Neoliberalism against Privatization

Sep 2014

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"Conflicting Displacment" | Tazeen Qayyum

“Conflicting Displacment” | Tazeen Qayyum

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In August 2006, the Supreme Court of Pakistan issued a landmark judgment that declared the privatization of the Pakistan Steel Mills void after the bid procedure had taken place and the sale contract had been finalized. The decision whipped up a media storm. While there was widespread disagreement on whether the decision was a welcome move or not, analysts from all spectrums and disciplines generally agreed that by interfering in the economic domain, it represented a transgression of neoliberal principles. This, I would like to argue, is an inaccurate assessment.

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[schedule=’2014-09-22′ at=”00:01″]The Pakistan Steel Mills Corporation (P.S.M.C.) is a private limited company owned by the government of Pakistan. It was incorporated in 1968 and commenced production between 1981 and 1984. The mill is the biggest producer of steel in Pakistan and the only major manufacturer of flat and long bars and billet. Its net assets include land measuring around 30 square miles out of which the plant and the machinery are located on 7 square miles. Its annual designed capacity is 1.1 million tons. After the Mills had failed to produce sufficient profits, the Pakistani government initially decided to privatize them in 1997, but when that proved too difficult for various bureaucratic and political reasons, the government drew up an alternative plan for restructuring the mills, which proved successful in generating profits.

In March 2005, however, the government made a second attempt to privatize the mills. Proceedings began after approval from the local and national governmental commissions, but this time, the government failed to consult the Council of Common Interests (C.C.I), a committee consisting of representatives from all of the provinces. The approval of the C.C.I is mandatory under Article 154 of the constitution. The privatization went ahead and a consortium of three multi-national groups – Arif Habib Group of Companies, Al-Tuwairqi Group of Companies and Magnitogorsk Iron and Steel Works, Russia – won the bid. Almost a year later, as the privatization process unfolded, the steel mills union called the “Pakistan Steel Peoples Workers Union” or C.B.A challenged the ongoing privatization process in the High Court of Sindh, the highest judicial institution of that province. The High Court dismissed the case, arguing that while Article 154 was mandatory, the court could not exercise its jurisdiction because the chief minister of Sindh, who is also a member of the Council of Common Interests, had already approved the privatization in his executive capacity. The C.B.A union as well as the Federation of Pakistan filed separate appeals in the Supreme Court to challenge this decision. Finally, the Watan Party, a small political party led by Barristor Zafarullah Khan, challenged the constitutionality of the privatization process and the acceptance of the bid before the apex court.  The three petitions were conjoined, and the Supreme Court passed its final judgment on August 9th, 2006 declaring the privatization process null and void. Specifically, the justices wrote that, “The process of privatization of Pakistan Steel Mills Corporation stands vitiated by acts of omission and commission on the part of certain State functionaries reflecting violation of mandatory provisions of law and the rules framed there under.”

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The court’s decision was based on three issues or questions of law. First, the court reasoned that the approval of the C.C.I is indeed necessary for privatization purposes. While the legal requirements may have been satisfied by the fact that the government had consulted the C.C.I during its first attempt at privatization in 1997, the consultation should have occurred again during the second endeavor to clarify any political ambiguities. Secondly, the court declared that the Privatization Commission Ordinance 2000, which allows the government to privatize state owned enterprises and lays down the rules for this purpose, is in fact constitutional. So, the court argued that because the mandatory legal provisions regarding the process of privatization spelled out in the constitution and the ordinance had not been followed by state functionaries, the privatization of the steel mills had to be annulled.

In order to analyze the decree, it is important to understand the reasons given by the court for this decision in the larger perspective of the relationship between law and economy. Since the rise of the law and economics movement, an intellectual current affiliated with the Chicago school, scholarship on law has increasingly become subsumed under economic imperatives. Indeed, the Chicago school of economic thought first popularized neo-liberal doctrine first in the U.S., and then across the world through scholarship as well as policy decisions made by international financial institutions in keeping with the imperatives of that school of thought. The law and economics movement has also been successful in influencing legal scholarship, and under its tenets, some influential scholars began to dismiss the normative concerns of the law as “nonsense” because they understood these issues as introducing “transaction costs” into the economy. With the economic imperative increasingly considered paramount, these scholars marginalized legal and normative concerns in favor of simply increasing “efficiency.” Indeed, most commentators who have criticized the decision against the privatization of the Steel Mills, have used precisely this logic. More importantly, the court itself utilizes the same framework in order to understand the issues at hand and to arrive at the decision.

How the law rules

Read: The Man Who Could | Umar Farooq

Read: The Man Who Could | Umar Farooq

Most public discussion now assumes that the law has a fixed relationship to the economy. As the legal scholars Curtis J. Milhaupt and Katharina Pistor put it, the law is thought to be something akin to “an endowment like a fixed capital investment that once in place, provides a firm foundation for economic activity.” In their book, Law and Capitalism, Milhaupt and Pistor question this reductive framework and point out that legal systems are in fact mediated by individuals and institutions that are in a constant state of flux. If the origins of law are political (colonization, industrial revolution in England, end to the monarchy elsewhere in Europe), they argue, there is no reason to think that law becomes politically neutral and static once firmly in place. Moreover, the same rule of law does not perform the exact same function in the service of the economy everywhere. Instead, they write, the law must “fit local conditions and thus must continuously evolve in tandem with economic, social and political developments.” How the law rules, in short, is not universal but adapts to local conditions and may even have unintended effects. Yet, interestingly, the belief in the primary importance of the rule of law – the idea of law as a universal, fixed foundation – now co-exists alongside the equally strongly held belief that legal regulations are “inefficient” and even nonsense. This is the hallmark of neo-liberal governmentality. In fact, the economic anthropologist, David Harvey has shown that rather than make the state irrelevant, neoliberals have changed the ways in which the state is made sense of. He writes that, “a strong preference exists for government by executive order and by judicial decision rather than democratic and parliamentary decision-making.” Neo-liberalism has therefore meant an increased reliance on the courts for mediating conflict.

Upendra Baxi, the notable Indian legal scholar, explains how the neoliberal state can both deride and emphasize the law simultaneously. Writing in a post-colonial setting, he insists that the law’s relationship with the capitalist economy is a complex one in which despite an over-abundance of legal regulations, laws protecting the rights of the public and labor are regularly violated. Baxi observes that while the judiciary in India has demonstrated an activist tendency for a large duration of its history, it has been carefully kept in check through various techniques. The discourse about the limits of judicial review, for instance, keeps judges from straying too far from certain established political conventions.  Techniques developed for the interpretation of legal statutes and even the constitution itself circumscribe more radical possibilities for justice. The effect is to reduce complex political questions to concerns about the powers of the Indian Parliament to amend the constitution or the limits of judicial review. Baxi notes that the Indian legal tradition has never been able to envision the possibility that the legal concept of mala fide ­– acting in bad faith with the intent to deceive – might apply to the legislature or the executive as a whole, rather than individuals. In essence this implies that irrespective of the consequences of the legislative or executive branches’ actions for the public, there are no legal means to hold them collectively accountable. Put simply, while rules exist to do selective damage control and provide “relief” to the public after it has been aggrieved, it is legally impossible to prevent the abuse of power by the state before it happens. And, because the law actually works through local and established social structures, its regulatory frameworks and the judiciary’s intervention does not seriously threaten the capitalist classes who can always negotiate through networks of influence. The proliferation of legal regulations, Baxi concludes, actually masks “the reality of negotiated deregulation.” It also lends legitimacy to practices of power since the increasing amounts of legal rules make it difficult to pinpoint how deregulation is being engineered through the system.

And this, I would argue, is precisely what took place in the case of Pakistan Steel Mills, whereby the law retained an unspoken pact with capitalist interests, even as it appeared to subvert them.

Unpacking the court decision

The text of the court judgment was written by a bench of nine justices, which included Chief Justice Iftikhar Chaudhary. The text of the judgment clearly lays down a distinction between the policy and the actual process of privatization. It reiterates the sacredness of the privatization policy as lying exclusively in the “economic domain” which, the court notes, is the executive’s prerogative. Not only is this stated in the decree, the court elaborates on it at length by suggesting that it is a settled norm that the court cannot scrutinize policy decisions, or offer its own opinion on economic matters as an alternative to the official one. The judgment states that “The Court while exercising power of judicial review may not express opinions on polycentric issues requiring technical expertise and specialized knowledge.”

Using an Indian Supreme Court case (BALCO Employees Union (Regd) v. Union of India (2002)), the Pakistani judges render the economic realm to be too “complex” to be interfered with lightly. They give the executive extensive leeway while making policy decisions and state that the government has the “right to “trial and error” as long as both trial and error are bona fide and within limits of authority.” As pointed out by Baxi, the question is no longer of the public good, but the technical limitations of the doctrine of judicial review.

Photo credit: Seth Anderson

Read: Private Investors, Public Disasters | Ijlal Naqvi | Photo credit: Seth Anderson

The court then turns to a British case (Associated Provincial Picture Houses Ltd. v. Wednesbury Corp., (1947)) that set the precedent in England on when a court can interfere with the decision of a public authority. It notes that the court’s power to interfere in economic matters is that of a “judicial authority” only concerned with assessing if the local authority “contravened the law by acting in excess of the powers which Parliament has confided in it.” The court is therefore barred from expressing opinions on policy issues that require technical expertise. The terminology of “technical expertise” and “specialized knowledge” is in fact hardly new to the judicial vocabulary in the common law system. The legal system has always maintained a distinction between those decisions of the executive that can be questioned, and those that cannot. What is new however is the specific domain that the Supreme Court of Pakistan (like courts in the west), now consider beyond the scope of its authority: large swaths of neoliberal economic activity and particularly, privatization. This is especially interesting in a context in which the court is otherwise taking issue with the privatization process. In essence, what the Pakistani judges ruled was that the privatization of the Steel Mills was void, not due to concerns arising out of privatization policy (for example, concerns about the public good and the effects of privatization), but because of lack of transparency in the process. As the decision states, “We are seized not with a polycentric issue as such but with the legality, reasonableness and transparency of the process of privatization of the project under consideration.”

The fact that a profit-making enterprise, which the government had recently restructured through large amounts of investment, has been selected for privatization does not in and of itself create a question of “legality, reasonableness and transparency” for the court. Instead the court makes it clear that these questions are only valuable with reference to the process of privatization policies. This also becomes clear by taking into account the fact that the judgment declares the Privatization Commission Ordinance 2000 to be in accordance with the constitution even though it was passed through an executive decree by military dictator turned president, General Musharraf. The ordinance allows the executive to pursue deregulation, privatization, employee retrenchment and flexible labor laws as ends in themselves without any qualification regarding when such policies may be appropriate, but this fact was not remarked upon by the court. In Baxi’s terms, it was beyond the legal imagination of the court that the Parliament, executive or other law-making authority might be collectively acting in bad faith by allowing profit making state ventures to be sold to private concerns, and stripping away the scant protections afforded to labor.

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Citing the reasons for its annulment of the privatization of the Steel Mills, the court listed several faults with the process including (i) that the land being sold along with the mills was not properly assessed and valued, (ii) one of the consortium members, Arif Habib Group, was facing several cases related to fraud and should thus have been ineligible to bid, and finally, (iii) that certain amendments were added after the sale had finalized that effectively made the government responsible for paying the 15 billion rupee bill for a “voluntary separation scheme” offered to the employees. Put together, the court notes that a sale on these terms affectively means the government is losing money as well as the mill.

The above analysis demonstrates that whereas the court clearly took issue with the arbitrary manner in which the privatization process was carried out, no part of the court’s reasoning could be called a direct attack on neoliberal ideology itself. By asking for competition and fair market prices, the court in fact seems to be arguing for a more ideologically orthodox form of neo-liberalism than has been the norm in practice. It also manages to position itself in the framework of the rule-of-law, good governance, and the rhetoric of anti-corruption. Rule of law is necessary where the process of privatization is concerned, the court seemed to say, but the law should not probe the more fundamental aspects of the policy of privatization and its consequences for the public good. That, the court declared, was beyond its technical expertise and therefore such queries would risk introducing confusion and inefficiency into the economy. This for all intents and purposes, is neoliberalism in action. This also suggests a need to re-think judicial activism in general, and that of Chief Justice Iftikhar Chaudhry’s court in particular. While both populist and welcome, such a decision cannot be considered radical or subversive. And with privatization of the Steel Mills back on the government agenda as they once again begin to lose money, the legacy of this decision is up for grabs.

What the judgment ultimately exposes is a need to move away from a simplistic reading of the relationship between law and capitalism. Neoliberal law has colonized a number of domains from the economic to the humanitarian, and activists will need to be far sharper in their readings if we are to understand the nature of neoliberalism. This piece only raises some questions about the complicated relationship of law and neoliberal regime as it is manifesting itself in Pakistan. What is required is a much more detailed analysis of a larger pool of judgments from various courts, as well as the statues being passed, and the policy frameworks being adopted. Such a study could tell us a lot about the post-colonial condition.[/schedule]

Sonia Qadir is a lawyer and activist. She is currently pursuing her masters from The New School for Social Research in New York.

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8 Responses to Neoliberalism against Privatization

  1. […] on his experience during the floods and the limitations of humanitarian work. Sonia Qadir reads the Supreme Court’s decision on the Pakistan steel mills case and finds that it reflects […]

  2. TQ Chāt | # 21 | Tanqeed on Sep 2014 at 11:01 AM

    […] the way, have you seen last week’s releases from our Fall 2014 issue?  neoliberalism against privatization and how the state sanctions bonded labor and islamabad’s lost […]

  3. syed hassan on Oct 2014 at 6:20 AM

    Perplexed in her thoughts, author shrewdly build the case in favor of nationalization (food for parasites). Deriding Chicago school of thought by indicting it as “neo liberals” shows intellectual confinement. Pakistan, has already scarce intelligentsia but unfortunately this minority is marred by normative conception of society and economic phenomenon. I wish I could write a critique of this essay on same pages.

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