VIEWPOINT - The New Indian Express (Kerala), 13 October 2001

Opposing privatisation: how to, how not to

To derive the benefits of privatisation, Keralites must oppose privatisation.


As Kerala Government takes the privatisation route, there is an urgent need to grasp the spirit of privatisation and develop constructive ways of opposing it. If not, we run the risk of harbouring undue expectations, designing incomplete policies, and failing to achieve our collective aspiration of economic prosperity with social justice.


Privatisation means reforming the economy on the basis of acceptance (especially in government circles) of the principles and practices followed by private companies in providing goods and services. Different methods are employed to alter the provision of services hitherto undertaken by the Government. These methods include denationalisation, deregulation/liberalisation, and privatised provision of services with responsibility for supply remaining with the government -- each of which can be implemented in diverse ways.

Kerala's traditional style of opposing privatisation...peddles half-baked economics embellished by poetic and populist prose.

Kerala's traditional style of opposing privatisation fails to recognise such finer points. While peddling half-baked economics embellished by poetic and populist prose, intellectuals (a) pick an example of privatisation from Latin America or elsewhere and celebrate its failure (b) expertly generalise that privatisation will hurt the poor; and (c) berate privatisation as being part of a grand American conspiracy.

These Himalayan generalisations are shallow and ridden with fallacies. Typically, they under-estimate a Government's ability to shape the 'market' (through performance standards, safeguards for the poor) and tend to compare dissimilar experiments. By failing to suggest alternative ways of improving services, "progressives" end up justifying the continuation of existing inadequacies. Worst of all, by outrightly opposing privatisation, they forego the opportunity to insert pro-poor provisions.

To sincerely protect the interests of the poor and ensure better quality services, we must get down to the details. Opposing privatisation in general terms is justified only if you see absolutely no merit in the spirit of privatisation.


The spirit of privatisation is to change the incentive structure (say, in KSEB or electricity sector) such that the quality of services delivered improves, aspirations of consumers are met, and the production process is self-financing as far as possible. The acid test of any reform, 5-10 years from now, will be in how far these objectives have been met. Privatisation seeks to achieve this by the adoption of private sector principles like competition, cost-recovery, and wherever possible subsidising select consumers instead of the entire service provider.

Thus, privatisation is driven by the assumption that: (a) existing service delivery is ineffective because employees are not accountable to the consumers and corruption exists (b) by changing the incentives for employees (salary, working conditions etc.), a public authority can deliver better service, maybe more efficiently (c) the current style of subsidising inefficient production is adversely affecting the ability of Government to spend on priority sectors and worsening the fiscal crisis.


Any useful critique of privatisation proposal has to (a) appreciate the spirit of privatisation (b) investigate the proposal's impact on society (c) examine safeguards for the poor built into the proposal and (d) suggest modifications backed by logic or evidence. This would require systematically studying privatisation experiences and regulatory environments in other regions.

'Local' in content: The critique has to relate to Kerala's ground realities. For example, while criticising the closure of uneconomic schools, one has to (a) show with specific examples how far the nearest government/aided schools are and why this is unacceptable (b) sketch the profile of three or four uneconomic schools (c) highlight the absence of safeguards for poor students (d) suggest how the goals sought by the Planning Board can be met in other ways and (e) cite lessons from other regions.

Replying in the Government's own language: This includes (a) challenging the validity of the proposed incentive structure (b) whetting the proposal for possible avenues of corruption and bureaucratic discretion (c) investigating the workability of safeguards for the poor and (d) examining whether private sector principles like competition are integrated in the proposal. Indulging in histrionics ("even if there is only one student, the government must run a school") signals an inability to comprehend the problem at hand.

Take the issue of granting NOCs for engineering colleges to all applicants. Contrary to first impressions, this reduces corruption -- unlike the LDF's pick-and-choose model of privatisation, which forced applicants to out-bribe other applicants. However, the Government has failed to specify how it seeks to ensure quality -- an important objective of privatisation. Will colleges be forced to make information publicly available so that civil society groups can rank colleges, promote competition, and provide crucial information to consumers (students/parents)?

Privatisation does not mean leaving everything to the market. It has to include provisions for rules and procedures that help the market work.


The ability of citizens, non-governmental organisations and the media to constructively oppose privatisation would depend on their access to information. For this, openness in governance is necessary. Also, for reforms to succeed, technical aspects like policy design are only half the story. Equally important are: to what extent Keralites internalise the reform agenda, build constituencies for reform to sustain the process, and respond by utilising the new reformed environment.

Therefore, the Planning Board must facilitate critical public scrutiny of its recommendations. Promoting transparency and constructive criticism are essential ingredients in sustaining the credibility of reform. If Antony desires constructive reform politics, he must usher in transparent governance.

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