Ten years on, Adel Beshai* finds that the issues remain unchanged Exactly 10 years ago I wrote an article for Al-Ahram Weekly under the above title -- without the word "revisited", of course. Reading the article now, I am surprised to find that practically everything I wrote then is still very relevant. There is no harm, then, in distilling the major points in the hopes that the issues will be better understood and analysed and that policy makers will listen as well as hear. I argue that privatisation per se is not a panacea for our economic ills. The real goal is to introduce competition -- in a market that works well. Current policies favour competition rather than private ownership as such. Carried to its logical end, this argument may unveil the shortcomings of the private sector itself. Indeed, one may go as far as arguing to privatise the private sector itself -- if such a sector does not operate under market discipline and is characterised by nepotism and inefficiency. Privatisation is not a sine qua non for a successful liberalisation process. Blind devotees of privatisation usually compare the worst case scenarios of public enterprise with an idealised view of the private sector. It is simplistic to think that the public sector will totally disappear in the future. We will live with a public sector -- but it must have autonomy, must be able to compete, and it may contain private elements via contracts or franchises. It is not a question of merely selling this or that enterprise. A quotation from Poland's minister for ownership changes in 1991 is fitting here. He said, "Privatisation is the sale of enterprises that no one owns, and whose value no one knows, to buyers who have no money." This quotation, hyperbolic in tone, serves as a warning of the underlying complexities. We have experience to fall back on regarding transformations from market economies to centralised planning economies. But the simple fact is that we are new at the task of transforming centralised economies into liberalised ones. Let us not overlook this ostensibly simple fact. If anything, let us realise that liberalising an economy is necessarily a process, not an act. Moreover, it behooves us to acknowledge that in a liberalised economy there is a role for government. In fact, its role is pivotal to the success of liberalisation. But are we talking here of the government, the state, or what? This question brings us to the heart of the discussion -- the role of institutions. The new branch of institutional economics should not be overlooked. We need an approach that connects micro-level economic activity with macro- level incentives that need to be provided by an institutional framework. We should not focus on movements that lead us to a state of static equilibrium. Rather, we need a continuous process of transformation over time. Institutional economics contrasts with mainstream economics, which is concerned with resource allocation, income distribution, determination of output and prices. An institutional economics system, i.e. the structure of power, argues that the economy is more than the market mechanism. The market itself is an institution interacting with other institutions and hence comes resource allocation. Demand and supply are related to the structures of power, which in turn relate to legal rights, property rights and the whole ethos of culture. The nub of the matter is that all the time we are talking of processes, not once-and-for-all acts. The new economic role of the government in a liberalised economy is difficult and more complex than the classic economic role played by the government. As portrayed in economics textbooks, the traditional role of government includes the provision of defence, goods of collective consumption, externalities, etc. These still remain. However, there are important additions. Government laws, property rights and the like are treated as important variables, both dependent and independent. The lens through which we see competition matters. Competition itself is not an act -- it is a process. The economic problem, then, is not merely one that requires optimal solutions but one that needs to be approached within the process of social interaction and its effect on the institutional support system. Continuous synchronisation between political and economic aspects is needed. The criterion is not only efficiency. There is a flexibility-efficiency tradeoff. In essence, we need to see the economy as moving in a disequilibrium path. Answers are not crystal-clear, especially when we distinguish between the short-run and the long-run. As such, the task of liberalising the economy is one which must involve public participation and in the immediate future calls on the government to introduce incentives and stability into the economic system. The government should establish confidence in the legal system. Indeed, a strong government is essential to have in a liberalised economy. Its legitimacy should come from an understanding by everyone of the philosophy of liberalisation. What gains are to be had if a public monopoly is eradicated only to be replaced by a private monopoly? We talked earlier about the advantages of competition. But for competition to take place, a market is needed in the first place. Markets may be missing or incomplete or imperfect. The role of the government is to ensure that there are markets. If there are markets and if they operate efficiently -- if information is made available and property rights are well-established -- then the government may have a role in turning potential comparative advantage into actual comparative advantage. This means that some nascent industries will be protected. Of course, protection, for example via tariffs, on its face is anti-liberalisation -- anti-free trade. However, it should be made clear that comparative advantage should not be interpreted in a static sense but a dynamic sense. Dynamised comparative advantage would allow for subsidising or protecting an infant industry as long as eventual competitiveness is forthcoming. In that respect, liberalisation should not be construed to mean unfettered laissez-faire. This is true even when it comes to energy pricing. It is one thing to charge the full cost of household energy consumption; it is another thing if one is talking of energy use for desert agriculture, especially in the early stages of reclamation. The upshot of all this is that policy decisions are not simple. Apart from that, there are areas in which the government's role is more direct. Agricultural inputs such as fertilisers and pesticides may well be left to the private sector, but with a proviso. The government should have the power to decree "thou shalt not" import such and such a pesticide, for example. This is especially clear at a time when we are talking of sustainable development -- leaving future generations at least as much capital stock as much as we had, not soil poisoned with nitrates. It is also clearly significant in terms of not jeopardising our exports of agricultural goods now that we know, for example, that the EU has clear regulations on the chemical contents of agricultural goods. In sum, the government has a new role to play. It is a role in which the government must be both enlightened and firm. In this role, relationships between government and business should not be looked upon as antagonistic. Rather, what is needed is a government which is developmental or entrepreneurial in its outlook. Adam Smith, the father of laissez-faire, writing in 1776, recognised the important role of the government. Among other things, he wrote, "After the public institutions and public works necessary for the defence of the society, and for the administration of justice, ... the other works and institutions of this kind are chiefly for facilitating the commerce of the society, and those for promoting the instruction of the people." (Adam Smith, The Wealth of Nations, p. 350). * The writer is a professor of economics at the American University in Cairo and a member of the Shura Council.
