Pakistan Steel Mills has been our country’s ticket to the iron and steel producing nations’ elite club for nearly 50 years. However, corruption and mismanagement have finally led to one of the largest state-owned enterprises. After getting bailed out by taxpayers for decades, the government has finally decided to get rid of this dead weight. Earlier this year, the Minister for Industries and Production, Hammad Azhar, announced the government plans to privatize PSM.
The resources of the enterprise were deliberately being exploited by management through employment beyond its need. “At one point more than 30,000 employees were hired to run the PSM that only required 1,300 workers,” says Hammad Azhar.
The project once known as an ‘investment trophy’ from the US and the Soviet Union is nothing but a financial liability for the state. The Pakistan Steel Mills has incurred 200 billion PKR worth of losses till now and continues to be a burden for taxpayers even after 5 years of being shut down”.
A total of 4,544 employees of PMS received dismissal letters by post including Divisional and Assistant Managers. All of these employees will get 2.3 million on average as compensation. According to the Minister, the government has been paying 750 million PKR per month in salaries to the employees of a project that’s been shut down for years. No previous government could come up with a plan to turn this loss bearing project around.
Therefore, the firm is decided to be privatized now and the government is expecting to hand it over to an international partner. The management of the enterprise will be completely handed over to the private party.
The foundation of this production plant was laid in Zulfiqar Ali Bhutto’s era. The PPP has used this project as an ‘employment promise’ for its voters. Therefore, Bilawal Bhutto has objected to the employee sackings and privatization. However, the government has given Sindh government an open invitation to bid on the firm and acquire it by fair means if they want to.
Nationalization of Industries – Pakistan
The PSM is a classic example of how industries are bound to fail when nationalized. An industry’s purpose is to create a product that will sell well in the market and the only way a product would sell is if it creates value for the consumer. And if the product fails to deliver value, the enterprise collapses. However, in case of nationalization, an industry keeps on surviving even if it is bearing losses for years because the government bails it out on taxpayers’ money. Bhutto assumed power in 1971, took over 31 industries and 1972, and within a year, corruption and mismanagement took over. By 1977, employments in these industries increased up to 58%, salaries and wages by 322%, but production didn’t increase correspondingly and labor productivity declined to a great extent. Even though the recorded sales increased, the net earnings remained negative except in the cement industry which was repeatedly introducing increased prices. By 1977, only 15 out of 54 acquired industrial units were in a position to maintain profitability.
Nationalization of Industries – UK
Another reason for nationalized industries to fail is under-capitalization. The finances of nationalized industries are handled by the government therefore, funds are constantly diverted to current spending and no heed is paid to investments in plant and infrastructure. The steel industry in Britain was nationalized in 1949, privatized in 1951, and then renationalized in 1967. Following the re-nationalization in 1967, most of the plants were now making losses and simply running on subsidies because the objective of the government was to keep employment as high as possible. British Steel was finally privatized by the Margaret Thatcher government in 1988 as it was on the brink of liquidation.
Why are Nationalized Industries Bound to fail?
1. Nationalization shifts industries from the economic domain to political domain.
2. The industry’s priorities shift from fulfilling the market needs to serving government.
3. The enterprise direction is set towards winning voter support rather than progressing economically.
4. Nationalized industries are more vulnerable to getting hacked by unions, resulting in higher pays making the industry non-competitive in the international market.
5. Nationalized industries are protected from market competition through subsidies, making them inefficient.
6. Nationalized industries have to compete with other government sectors like education, healthcare, and defense for capital to update plant and equipment.