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ASSIGNMENT OF

BUSINESS STRATEGY
Submitted To:

Prof.Qayyum Qureshi
Submitted By:

M.Usman Nisar
Roll No: 2093148
BBA (HONS)

Topic:

NATIONALIZATION IN 70's
National College of Business Administration & Economics

Nationalization

Nationalization is the act of taking assets into state ownership. Usually it refers to private assets being nationalized, but sometimes it may be assets owned by other levels of government, such as municipalities. Or in other, simpler words, the process of bringing an asset into public ownership is called nationalization. A basic argument in favor of nationalization is that Public ownership can protect consumer interests in sectors where competition is low, where choices are important but made infrequently, and/or where consumers do not have the expertise to make good decisions (such as in health care).A profitable nationalized industry contributes with its profits directly to the common wealth of the whole country, rather than to the wealth of a subset of its population. On the other hand nationalization also has its negative effects. Government ownership may lead to waste (inefficiency) if it proves unable to motivate management and personnel through appropriate incentives, including appropriate pay and threat of redundancy. Nationalization Policy in 70's The nationalization process was a lengthy one. Soon after coming to power, Bhutto started implementing the economic policies enunciated in the Pakistan People's Party manifesto. On January 1, 1972, the central government assumed the ownership and management of public utilities (electricity, gas, and oil) as well as of thirty-one units belonging to the following industries: iron and steel, basic metals, heavy engineering, heavy chemicals, motor vehicle assembly and manufacture, tractor assembly and manufacture, heavy and basic chemicals, petro-chemicals, and cement. On 18th March, 1972, life insurance businesses, including foreign companies, were taken over by the government. More than a year later, (on 16th August 1973), the vegetable ghee (shortening) industry was nationalized. "The government's encroachment into this industry," writes Shahid Javed Burki, "was resented by its own constituency" as "a good proportion of the cooking oil industry was owned by small and middle-sized entrepreneurs. Some of these people had been active PPP supporters and many others belonged to social groups that were favorably disposed towards the party." Burki maintains that the "government's takeover of the vegetable oil industry also disturbed for good the uneasy truce that had been reached between Bhutto and the business community. Bhutto had broken his promise; his assurance of no further nationalization until the elections of 1977 no longer seemed meaningful and the little confidence that the businessmen had developed in the regime was now completely gone." Despite the negative implications of these policies, the nationalization bandwagon continued to roll on with full speed: in January 1974, all domestic, privately-owned banks were nationalized, a step which Bhutto described as his "present for the New Year to the people of Pakistan" which eventually proved to be a present not to the people but only to those who had political clout: these government-owned banks failed to provide any benefits to the common man and became a source of loot for the influential individuals connected to the PPP, who started borrowing hefty sums of money from these government-owned banks, with no intention or ability to repay the loans. Many of these loans were usually written off by the government authorities. Why Nationalization

Why did Bhutto choose to make this decision? According to Rafi Raza, "He wanted to establish his peerless position; having outperformed the rightists on the Qadiani issue (by having the National Assembly declare that they were non-Muslims), he now sought to outdo the left within the Party, quite apart from trying to strengthen his support among the small farmers."

OBJECTIVES AND GOALS OF NATIONALIZATION POLICY The official explanation of the PPP government's overall nationalization policy was the following: 1. The "commanding heights of the economy" should belong to the people. Concentration of economic power should be reduced. 2. The economy should be subservient to socio-political objectives. 3. Financial resources should not be under the control of a few rich families. OUTCOMES OF NATIONALIZATION POLICY Positive Aspects: Notwithstanding the government's stated rationale for nationalization, there could be other motives as well for the adoption of this most controversial policy. Anwar Syed has referred to one of them. According to him, " Bhutto's nationalization measures substantially expanded the domain in which his will to power could express itself. Not only the government departments, their budgets and personnel, but banks, insurance companies, schools and colleges, industrial plants and trading corporations, including their posts and funds, would be under his sway: thousands of jobs to which friends and supporters might be appointed and from which those hostile toward his regime removed." Negative Aspects Burki has also commented on the adverse effects of Bhutto's economic policies: "It can be said with some confidence that their overall impact was negative." According to Burki, "The performance of the economy during the 1970s was much poorer than in the 1960s. In some respects it was even worse than in the 1950s." He also argues that the "income distribution worsened during the Bhutto period." He adds, "(T)here is little doubt, ... that the middle classes were worse-off as a result of the economic policies adopted during the Bhutto period. They also suffered political and social deprivation." Burki believes that the "PPP emerged as a political party in which the power of such wellestablished groups as large landlords and such new groups as industrial workers and peasants was much in evidence."

However, the countrywide agitation against the Bhutto regime in 1977, with the participation of large sections of industrial workers, does not support this assertion. It can be argued that the negative outcomes of Bhutto's nationalization program outnumbered its benefits. The main beneficiaries of this policy were the PPP leaders, their family members and supporters, the bureaucrats, laborers of state-owned industries, and the employees of state-owned banks and insurance companies. The PPP leaders were able to have their relatives and supporters appointed to various positions in the new "industrial/commercial empire" acquired by the government. "Provincial governments and local politicians forced the absorption of an uneconomic number of employees in the state sector," admits Rafi Raza, who later became the minister incharge of nationalized industries. According to Rafi Raza, this nationalization "was both an economic and a political blunder.... It was absurd to nationalize the small rice mills, some of which were literally located in the backyards of the houses; these were later handed back, and some other anomalies corrected. But the main damage was done, because now even small businessmen were hesitant to invest. Worse, the entire bazaar became hostile and played a significant part in the 1977 post- election agitation against ZAB." Conclusion The economic growth that was a major contribution of Ayub Khan came to a standstill during the Bhutto regime and the nationalization of major industries and other economic concerns proved to be dysfunctional. The promises Bhutto made in his first speech after becoming the president and what he actually gave to the country were worlds apart. He had promised that he would bring democracy to Pakistan. In reality, he destroyed whatever democratic institutions and ethos existed in the country. This nationalization process was not as successful as Bhutto expected. Most of the nationalized units were small businesses that could not be described as industrial units, hence making no sense for the step that was taken. Consequently, a considerable number of small businessmen and traders were ruined, displaced or rendered unemployed. Due to lack of effective managerial control,the bureaucrats found their jurisdiction extended and many of them lined up lucrative positions in the new public enterprises. Laborers employed in such enterprises gained greater job security and more benefits, with less pressure to work hard since it became very difficult to terminate the services of even the most inefficient employees. Productivity was no longer the main criterion for personnel decisions in the public enterprises and the economy, on the whole, suffered from the nationalization policy. The very arguments given against nationalization at the beginning of this paper eventually became the reason for the failure of the Z.A. Bhutto nationalization project. It turned into a misadventure purely because of poor judgment and lack of foresight. It has been proven to the world that privatization is the best way to go, the competitive market being the best platform for economic growth. Bibliography

Mowahid Shah, "A Simple Living", Pakistan http://www.pakistanlink.com/mowahid/04182003.html

Link,

April

18,

2003.

Rafi Raza, "Zulfikar Ali Bhutto and Pakistan: 1967 1977", Karachi, Oxford University Press, 1977 Saeed Ahmad Qureshi, "Privatization and Economic Policy", Islamabad, Government of Pakistan, 1993 Anwar H. Syed, "The Discourse and Politics of Zulfikar Ali Bhutto", New York, St. Martin's Press, 1992 Hameed Yusuf, "Pakistan A Study of Political Developments 1947-97", Lahore, Sang-e-Meel Publications, 1999