Published On: Fri, Sep 9th, 2016

China Won’t Solve Pakistan’s Biggest Problem

By Panos Mourdoukoutas

China’s purchase of Pakistani assets, like the K-Electric Company, may cheer investors for a month or two, but it won’t solve the country’s biggest problem –corruption.

On the other hand, purchase of those assets by Finland, Hong Kong, America, or even India would.

Why? Because they don’t have China’s severe corruption problem.

K-Electric has come a long way from being a government monopoly to being a private monopoly, already changing management a few times in the process. But judging from the plethora of the comments in a previous piece I posted here, new management teams haven’t solved an old problem that is the source of inefficiencies of the company: a combination of corruption, mismanagement and poor services.

In fact, corruption isn’t confined to K-Electric. It extends throughout the Pakistani economy, as evidenced by the country’s rankings by Transparency International.

countrys-rankings-by-transparency-international

Corruption cannot be solved by corruption, but with transparency. And China has long way to go before it brings transparency to its own economy, and then brings it to other countries. China ranks 83 in the 2015 Corruption Index, not too far behind Pakistan, which ranks 117.

Worse, China’s ranking in the Corruption Index has worsened in the last five years, as Pakistan’s ranking has improved!

By contrast, there’s Finland (as one of my renters pointed out), which ranks number 2; America, which ranks number 16; Hong Kong, which ranks 17; and even India, which ranks 76.

Simply put, handing the electrical switch of a soundly managed electric company to a foreign owner isn’t a problem by itself. In fact it has become a common practice in a globalized world. And it can be a positive thing for all stakeholders – stockholders, labor, customers, and the society at large—provided that the new owner brings in modern management and logistics that fight bureaucracy and corruption

But handing the electrical switch of an already badly managed like K-Electric to a state-owned company from China isn’t a positive development for all stakeholders.

Moreover, it may be a negative factor for the long-term performance of the Pakistan Exchange, as corruption is listed among the most serious constraints that holds frontier markets back.

Worse, China’s ranking in the Corruption Index has worsened in the last five years, as Pakistan’s ranking has improved!

By contrast, there’s Finland (as one of my renters pointed out), which ranks number 2; America, which ranks number 16; Hong Kong, which ranks 17; and even India, which ranks 76.

Simply put, handing the electrical switch of a soundly managed electric company to a foreign owner isn’t a problem by itself. In fact it has become a common practice in a globalized world. And it can be a positive thing for all stakeholders – stockholders, labor, customers, and the society at large—provided that the new owner brings in modern management and logistics that fight bureaucracy and corruption

But handing the electrical switch of an already badly managed like K-Electric to a state-owned company from China isn’t a positive development for all stakeholders.

Moreover, it may be a negative factor for the long-term performance of the Pakistan Exchange, as corruption is listed among the most serious constraints that holds frontier markets back.

Panos Mourdoukoutas

I cover global markets, business and investment strategy.

I’m Professor and Chair of the Department of Economics at LIU Post in New York. I also teach at Columbia University. I’ve published several articles in professional journals and magazines, including Barron’s, The New York Times, Japan Times, Newsday, Plain Dealer, Edge Singapore, European Management Review, Management International Review, and Journal of Risk and Insurance. I’ve have also published several books, including Collective Entrepreneurship, The Ten Golden Rules, WOM and Buzz Marketing, Business Strategy in a Semiglobal Economy, China’s Challenge: Imitation or Innovation in International Business, and New Emerging Japanese Economy: Opportunity and Strategy for World Business. I’ve traveled extensively throughout the world giving lectures and seminars for private and government organizations, including Beijing Academy of Social Science, Nagoya University, Tokyo Science University, Keimung University, University of Adelaide, Saint Gallen University, Duisburg University, University of Edinburgh, and Athens University of Economics and Business. Interests: Global markets, business, investment strategy, personal success.

The author is a Forbes contributor. The opinions expressed are those of the writer.

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