Saturday, August 07, 2004
Is privatization the key?
Over the last decade-and-a-half, we've seen far reaching changes in India starting from the liberalization of the economy, an increasing emphasis on promoting the private sector, disinvestment of government held enterprises and so on. The rationale stems naturally from a more western macro-economic perspective that privatization leads to healthy competition which will then lead to gains in terms of efficiency, productivity and innovation, thereby contributing to a growth in the economy. By and large, I do not disagree with the basic philosophy of this 'Invisble Hand'-type approach.
Recently, the Economist ran an article titled 'A Different Kind of Oligarch' that tells the story of Kakha Bendukidze, a former industrialist in Russia, who was persuaded to take over the post of Economy Minister of Georgia. Now here is what you can do in Georgia:
If you want to buy a dysfunctional boiler house, an international airport, a tea plantation, an oil terminal, a proctology clinic, a vineyard, a telephone company, a film studio, a lost-property office or a beekeepers' regulatory board, then call Kakha Bendukidze, Georgia's new economy minister. His privatisation drive has made him a keen seller of all the above. And for the right price he will throw in the Tbilisi State Concert Hall and the Georgian National Mint as well.
As to where investors should put their money, “I don't know and I don't care,” he says, and continues: “I have shut down the department of industrial policy. I am shutting down the national investment agency. I don't want the national innovation agency.” Oh yes, and he plans to shut down the country's anti-monopoly agency too. “If somebody thinks his rights are being infringed he can go to the courts, not to the ministry.” He plans, as his crowning achievement, to abolish his own ministry in 2007. “In a normal country, you don't need a ministry of the economy,” he says. “And in three years we can make the backbone of a normal country.”
Mr Bendukidze certainly seems to be authoring the book on fast-track modernization. Scholars and Researchers talk about Regulations; Normative practices that stem from professional groups; and Cultural values as three of the major determinants of social systems. All three of these are usually interconnected. Merely changing the regulatory systems by force without changing the work practices or cultural beliefs may still not bring about the expected change, and worse, may lead to a period of instability marked by protests from locals who may not be able to make the transition quickly enough.
Can Mr Bendukidze pull it off? Or should he be striving for more incremental change? At any rate, it will be worth keeping an eye on Georgia in the foreseeable future. We might yet learn some good lessons on how to structure fast-track political and economic reform. Among many other things, in the long run it might provide valuable lessons for India's development.
