such minimum chores as maintenance or law and order and defence, an economic miracle will visit under-developed country after under-developed country. Untrammelled activities on the part of the private sector will be progenitor of efficiency and growth; therefore have the good sense to hand over the charge of economic management to private parties; you could then sit back and enjoy high living.

A lovely formulation, but it is disdainful of history. The purveyors of the capitalist dream do not naturally like to be reminded, for instance, of the predatory state of affairs in the sphere of banking and insurance prevailing in this country before these were taken over by the state, in the 1950s and the 1960s. Market lovers hate to be reminded of these rude facts, and are taken aback at the massive resistance put up by the employees against official proposals to surrender public undertakings one after another to private parties.

The urge to sell out public property at throwaway prices seems to be overwhelming among the liberation leaders: telecommunications, followed by petroleum and natural gas extraction, followed by surface transport and ports, followed by land belonging to the railway system, followed by broadcast and telecast channels, followed by Indian Airlines, no less.

The simplicity, feigned or otherwise, of the underlying assumption is devastating; the public sector means blackmail by trade unions and their lazy membership, the sale of such public undertakings to private parties would herald the prospect of more competent use of factor endowments, thereby promoting efficiency and growth.

In the calculation of efficiency, in point of view of the working class is of course not taken into consideration. Additionally not taken into account is the consequence of allowing the nation's limited investible resources drift into areas and sectors which contribute little or nothing to the wealth and welfare of the majority of the national population.

At this juncture, Adam Smith and David Hume are actually overshadowed by Charles Darwin. Survival of the fittest is the mantra and emphasis concentrates on the adage that those who cannot stand the heat should exit from the kitchen. It is a polite way of indicating that the vulnerable sections have no right of survival and, moreover, it will be a first rate scandal if the state activises itself so as to further the interests of the poor.

As the debate lingers, curious axioms are slipped in: whatever is private is noble, uplifting and supra efficient; whatever is public is vile. Take the recent case of cease-work by the State Electricity Board employees in Uttar Pradesh. It demonstrated class solidarity of a remarkable kind. Dismissals and arrests failed to break the spirit of the striking employees; the authorities had finally to yield ground.

Capitulation in this manner by those whom they consider their servitors in government has greatly distressed the lovers of the free market; don't you know the State Electricity Boards are the other name of gross inefficiency, they generate power at plant load factors that are low as 30 or 40 per cent or even less. It is as if in case the SEBs were sold off to private parties, the plant load factor will automatically soar.

This is one of the principal myths nurtured by the narrative of post-independent Indian economic discourse. The private sector spells efficiency, the public sector is ipso facto inefficient. Some crucial facts are carefully ignored here. Public enterprises are subject to annual audit by the Comptroller and Auditor General of India; they also come under the scrutiny of parliamentary committees, including the Committee on Estimates and the Committee of Public Undertakings.

Reports submitted by the CAG and the parliamentary committees are open for discussion by the general public; they are also debated in Parliament; editorial writers have the whale of a time commenting upon the supposedly huge waste of national resources the public undertakings indulge in. In contrast, whatever is managed by the private sector, supposedly immediately turns into gold.

The accounts of corporate units in the private sector do not have to go through the toothcomb of official audit. Corporate firms submit reports by complaisant licensed auditors on their performance; these reports conceal much more than they reveal, the newspapers and other media, driven by the urge of advancing class interests, faithfully produce the words of self-praise private entities specialise in.

As if efficiency and the private sector are co-terminous. Forget for a moment the instance of the miserable State Electricity Boards and instead focus attention on the plight of the private automobile units operating in the country.

If reports are to be believed, barring Maruti-Suzuki, all the other automobile manufacturing units, including those set up with pomp and fanfare in the course of the past decade, are currently running at 20 or 25 per cent, or even less, of their rated capacity. Should not such inability to make full use of invested capital be as deserving of condemnation as the incompetently run State Electricity Boards?

The ambience is however the ambience. It is accordingly easy to pitch higher and higher the shrill demand for privatisation of the SEBs. A familiar opening gambit is to hand over to private units the distribution network belonging to the SEBs. This plea is understandable since the margin of profit for power undertakings is the highest in the sphere of distribution, particularly where the distribution network has already been set up with public funds.

What is bound to happen will none-the-less happen. The authorities want to dismantle wholesale, the great Indian public sector, built brick by brick over a span of three-and-a-half decades following independence. The post-1990 Russian model has evidently set a dazzling example. Mafia groups are already around, some of them have leased in expertise, such as young management geniuses from this or that American university. The object is to establish intermediate chains which will buy cheap public sector units, cannibalise them and dispose them of at as high a price as the market will be able to bear.

The upshot of the post-1990 Russian experiment is by now well known: national output is down to one half of what it was in the 1980s, employment has shrivelled to one-third of the level obtaining in the preceding decade, aggregate capital formation is barely 20 per cent of the achievement in the 1990s, the education and social service systems have all but collapsed, the great Russian people have transformed themselves into a nation of blackmarketers and pimps.

If the apprehension expressed by the nation's President has any basis, the privatisation process in India could have even worse consequences and the country's survival may itself turn into a question mark. So what, Indians ought to be thankful that they have been chosen as victims in the great cause of underwriting one hundred per cent perfection in the mobility of international capital.

If Aldous Huxley were around, he would conceivably write a fresh version of the Brave New World. Besides, there will still be need for a Ministry of Public Undertakings to buy up loss-making private units, such as those in the automobile industry

Ashok Mitra

Business