As a result of our Deep-Seated Inferiority Complex , we have come to regard Western knowledge as superior to the deep wisdom of our inherited intellectual traditions. This is why we no longer look to our tradition for insights about modern problems, and generally think that the teachings of our religion have nothing to say about it. The talk given below looks at the problem of privatization of State-Owned Enterprises in the light of the teachings of Islam, and comes to conclusions very different from what is generally being said about this matter in the literature.
Brief Summary of article & video talk by Dr. Asad Zaman at Round Table Conference on REFORMING THE STATE-OWNED ENTERPRISES OF PAKISTAN: LEARNING FROM CHINA & BRI COUNTRIES held on Nov 12, 2018 at the Center of Excellence for CPEC, PIDE.
To establish efficient SOEs, we need to work on re-aligning the motives of the workers in the SOEs. Privatization is based on the idea idea that the selfish profit motive is superior to the motive of social service. This idea is anti-thetical to Islam, which teaches us to develop our motivation to serve humanity – the creation of God — for the sake of the love of God. In fact, the idea of the “invisible hand” that the selfish private profit motive works best to produce social benefits has been proven wrong by many different examples. The Global Financial Crisis was caused by the search for profits, without regards to social responsibility. In contrast, Chairman Mao-Tse-Tung changed the destiny of the Chinese by inspiring them with a powerful vision based on their past. Similarly, campaign based on inspirational poetry aligned with our heritage based on Islamic ideals can launch the internal changes required to create great managers in both public and private sectors.
The 22-minute video talk is linked below — Detailed outline of talk is also given below
A 2200 word summary of the talk was published in The Nation on 10th Jan 2019
Privatization of State Owned Enterprises
Should we privatize our State Owned Enterprises (SOEs)? Would privatization solve the management issues and make them successful? SOEs are, or should be, motivated by social service, while private sector works on the profit motive. Paradoxically, it seems that the profit motive creates more public benefits than social service. Is this really true? This is a hot topic of debate among economists, policy makers, and legislators, which has very serious consequences and implications. But some very important aspects are often overlooked in the discussion. There is no serious discussion among scholars on key variables such as Integrity, honesty and morality, and motivation for work effort. Ignoring these central issues has led us to solutions that don’t work. The question of why issues central to the public versus private debate are neglected has to do with the fact that this question emerged in European societies within the historical context of modern secular states. Because the relationships between private and public sectors have been very different in Islamic societies, and were dramatically disrupted by the process of colonization, there is a need of finding different solutions which are more relevant to our cultural, historical and religious context.
The Problem is formulated in the Wrong Way
When we talk about regulating enterprises from an Islamic perspective there are three main parameters. The institutional structure, the rules and regulations and the spiritual aspect. All three aspects are of central importance in terms of the comparisons between private and public sectors. Eurocentric conceptions exclude these considerations, focusing purely on institutional structures and law. Scholars like Weber and Tawney have shown the central importance of Christian ethics in the emergence of Capitalism, as well as the shaping of institutional structures in Europe. Similarly, Institutional structures which are compatible with our local historical context and ideological frameworks cannot be imported from Europe. Rather, it is essential to design our institutions in conformity with our social values and collective goals as a society. Given the right social values, both public and private enterprises would work with similar levels of efficiency, while a general failure of moral education in a society would be equally reflected in poor performance in both public and private sector. Thus the focus on public versus private misses the essential elements that we need to consider.
Origin of the Problem
To understand the misconception that private and public sector represent polar opposites in terms of efficiency of operation, we need to go back to Europe where this idea originated. Centuries of violent religious warfare led to general dis-enchantment with religion. The secular state was conceived as a collection of communities living under common rule of law, but with different religions and no common purpose. The scope of collective action was restricted to the government, since the people were divided into communities with no collective identity. Thus, there was either public ownership or private ownership and there was no intermediary. Since there was no agreement on purpose, collective consensus could only be achieved on the mediating agencies of wealth and freedom, which would allow each community to strive for their separate goals. Wealth and freedom are intermediate goods, valuable only because they allow people to achieve their final purpose. Through a long and slow process, these intermediaries came to be regarded as the final goods – the ends for which we strive. It was the gradual decline of religion that took out meaning from the lives of the people. They were left with no clue as to what do with the freedom, liberties and wealth that they had acquired.
Religion and the Rise of Capitalism
Secular European society has erased its religious roots, so that the standard Eurocentric narrative ignores and neglects the strong contributions of Protestant religion to the emergence of Capitalism. This story has been developed in great detail by Tawney in Religion and the Rise of Capitalism and Weber in The Protestant Ethic and the Spirit of Capitalism. One of the central elements in the transformation of traditional society based on religion to a secular society was the change in attitudes towards wealth. The Christian maxim that “love of wealth is the root of all evil” was replaced by the Shavian maxim that “Lack of wealth is the root of all evil”. In particular, Calvinism introduced the concept that working is a sacred duty and that worldly wealth is a sign of the favor of the Lord. Parenthetically, Islam emphatically rejects this, and explicitly asserts that wealth is not a sign of the favor of the Lord. Nonetheless, this view became widely accepted, so that working hard and earning wealth, without indulging in luxury, came to be regarded as a sacred duty, required of good Christians. Originally, this conception was meant as a cloak for use by the religious people to enable them to enter the dirty and impure world of work and wealth without getting contaminated. However, even though religion lost its grip on minds and hearts, the habits of working for wealth became embedded within the cultural frameworks, excluding serious re-conceptualization of lifestyles required by the loss of faith. In the elegant metaphor of Weber, what was meant as a cloak to be lightly put on for dealing with the world, became an iron cage.
Divorcing religion and redefining Knowledge
Loss of faith in the certainties of religion and afterlife had profound consequences on European society. Europeans learned to distrust the heart, which had led to collective consensus on the illusion that Christianity had proven to be. Enlightenment philosophers argued that all traditional knowledge must be put to the critical test of reason. Rejecting the heart, and relying solely on the rational faculty led to a highly imbalanced theory of knowledge, which could not provide answers to critical questions that we all face in our human lives. Based solely on rational calculations, all moral considerations can be set aside in pursuit of wealth and power, as recommended by Machiavelli. All of the modern social sciences were founded on the basis that men are rational robots without hearts and soul. Take the example of discipline of Economics. One of the core assumptions of Economics is that we live solely for the sake of the pleasure derived from consumption. Rational human decisions are guided by profit and loss consideration, so that honesty, commitments, trust, and sympathy are excluded from economic theories of human behavior. The larger questions like a vision of the good life and the good society are lost from view, leading to a deep sense of meaninglessness. Today the world is governed by social science theories which are based on a deeply defective understanding of what it means to be human. The results of this are evident in the multitude of catastrophes which confront the planet as corporations pursue short-sighted profits, at the expense of laborers, environment, and humanity.
Colonial Era, Governance and present day Governance problems of Pakistan
Private sector versus public sector is a red herring – if we have honest people who have the desire to serve the public, they can run organizations equally well, whether they are in the public or the private sector. As proof, consider China where around 70% of the production takes place within State Owned Enterprises, and yet it has had the highest growth rate for over a decade. Importantly, many of these SOEs are tasked with social responsibilities, in addition to the financial goals private sector firms have. Chinese SOEs have been engines of growth, so we must consider the special features of Pakistan which make our SOEs a liability and a burden.
To understand governance structures in Pakistan, it is essential to consider our colonial history. The British destroyed efficient and functional educational systems which provided training to the masses without charging any fees. These were replaced by educational institutions that aimed at producing bureaucrats who had contempt for their own heritage and traditions, and were loyal to the British. The goal of all institutional structures was to maximize the extraction of revenues from the colony. This colonial legacy continues to haunt us in terms of poor performance of the public sector because bureaucrats represent the lords and rulers of the country and are not answerable to the public. The central problem of governance is to change the attitude of the bureaucrats to be the “public servants” that they are in name.
To improve the performance of SOEs, we will have to try to change these mindsets and this will take place in steps. The first step is to create a community and common goals, to bridge the divide between the rulers and the public. We need to get a buy-in by the stakeholders in the society. We need to find the points where the interests of all the people of the society converge. This was the strategy used by Mahathir Mohammad to create the East Asian Miracle in Malaysia. The community leaders of the Indians, the Chinese and the native Malays came together and agreed on certain principles and goals. The progress that Malaysia has made is an excellent example explaining the miracles of the consensus built upon the basis of community based collective action.
Does the Profit Motive Work?
The mistake committed by all of us is the unverified and invalid argument that systems based on community, social responsible, and common goals cannot work because the profit motive is the only reliable driver for enterprise. Counterexamples to this assertion surround us in Pakistan. Abdus-Sattar Edhi built a world class charity, while the Indus Hospital is a world class hospital run on the basis of social responsibility. Akhtar Hameed Khan showed how communities can self-organize and solve their own problems with very little help. The essence of the debate on SOEs is that the social service motive of the SOE’s can be replaced by the profit motive of the private sector and this will bring the desired positive change. In the world, we see many examples where private sector greed has led to massive losses. The biggest example is the Global Financial Crisis where the greed of the financial sector led to trillion dollar losses worldwide. But thousands of other examples of the same phenomena, where corporate greed has led to massive losses to public welfare, can easily be found.
Instead the mirage of the profit motive, real solutions lie in inspiring people to act with social responsibility. This requires aligning work incentives with our religious and cultural background. For instance earning Halal rizq is an act of worship. Serving the public for the sake of the love of Allah is an act of worship. According Islamic teachings, the leader is the servant of the people. This spirit still exists, but only in very weak form. Real change is created when the people are inspired to work together for larger goals. Today, in Pakistan, we need to use education and media to nurture and strengthen this spirit. Once the motivations are re-engineered and the right motivations are presented then it won’t matter that whether the Enterprise is state owned or privatized it will bring positive changes in the society. China is a good example for this. Mao-Tse-Tung’s dynamic leadership inspired the nation to work together for change. Chinese SOE’s place great emphasis on the social responsibility and contribution to the society. The profit motive is replaced by the service motive and it has worked in China. The biggest obstacle on our path is the defeated mindset created by a century of colonization. In fact, the subcontinent has produced many great world class leaders. Mahbubul Haq changed the direction of the development discourse from accumulation of wealth to Human Development. The Grameen Bank pioneered the concept of microfinance. Akhtar Hameed Khan and his followers introduced the concepts of community driven development to the World. Word class social work and successful programs for graduation out of poverty have been pioneered in the subcontinent.
In conclusion, I would say that the question of SOE’s versus privatization is a red herring. The real question is how to improve management. This requires finding honest, efficient, and competent managers inspired with the desire to serve the people. If we can educate and train people to work with the right spirit, they will create productive enterprises whether in the public sector or in the private sector. We could ask if this is merely a pipe-dream, or whether there are some realistic examples of success of such models? We gave a few examples of successful world class public service organizations earlier. The truth is that at the grass roots level there are thousands of domestic organizations working to serve the public. We need to come out of colonial mindset and look at our Islamic traditions of service and excellence. Since our common factor is our heritage, we can inspire people to unite for high common goals only on this basis. If we can succeed in creating the spirit of service, , for the sake of the love of Allah, the internal revolution will create an external revolution. Then the public sector and private sector will work together harmoniously for a common cause, creating development on a scale which we cannot currently imagine.