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Public sector revamp

To its credit, the government has moved relatively fast on two important fronts: one, putting in place a credible, long-term plan for the resolution of the energy crisis; and two, setting up a transparent mechanism for revamping the boards of public-sector entities.

To ensure its efforts on both fronts succeed, it will eventually need to institute wider reforms in the civil service.

The abysmal performance of the energy sector, and of all entities in the wider public sector domain, reflects two home truths. First, the glaring limitations of the country’s ill-equipped civil service to deliver anything beyond ‘district administration’; and second, the large footprint — and commanding heights — the public sector has come to occupy despite the ostensible ‘opening up’ of the economy since the 1990s.

The unending stream of public-sector enterprises (PSEs) whose management positions have been advertised, many performing unheard of and obscure functions from hard-to-find locations, is a testimony to the thriving size of Pakistan’s civil service. At last official count, for the National Commission on Governance Reforms headed by Ishrat Husain, the number of state-owned enterprises was at least 411.

The combined civilian workforce both at the federal and provincial levels was estimated at a couple of million people. (So bloated is the public sector, it is believed it took several weeks for the cabinet and establishment divisions to furnish the number of employees in the wider government-owned and controlled domain.)

The attributes of low efficiency, virtually absent accountability, and a large, distortive footprint on the economy are characteristics of the civil service that are hardly unique to Pakistan. Barring rare examples, such as Singapore, bureaucracies operate in a similar fashion, and with similar results, around the world. A common strand is the similar ‘incentives framework’ in which bureaucracies operate, whose defining characteristics include:

• Limited accountability

• Job security

• Taxpayer money provides a backstop to unlimited losses

• Lack of merit-based decisions regarding human resource, such as in appointments, promotions, transfers and nomination for training etc

• Limited competition among the workforce

• A virtually non-existent performance-based rewards structure

As a result of this incentives structure, it is hardly surprising that the public sector is riddled with low productivity and efficiency and pervasive corruption. The government-controlled power sector, PIA, PSO, OGDCL, Pakistan Steel Mills, Railways et al, all exhibit symptoms of the same malaise — unaccountable management by government servants or public-sector employees.

So pervasive is the lack of accountability in the public sector, that even those organisations performing some of the most important functions, such as the state-owned power sector companies or the Federal Board of Revenue, have been operating till now without Key Performance Indicators — an essential management tool to gauge performance.

Moreover, the footprint of the public sector in Pakistan has even extended to specialist and technocratic agencies such as the regulatory watchdogs (Nepra, Ogra etc.) for example, with retired civil servants occupying the most unlikely of positions. (A recent egregious example is the case of a senior, newly retired bureaucrat who got himself appointed as chief statistician of the country on a permanent basis. His previous experience includes being district commissioner of Sahiwal.)

Contrary to common wisdom even those PSEs making a profit are imposing a burden on state and society. This is so on a number of counts. First, PSEs stifle competition and innovation, as they cannot survive without permanent protection of the state. Second, they pre-empt resources that could have been better utilised by the private sector. These entities under normal circumstances would almost surely have produced higher profits and paid more taxes under the private sector. They thus impose a significant opportunity cost — or a welfare loss — to the economy and society as a whole.

As is widely recognised, the only justification for having an economic activity in the public sector is where ‘market failure’ exists. A case in point would be PIA or the Railways serving an un-served or under-served section of the population even though it is a loss-making proposition.

It is interesting to note that even the private sector produces the same results when faced with a similar incentives structure. The case of Japan is illustrative in this regard. As a cultural norm, over decades Japanese workers even in the private sector have been retained for life in the company they have worked for, while promotions have been based strictly on seniority rather than merit.

The only saving grace for Japanese companies has been the unrelenting exposure to international competition via exports. While large-scale retrenchment has taken place in Japan over the past two decades, the private sector’s modus operandi and its patronage by the state have been two important factors in prolonging its economic depression.

On the other end of the spectrum is Singapore’s civil service, which is often cited as a model of efficiency and transparency. What makes Singapore unique is not that its civil servants are paid market salaries, but that it is a ‘mandarin’ or specialist service, unlike Pakistan’s ‘generalist’ structure.

The lesson for policymakers given the size and performance of the public sector is that a credible and wide-ranging restructuring is needed — not just of the PSEs but eventually of the civil service structure. While the government may mull a Malaysian ‘khazanah’-type model of restructuring the boards and management of PSEs while retaining ownership, this can only be an interim solution. Ultimately, a credible and transparent programme of privatisation to strategic investors — one that does not lead to charges of crony capitalism — is the most viable option.

The writer is a former economic adviser to government, and currently heads a macroeconomic consultancy based in Islamabad.

Sakib Sherani, "Public sector revamp," Dawn. 2013-07-26.
Keywords: Social sciences , Government-Pakistan , Society-Pakistan , Steel mills-Pakistan , Railways-Pakistan , Civil services , Civil society , Civil servants , Bureaucracy , Ishrat Husain , Pakistan , Singapore , Japan , PSEs , PSO , OGDCL , PIA