Running banks and airlines

THE provinces are already running banks: Bank of Punjab, Sindh Bank and Bank of Khyber. Balochistan is the only province that does not have a bank of its own, but given the precedent, it is bound to go for one as soon as it can.
KP and Punjab recently said they would be interested in running their airline as well. A good question to ask here is why. Why should the provinces have their own banks or be running airlines?
The federal government is already battling with state-owned enterprises. It has quite a few that are making losses, some even in industries where profits are very possible. Private sector firms make profits in this sector.
The government has been talking of privatising all SOEs, in particular the loss-making ones, and has been under pressure to do it quickly to manage the fiscal deficit. There seems to be pressure from the IMF and other lenders and donors as well to do it. This is why the privatisation process for PIA has been prioritised over the last six-odd months. Given all this, why would the provinces want to buy or set up and run airlines?

Why do provinces need to run banks and airlines? There are plenty of private sector alternatives available in these areas. At one point in time, it might have been the case that the Pakistani economy was too small or that entrepreneurs did not have the capital to set up banks or airlines or did not have the requisite knowhow about the management of such businesses. We live in a different time now. There are quite a few local and multinational players in these businesses; why would the provinces want to come into this space?
Take the case of banks. What do provincial banks add to the banking landscape? All provincial banks have been in trouble at one point or another. All of them, over time, have been accused of indulging in financial corruption at the behest of the political leadership of the day.
Provincial governments do not have any advantage in terms of knowledge or market understanding that they could bring to the banking sector. Why should they have banks then? And of course, provincial banks have been used to fund pet projects or friends of political leaders. This is exactly what is wrong with the provinces having banks.
Will the situation be any different if a province owns an airline? What can provincial governments bring to the table if they run an airline? Better knowledge? Better understanding of the business? What is the advantage here? They might stipulate, as they have done in the case of provincial finances and banks, that provincial businesses should go through that airline, but how does that help? It just creates another liability.
The government and state have a responsibility, in some cases legally as well, to provide goods and services that have the element of public good to them or are considered to be the right of individuals. For example, Article 25A of the Constitution asserts that the state shall provide free and compulsory education to all five-to-16-year-olds in the country. This is in the basic rights section of the Constitution. It is a right of citizens to have this free education and it is an obligation too, as it is compulsory to be provided that education. The state should provide it. But we also know that approximately 26 million five-to-16-year-olds are not in schools in Pakistan. Should the state not focus its attention more on providing schooling for children rather than think of owning and running banks and airlines?

The same is more or less the case for health, including public health. Though access to health services is not recognised as a basic right in our Constitution, we are failing, terribly, in Pakistan to provide even the basics of decent healthcare and welfare. We do not provide safe drinking water to all citizens, we cannot even inoculate all of our children (Pakistan and Afghanistan are the only countries in the world right now that have not been able to eliminate the poliovirus); 40 per cent of our children are malnourished and most of the poor are provided very low-quality preventive healthcare facilities, if at all, in the country.
But in no province, despite the announcement of an education emergency by the prime minister this year, are there any ongoing efforts that are even remotely likely to address the issues that have been mentioned here. And yet, the provinces want to run airlines and are putting their efforts into running banks.
The provinces have been trying to improve the quality of service in education, health, water and sanitation and other areas, but have, by and large, not been able to do much for many years. For the last 10 to 15 years, the provinces have been expanding services and improving the quality of services through public-private partnerships as well. And with success in education (largely in Punjab) and health (largely in Sindh), the PPPs have been expanding quite rapidly.

Recently in Punjab, the government seemed to have decided to place a total of 12,000 or 13,000, out of some 35,000 primary schools under PPPs. Teachers, parts of the educational bureaucracy, and other stakeholders have been criticising the government for ‘privatising’ education. But, whether or not we see it as privatisation, the fact remains that the government has been unable to manage schools and has looked for help from the private sector to run its schools, and the same government wants to run banks and airlines!
Should the provinces run banks and airlines? The answer seems to be obvious. They should not. But logic, efficiency and optimality seldom win the day in Pakistan.
The writer is a senior research fellow at the Institute of Development and Economic Alternatives, and an associate professor of economics at Lums.
Published in Dawn, November 8th, 2024