privitization

there is violence in pakistan again, this time its different, its about who has power. ok ok its not different. but one of the background issues is different. in the case of the pakistan steel mill, the judge at the center of the storm suspended moves by the government towards privitization.

a government can:
1-develop an industry as a public institution to benefit its people.
2-make public a private institution to benefit its people.

but can it
3-privatize a public institution to benefit its people?

what does it mean to privatize?
it is a change of ownership.

right now the government manufactures steel and sells it to the poeple and the revenues (in theory) go towards maintaining and improving the government or that factory. there should theoretically be no profit motive other then the public good.

to give ownership to a corporation that protects its shareholders (a single person or collection of investor) from liability, and allow them to manufacture steel and sell it to the people for profit. to set a price that is determined by the law of supply and demand, which covers their costs for maintaining and improving the factory and allows them to make however much money they want for themselves.

of course the government will still be able to gain revenues by taxing the corporation. so there is no loss there as long as the tax is collected, of course the corporation simply passes on the cost of the tax to the people by raising the price. in the end the money goes to the government from the same source. the buyers of the steel. but if the owners made a profit for themselves the government can still get a portion of that money when it collects taxes from individual owners. in the end its the people who end up paying more for the steel in order for the corporation to make its proft.

this is true as long as there is only one steel mill and it is privately owned. but the people benefit when there is more then one and the steel mills have to compete for costomers. of course they can get together and fix the price so that they both benefit. but thats were the government comes in. it must allow for competition by breaking up monopolies and punish price fixing.

is this what will happen in Pakistan? i don't think the Pakistan Peoples Party thinks so. I met know supporters of the PPP who are against the privitization effort because they think it will only benefit the new owner. there is also an element of workers rights. employees of the steel mill are government employees and i guys that means they have some rights and job security, while employees at private corporations are vulnerable to decisions made to gain profit.

i think in theory they have a point. steel could be seen as public good, and the fact that there is only one mill means that this monopoly could set whatever price they want. and that the workers will not have the same benefits and job security they currently have.

but in reality they are assuming too much, they are assuming that the government is not corrupt in its operation of the mill, that money isn't already being made by those who are at the top, that the workers are not subjected to the will of the that the top official's cronies.

the biggest risk in privatization is that the quality will suffer because of the profit motive and the lack of competition. but this will only lead to another corporation making a mill that produces better steel. so while for the short term it will not be good, for the long term good of pakistani steel and manufacturing, privatization is the way to go. pakistan is too currupt for any public institution to live up to its maximum potential.