Contents:

• A Perspective on Free-Market Economy
• A Lesson from the Third World: The Extraordinary Success of Private Education in Africa and India
• Urdu Translation of The Adventures of Jonathan Gullible: A Free-Market Odyssey
• FreePakistan News Briefs

A Perspective on Free-Market Economy By Aftab Ahmad Khan

[In a statist atmosphere where the notion of free-market is outrightly dismissed as obsolete, an article, "Govt, private sector and market economy: varying perceptions" by Aftab Ahmad Khan in an English daily discusses the comparative advantages of government control and free-market. Read the excerpts below.]

"At the end of World War II and during the 195s and early 1960s intervention in the form of central planning and ownership of the key sectors of the economy was often viewed as a more effective and speedy way to achieve robust growth on a self-reliant basis for developing countries as compared to dependence on competitive markets and the private sector. The principal theories of economic development . . . stressed the need for state intervention to promote protection of domestic industries.

"Government planning was viewed as essential to ensure that capital formation proceeded at the desired rate and that capital was allocated in a manner commensurate with development objectives of the country. Government control and direction came t mean centralized planning of the economy in which the role of market prices was of secondary importance.

"It was also believed that reliance on market mechanism would lead to inadequate distribution of income and would not lead to the elimination of poverty and unemployment.

"Governments, therefore, engaged in both direct measures such as price control, land reforms and income transfers and in direct measures such as taxation and subsidies.

"In contrast to this call for widespread government intervention, neo-classical economists have long argued that the role of the government should be limited to correcting market distortions and providing public goods. In their judgment, free market guides economic decisions better than government. Under free markets, profit provides incentives and competition improves efficiency. Any government intervention or control that works against competition results in distortions and inefficiency and encourages rent seeking behavior.

"Unfortunately in many developing countries, in the name of market failure or public goods, government intervention often went too far into areas where private sector was already present. Public sector firms began to intrude and crowd out the private sector. One of the aims of privatization in many developing countries is to reduce these cases.

"Additionally, recent technological changes have reduced the validity of some of the arguments for market failure and public goods. For example, in the telecommunications industry, optimum plant sizes have been reduced, along with multiple firms to compete and co-exist in the same industry.

"Again in many developing countries the governments grew corrupt and became a rapacious rent seeker. On account of political interference, most of the public enterprises became inefficient and a burden on the budget. Licensing and regulatory mechanisms instead of guiding and facilitating private sector led to distortions and became a hindrance to healthy development. Public sector failed to optimize both efficiency and welfare.

"By the 1980s, it became quite clear that developing countries relying on extensive state intervention and control were experiencing lackluster growth and were suffering from unsustainable macro-economic imbalances reflected in huge fiscal and balance of payments deficits, often accompanied by disconcerting inflationary pressures. As against this, countries that were successful in limiting growth in government and maintaining a viable and competitive private sector experienced much higher rates of growth and prosperity.

"These trends created an environment conducive to limiting the role of the government. As such since early 1980s there is renewal of emphasis on private sector as the most efficient means of achieving objectives of high economic growth and improving living standards. . . Governments have themselves accepted smaller roles for themselves in economic affairs because of the need to reduce budgetary deficits and public debt and also to eliminate bureaucratic bottlenecks and red tape that unnecessarily raise the cost of doing business. The success pf the East Asian economies (prior to the 1997-99 crisis) have served as a testimony to the relationship between private sector development and long-term growth. The trend is evident in Eastern Europe, Russia, Latin America and South Asia where the public sector has controlled a significant segment of the economy."

The writer, however, expresses his skepticism of "the current swoon over the charms of the market and disillusion with government in developing and emerging economies", and says that "it is an indisputable fact that free markets can yield positive results only in a milieu characterized by good governance." He ascribes a stricter and more important role to government as he describes 'the lessons of recent economic history' indicated in the various studies and development reports of World Bank that "the government can improve outcomes in the following ways: (i) by providing macro-economic and micro-economic environment that sets the right in centimes for efficient economic activity; (ii) by providing the institutional infrastructure, property rights, peace and order and rules that encourage long-term investment; and (iii) by ensuring the provision of basic health, education and the physical infrastructure required for economic activity and protecting the natural environment." But, he concedes that "there is now general consensus that the government should not try to do too much with limited administrative and financial resources available to it, but should concentrate on effectively performing the core tasks for which it is the appropriate agency. It has to move from doing too many things inefficiently to doing its essential tasks competently and honestly." [Courtesy The News Lahore Edition October 28, 2002]

A Lesson from the Third World: The Extraordinary Success of Private Education in Africa and India By James Tooley

[The article copied below with the permission of the author is quite relevant to the sorry state of education in Pakistan.]

Schoolboy Worlanyo leaves his crowded home in the townships of Accra, Ghana, early in the morning, smartly dressed in brown shorts and a bright but frayed yellow shirt. He makes his way down filthy streets, but walks past the run-down exterior of the government school, where a few children forlornly wait for the doors to be unlocked. The government school teachers won't be there for a few hours, some not at all today, or any day. Worlanyo walks on past, turns off down the next alleyway and enters by the brightly hand-painted signboard the crowded playground of 'De Youngster's International School'.

The elderly Mr. A.K. De Youngster looks on with pride as the children begin their assembly with a hearty rendition of 'How Great Thou Art' at the school he started from scratch in 1980. Then there were 36 children in a downstairs room in his house, and he, an experienced headmaster, had opened his doors after pleas from township folk, unhappy even then that government schools 'were not doing their level best' for their children. Now, 22 years later, his chain of private schools has four branches, with 3,400 pupils. The fees are £30 per term - affordable for many of the poor - and to the many who can't afford that he offers free scholarships.

Seated in his office beneath a rickety fan that blows the sweat across his forehead, he chuckles as he tells me that, at the age of seven, he wrote to President Eisenhower from his village in West Ghana asking for help with his studies. 'The Americans wouldn't help me,' he smiles, 'so I learnt to help myself.' And now 45 per cent of Ghanaian children go to private school in Accra, many of these from poor families like the ones he serves, also 'helping themselves'.

In the Horn of Africa, the same story is repeated. Professor Suleyman, the vice-chancellor of Amoud University, the first private university in Somaliland, drives me up impossible roads to a hill overlooking Boroma, a city of 100,000 souls on the road to Ethiopia, and points out the location of each private school, some only half built. Boroma has no water supply (donkey carts deliver water in leaking jerricans), no paved roads, no street lights and plenty of burnt-out tanks, remnants of its recent civil war. But it has two private schools for every government school. 'The governor asked me,' says Suleyman, '"Why are you putting your energies into building schools? - leave it to the Ministry of Education." But if we waited for government, it would take 20 years. We need schools now. Anyway,' he shakes his head, 'in government schools teacher absenteeism is rife; in our private schools we have commitment.' We visit one at the foot of the hill. Ubaya-binu-Kalab school, with 1,057 students, charges monthly fees of 12,000 Somali shillings for primary and 20,000 for secondary - that's about £3 to £6 per month. Again, 165 of the students attend for free, the poor subsiding the poorest.

Across the Indian Ocean, one sees the same phenomenon. In the slums of Hyderabad, the capital city of Andhra Pradesh, India, Zarina is packing away her books into her satchel at lunchtime. She leaves Peace High School and walks on to noisy Edi Bazaar, effortlessly dodging autorickshaws and ox-carts. As she makes her way home with her sisters, they practise their English together, the eldest coaching the youngest, who in turn teaches their mother. The journey takes her past St John's High School on one corner, Modern High School on another; past New Convent School newly opened in the home of the proprietor, and past St Angel's Public School in a converted chicken farm - all private schools in the slums.

There is a government school nearby, where the children can get free rice at lunchtime, free books, and, of course, free tuition. But parents who care would not dream of sending their children there. 'We want teachers who teach, not who get our children to do domestic chores,' one veiled mother tells me. 'And we want our children to learn English, but that's not allowed in the government primary schools.' So parents pay their £1.50 per month, scrimping and saving to find the rupees.

Such parents now make up the majority in Hyderabad. Official figures show that 61 per cent of all students are enrolled in the private unaided sector, and these figures are likely to overestimate the numbers in government schools (because of corrupt over-reporting) and underestimate the numbers in the private sector (because many such schools are unrecognized, therefore not noticed).

In Africa and Asia the poor know that government schools won't serve their needs. But they do not sit idly by, dispossessed and disfranchised - adjectives used by the liberal elite to describe the poor - acquiescent in their government's failure. Instead they vote with their feet, desert the state schools and move their children to private schools set up by educational entrepreneurs to cater for their needs.

The startling thing is that these schools are commercially driven and not dependent on handouts from state or philanthropy. There is a spirit of dedication within the schools. The comments of Mr. Mohamed Wajid, director of the Peace High School, are typical. When his mother was about to retire, she took him to one side. 'She showed me pictures of the less blessed people living here and reminded me that life must not be lived for oneself; life must be lived for others. So I took over the running of her school.'

Even charging very low fees, the schools can make a healthy profit, which, as in any good business, is ploughed back into the school. Part of the reason they can afford to do this is that they pay teachers perhaps a quarter of what they could get in the government schools, but the jobs are not available because the teaching unions have pushed up wages beyond any reasonable level.

The failure of state schools in parts of Africa and Asia is an open secret. For instance, the Indian government sponsored the Probe Report, which gives a disturbing picture of the 'malfunctioning' of government schools for low-income families. When researchers called unannounced on their random sample, there was 'teaching activity' in only 53 per cent of the schools. In 33 per cent the head teacher was absent. Significantly, there was a low level of teaching activity even in those schools with relatively good infrastructure, teaching aids and pupil-teacher ratios. Indeed, says the report, 'it has become a way of life in the profession'. The Probe Report concedes that the problems found in government schools were not apparent in private schools serving the poor. In the great majority - visited unannounced and at random - there was 'feverish classroom activity'. And what's true for India is increasingly true for countries across Asia and Africa.

What is the problem in state schools? The Probe Report put it succinctly: accountability. Private schools, the report said, were successful because they were more accountable. 'The teachers are accountable to the manager (who can fire them) and, through him or her, to the parents (who can withdraw their children).' There is no such accountability in government schools, and 'this contrast is perceived with crystal clarity by the vast majority of parents'. In government schools teachers have jobs for life, and the security of this has made them complacent rather than making them better teachers, as was the intention. I talked to two veterans of private education, Mr. Ranga Setty and Mr. D.A. Pandu, who run a chain of schools and colleges under the auspices of the Rashtreeya Sikshana Samishi Trust in Bangalore. Mr. Ranga Setty told me, 'In India we have a saying, "You can hire him, God only can fire him."' To which Mr. Pandu adds that, in fact, not even God can fire him.

Does any of this have relevance outside the development debate? I believe it does. Stories of educational entrepreneurs in the slums and townships of Africa and Asia battling against hostile government and poverty are not just a source of inspiration for the school-choice movement in Britain and America; perhaps, using evidence from developing countries, we can do for the school-choice debate what E.G. West did for the same debate using evidence from history. In his pioneering study, Education and the State, West argued that before major state involvement in education in England and Wales in 1870 school-attendance and literacy levels were more than 90 per cent. Far from ensuring universal attendance and literacy, state intervention merely reinforced a process that had been going on for some time. The press-cuttings from the time of the first publication of West's work show how this historical evidence began to transform the school-choice debate in the UK and elsewhere, influencing people such as the late Lord Joseph here and Milton Friedman in the US. As the Times Educational Supplement put it then, 'If working-class parents were prepared to back the choice they then possessed with money, why should they be presumed unfit to choose today when they are so much richer?'

The evidence from India and Africa can do for today's school-choice debate what West did for the same debate in the 1960s and 1970s. If the evidence reveals that the poorest worldwide are achieving better educational outcomes without the state, then this should inspire and buttress appeals for increased school choice in rich countries. It also raises anew the question: what on earth is government doing in education at all?

[James Tooley is directing a research and development project on private schools for the poor in Africa and Asia.] Original URL: http://www.spectator.co.uk/article.php3?table=old§ion=current&issue=2003-01-25&id=2690&searchText

Urdu Translation of "The Adventures of Jonathan Gullible: A Free-Market Odyssey"

Ken Schoolland's award-winning libertarian fable "The Adventures of Jonathan Gullible: A Free Market Odyssey" has become the outstanding tool for free-market youth education - winning rave reviews from readers, and have been published in a remarkable 26 languages! Urdu translation of JG has recently been completed by Khalil Ahmad and we are awaiting some sponsors to publish it. If you are interested in sponsoring its publication, please visit www.jonathangullible.com or contact FreePakistan Newsletter.

FreePakistan News Briefs

Shell Pakistan and a Free-Market Mechanism

The Chairman of Shell Pakistan Ltd. who is not satisfied with the post-deregulation market mechanism says that it will approach government for a free-market mechanism once the state-run giant Pakistan State Oil [PSO] is privatized so that all the oil marketing companies would have a chance to supply fuel oil to the independent power producers that under an agreement with the Government of Pakistan get furnace oil from PSO for power generation.

US Report on Religious Freedom in Pakistan

The US State Department in its annual report on international religious freedom has accused five Asian nations including Pakistan of calculated bids to prop up totalitarian regimes. It said that seven other states including "axis of evil" members Iran and Iraq, and US allies Saudi Arabia and Pakistan were guilty of state hostility to certain faiths. Pakistan was especially cited for failing to sufficiently protect the rights of minority.

Government to Protect Breast-Feeding of Infants!

With a view to ensure safe and adequate nutrition for infants and young children by promoting and protecting breast-feeding, and by regulating the marketing and promotion of designated products, President of Pakistan has promulgated an ordinance protecting the breast-feeding by mothers to their infant and young children.

A Monopoly and its Confession

A responsible official of Water and Power Development Authority [WAPDA], a government monopoly, admits that the power rates in Pakistan are very high but hoped that by the year 2006 the rates should come down to those prevailing in 1997. Also, on another occasion, the Secretary, Ministry of Water and Power, stated that pubic concern was increasing due to the unaffordable electricity tariff and the life was now dependent on cheap and reliable energy. He admitted that high electricity tariff is badly affecting the general public and industrial and agricultural sectors of the country which demands an immediate need to bring the tariff down.

Businesses Shutting Down Fast

Official data reveals that during the three years of the military government, more than 35,000 businesses reported closure. Out of these, 20,000 de-registered from the GST list during the last four months of the previous financial year. Only 3500 new businesses got registered with the tax authorities, showing a net loss of 16,500 businesses on the revenue index.

Courts and the Affairs of Private Employment

The secretary of Faisalabad Chamber of Commerce and Industry when sacked approached the local civil court which set aside his termination orders. The FCCI filed an appeal challenging the civil court's powers in the affairs between the private employer and employees and contended that the employees can only approach the court for seeking redress of their financial grievances and no court can impose an employee on an organization. Both the High and the Supreme Courts dismissed the appeal.

Abolition of House and Vehicle Tax

The Government of North West Frontier Province [NWFP] has abolished taxes on residential houses and vehicles. While hailing this step, the Vice President Sarhad Chamber of Commerce and Industry and Chairman All Pakistan Commercial Export Association said that people would get some relief from this decision. >Rice and Cotton Sowing Ban

According to an amendment in the Punjab Agriculture Pests Ordinance 1959, no occupier of land shall sow rice nursery before May 20 and cotton crop before April 15 of every year. Rice growers have to plough the land, collect and destroy all stubbles and burning sprouts, plants or parts of plants remaining above ground of rice before December 31st of the same year in which rice is cultivated. Similarly, maize, jawar, or sorghum cultivators have to do the same process within thirty days of the harvesting of such crops. Cotton growers have to plough up all the crop fields and shall cut and remove all cotton sticks out from such land all cotton plants and any other parts remaining above ground should be destroyed before January 31st of the following year. Moreover, they should collect and keep the trash in one corner of the field for multiplication of natural parasites.

Public Conciliatory Committees

A responsible police official has observed that the Public Conciliatory Committees of Islamabad Capital Territory police have played a remarkable role in reducing petty litigation and winning public acclaim for their performance.

Privatizing the Sanitation System

District Co-ordination Officer Lahore has said that government is planning to privatize sanitation system and first it would be introduced in a few selected union councils.

Shell Pakistan Ltd. Launches a Public Service Project

Shell Pakistan Limited has launched Tameer [building] Program to promote the spirit of enterprise in young people by helping them in developing their skills of planning and managing new business enterprises. It's a public service project which addresses the unemployment problem by helping the young people take up the challenge of starting a business. For this purpose, Shell International and SPL have created a fund of Rs.15 million and a trust have been established with seven members, three from Shell Pakistan and four from among prominent citizens.