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Denationalization
Operational Difficulties
Preliminary
work is likely to be required before denationalization can commence.
This is particularly true where entities have been subject to
colonial or other misrule. For instance, in Poland great
difficulties have been encountered in making restitution to the
victims of communism; in particular, the tracing, discovery, and
evaluation of title documents have caused delays and disputes.
Similarly, in many states disregard of the environment has made it
necessary to formulate policies assigning responsibility for
cleaning up current and future damage.
Rarely
have the alternatives to denationalization been adequately
evaluated. This leads to the following observations: first,
denationalization has been applied only to existing
enterprises-creation of new ventures has not been addressed; and
second, the relatively draconian remedy of denationalization appears
to have been favored over lower cost alternatives such as repair,
development, absorption, or abandonment.
Some
techniques for implementing denationalization (such as sales on the
stock market, distribution of vouchers to eligible citizens,
transfers to management, etc.) have been dogged by difficulties. For
example, preliminary to denationalization it may be necessary to
broaden public participation in thin securities markets. Also, both
price erosion and price explosion from offering prices have occurred
at privatized companies marketed as initial public offerings. (The
offering prices should have treated both investors and taxpayers
fairly.)
A
denationalized entity is subject to normal business risks; however,
rarely have these risks been identified, analyzed, or controlled.
One such risk, management fraud, represents a particularly dangerous
threat. Managers have literally stolen firms; they have sold or
leased the assets to shell companies owned by friends or to joint
ventures set up with foreign partners, in which they had some kind
of stake or guarantee of employment (Gordon,
1994). For instance, in Kuwait alumni of the 1982 collapse of
the Souk al-Manakh (which involved violations of religious and
secular laws) are said to have been allowed to buy into a
denationalized company at bargain prices!
In
general, national audit agencies have become involved in
denationalization on an ex post facto rather than on a proactive
basis; the latter would have tended to make fraud more difficult. In
Pakistan the privatization commission itself has become a focus of
investigation; it has been reported that its program was well
conceived, but that ground rules were not followed ("Pakistan
Investment," 1995).
Numerous
technical shortcomings have further impeded denationalization. These
include absence of a comprehensive strategic plan, unrealistic
timetables, inaccurate cost and income projections, inadequate
monitoring of progress, and lack of a post-mortem review of the
entire process.
The
direction of privatization will now be evaluated in light of the
teachings of Islam and of Islamic economics (iqtisad).
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