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Privatisation and the World Bank

Privatisation can be a reasonable solution for inefficient and over-bloated corporations. This is especially true for sectors that need higher levels of efficiency and competitive edge, such as the airlines industry. At the same time, the government can take care of more essential services so that a broader segment of the population can afford them. Whatever the case, the onus is on the governments to decide which corporations and enterprises need to be privatised.

Ahmed Tareq Rashid
IT was very refreshing to read Fozia Akhtar s article on the captioned subject in this newspaper. The article discussed the negative consequences of privatisation, particularly for developing countries. While a debate on privatisation is nothing new, it is particularly relevant and timely for Bangladesh.
Indeed, the World Bank was the main proponent of privatisation policies throughout the 1980s and 1990s in many countries in Africa, Latin America and Asia. Privatisation was part of the structural adjustment programs (SAP) prescribed by the Bank, often as a condition for debt relief for many of these countries.
Most observers, including the Bank, would agree that SAP was
not a very successful policy. Deregulation and privatisation led to only marginal economic growth, if at all.
More importantly, SAP had a very damaging impact on sectors like health and education. The publication of a Bank document, Adjustment with a Human Face, in 1987 reflected a much-needed reorientation of its policy framework -- from one that focused excessively on economic growth to one that gives more emphasis on poverty reduction and social development.
While I agree that whole-scale privatisation is not the solution for developing countries, I will offer a slightly different argument. First, it is true that the economies of countries like China, which did not adhere to the Bank's recommendations, are doing well. But
what criteria should be used to measure success? If the expected outcome is increased economic growth, then there is not much difference between the SAP prescriptions and state-led models of development.
To what has extent China's shunning of Bank/IMF policies contributed to better outcome in terms of inequality, poverty and other social indicators? I think we will sec that China is not doing as well in these indicators as it is doing in the case of purely economic growth.
On the other hand, Cuba, which has done really well in health and education, is a more appropriate example where the state-led development policies have worked well. But we need to realise that Cuba is only an isolated case.
Secondly, the notion that socialist countries arc better off economically is debatable. Duc to many factors, the controlled and closed economies of the Eastern bloc lacked efficiency, and were simply not sustainable in the long run.
The collapse of the Soviet Union in the early 1990s provided us with adequate evidence in this regard. At the same time, countries that adopted Import Substitution Industrialisation (ISI) did not fare much better.
Finally, the rationale for the push for privatisation policies by the Bank was that governments of developing countries were generally inefficient and corrupt.
Unfortunately, this was true in many cases. Whether privatisation was the right strategy is a different matter. The fact that that bureaucracies and state-owned enterprises performed really poorly is well-documented.
The point made by Fozia Akhtar about having a strong government is well taken. Essentially, the Bank has also realised that rather than trying to reduce the role and size of the state, it makes more sense to make it more accountable, responsive,
and democratic.
All these virtues are articulated in the Bank's current policy agenda of "good governance." Although good governance in one sense means less government, the narrow focus of the Bank on state retrenchment and privatisation has now been re-packaged to better reflect the realities of the developing world.
Therefore, we need to take a pragmatic approach when It comes to privatisation. Privatisation does work in some contexts. To illustrate my point, I refer to the example of Biman, the national carrier, which was turned into a public limited company last July.
According to recent reports, Biman is operating more efficiently, stopping pilferage and retrenching unnecessary workers. It is estimated that Biman's loss in 2007-08 will be lower than previous years. Although it is too soon to make any prediction about how Biman will perform in future, the current evidence is certainly encouraging.
Privatisation, then, is neither good nor bad. The issue is under what conditions privatisation policies are likely to succeed Privatisation can be a reasonable solution for inefficient and overbloated corporations.
This is especially true for sectors that need higher levels of efficiency and competitive edge, such as the airlines industry. At the same time, the government can take care of more essential services so that a broader segment of tire population can afford them. Whatever the case, the onus is on
the governments to decide which corporations and enterprises need to be privatised.
Ahmed Tareq Rashid writes from McMaster University. Canada. He can be reached at tareq.rashid@gmail.com.