Bhutto's Nationalization

You can bring the rich to the level of poor overnight but it takes a lifetime to lift the poor to the level of the rich

If the rich are getting richer, this does not necessarily mean that the poor are getting poorer.

Two Irish proverbs in a BBC programme on Feb. 17, 1995
Zulfikar Ali Bhutto took over power on December 21, 1971 and on January 1, 1972 his government promulgated the Nationalization and Economic Reforms Order nationalizing 31 key industrial units, completely wiping out BECO while Saigol, Dawood, Amin and Fancy lost heavily.

In his address to the nation over radio and television, Bhutto said "I had made a pledge to the people of Pakistan to implement industrial reforms. I am now beginning to redeem the pledge". It was indeed only a beginning, and big business was to receive successive jolts during his six years rule.

The Nationalization Order, 1972 provided for the nationalization of industary in Iron and steel sector, basic metals, heavy engineering, heavy electrical, assembly and manufacture of motor vehicles and tractors, heavy and basic chemicals, petrochemicals, cements, public utilities, power generation, transmission and distribution, gas and oil refineries.

31 industrial units were taken over under the nationallization order but it was alleged subsequently that nationalization was selective, to pick up some and to exclude others in the same fields. General Zia privatized the Ittefaq foundary nearly eight years later on the ground that Ittefaq foundary was nationalized while several others of same size were not. However the industaries whose nationalization was omitted by Bhutto were not mentioned.

Leading industrialists like Ahmad Dawood, Fakhar ud Din Valika and Retd. Gen. Habib Ullah Khattak were imprisoned, names of all leading industrialists were placed on the Exit Control List and they were asked to surrunder their passports. Several leading industrialists like Seth Habib Aragwala were " GHARAOED" (Besieged) inside their offices by workers and there were reports that the factory owners and members of their families were insulted and maltreated.

The nationalization order had excluded the private sector from operating in key economic fields and therefore, several industrial licenses were cancelled which included Adamjee deutez, Shahnawaz Industaries, Fecto tractors, Arusa Industaries for manufacturing tractors and Monnoo motors for progressive assebly of Toyota cars. The nationalization order was followed within a fortnight by another order banning the managing agency system under which companies were appointing persons to be sole purchasers for sale or distribution. The managing agency system was one of the medieval system practiced only on subcontinent which provided the mechanism through which control over industrial sector was concentrated in a few hands. Under the managing agency system, the corporate sector was controlled by a handfull of managing agents who perpetuated their control over the affairs of the companies, without being accountable to the shareholders.

Lawrence White has illusttrated how the managing agency system was being used to hoodwink both the shareholders and income tax authorities.

The Steel Corporation of Pakistan was one of listed companies controlled by the Fancy group and it was buying its input for steel making from Pakistan Industaries limited, a wholly owned by Fancy subsidiary. The products of Steel Corporation were marketed through a selling agent, steel sales limited, another Fancy company.

The management of Steel Corporation vested in the hands of managing agents, industrial management limited, agian another Fancy company. Thus through the operations of these companies, Pakistan Steel Corporation could distort the accounts anyway it desired.

M A Rangoonwala who was the biggest manufacturer of vegetable ghee (Cooking oil) controled Libery-American Tank Terminal Company which had the monopoly of importing edible oil.

Bhutoo's second bolt of nationalization came on Jan 1, 1974 when he decreed the nationalization of banks, life insurance, shipping and marketing of petroleum products. 13 banks, over a dozen insurance companies, two petroleum companies and 10 shipping companies were nationalized. Finance Minister, Dr. Mobashar Hasan declared at a press conference next day that banks have been nationalised because the wealth of the nation must be used for the benefit of the nation and can not be allowed to be concentrated in the banks of a few individuals.

"Banks which till Monday were the private property of a group are now public property. All our big industaries in the private sector were set up largely on the basis of financial accomodation provided by the banks and the financial institutions. Because of the previous governments obsessions with GNP growth, industrial power was concentrated in the hands of few rober barons." he said.
Bhutto and his cabinet ministers were never apologetic about nationalization and strongly defended it in meetings with the Pakistan Federation of Chamber of Commerce and Industary (FPCCI) and at similar other forums. It was argued by them that the government was committed to end exploitation of labor class to improve their working conditions and break the concentration of wealth.

On April 1, 1973 Bhutto told Lahore Chamber of Commerce and Industary (LCCI) that

"activity of public sector prevents the concentration of economic power in few hands and protects the small and medium enterpreneurs from the clutches of giant enterprises and vested interests".
Althouth the PPP manifesto have never considered the possibility of nationalizing cotton, ginning, rice husking and flour mills, on July 1, 1976 government nationaized 2815 cotton, ginning and rice husking units, creating administerative nightmare and wide spread public resentment. The move was justified by the need to eliminate middle men. It was said that the producer as well as consumers of cotton, rice and wheat had been at the mercy of middle men trading in the milling of these commodities, with the result that producers were deprived of due share and consumer got poor quality and adulterated commodities at much higher prices.

Another important step taken by Bhutto to discipline the corporate sector to start work on new company law and test was assigned to Rahim jan, a Chartered Accountant from Lahore. By the time Z A Bhutto was ousted in July 1977 the draft of the company law was ready but Zia appointed a commettee headed by Irtaza Husain to study the law which was promulgated only in 1984.

When Bhutto called elections in 1977 he had built a strong and sizeable public sector with priority on cement, steel and fertilisers. It was on account of the great importance attached to the fertiliser sector that Bhutto called upon a private sector entrepreneur, Syed Babar Ali of Packages Ltd. to head National Fertilizer Corporation (NFC). The NFC was a little more than a name when he assumed its control but within a year he launched work on three new plants, i.e Pak-Arab Fertilizer at Multan, Pak-Saudi Fertilizer at Mirpur Mithelo and Hazara Fertilizer Complex at Haripur in the NWFP. It was also during the same period that work started on Fauji Fertilizer at Got Machi, Rahim Yar Khan in Southern Punjab.

Not a single Fertilizer factory has been set up in post-Bhutto era but the projects launched by his government were enough to meet the requirements for more than a decade. Even today the fertilizer projects sanctioned by Zia continue to face official procrastination because of strong importers lobby. A detailed report about lobbies working against the phosphate fertilizer projects sanctioned during Zia's era appeared in the daily, Business Recorder of Feb 4, 1994.

According to the report, these phoshate fertilizer projects namely Al-Noor Fertilizer, Fauji-Jordan Fertilizer and Pak-Gul were approved in 1983 but failed to make headway for want of protection against dumping. " Should the country become self-sufficient or remain at the mercy of industrial giants was the main question?" the report asked.

During Bhutto's era, work started on the much-cherished Pakistan Steel Mills, the Heavy Foundary and Forge and several cement factories like D G Khan Cement, Kohat Cement, Dandot Cement and Thatta Cement and expansion on Javedan and Mustehkam cement units was undertaken.

Import of tractors in CKD (Completely Knocked Down) condition started in 1973 and I remember Feroz Kaisar, Special Assistant to Prime Minister, proudly showing me photographs of imported tractors being fitted with seats made in Pakistan. It was this small step towards indiginization which has enabled Pakistan today to export tractors which have 90 percent components made in Pakistan.

At the height of agitation against government, Bhutto is reported to have observed that it was not merely Pakistan's nuclear programme but also his bid to make country self-sufficient in fertilizers, steel and cement that turned the Americans against him.

On the eve of 1977 election, the PPP government brought out a comprehensive document called " Promises and Performance". In its preamble Bhutto proudly declared that " this administration is going to run on its records. Previous governments ran away from theirs". The document was a clause by clause statement of what manifesto had promised and what have been achieved. It recalled, for exemple that PPP government had nationalized on the ground that Credit facilities had been monopolised by owners of the banks for setting up their own industaries. While under previous ownership bank branches were limited to urban centers, the nationalized banks were asked to open braches in rural areas.

Thus the number of bank branches, including branches abroad rose by 75 percent from 3,295 in December 71 to 5,727 on November 30, 76, covering all towns and villages with a population of 5,000 in accordance with targets set after the nationalization of banks. In fact one of the most radical steps taken by Bhutto government, even before nationalization of banks was the promulgation of Banks Reform Act 1972 which assigned the State Bank of Pakistan the role of increasing the flow of credit to the agricultural sector. Under the act, State Bank was empowered to set target for lending to agriculture, imposing penalties for defaults and ensured a 50 percent subsidy on losses on such lendings. An Agricultural Credit Advisory Committee was set up to assess credit requirements of the sector. Agricultural produce rules were promulgated in 1973 which stipulated that 70% of institutional lending should be for small land holders of 12.5 acres or less, 20% for farmers with holdings between 12.5 and 50 acres and 10% for large farmers.

The Bhutto government's credit allocation policy made it mandatory on banks to divert credit into areas which otherwise would not have received credit under normal commercial banking. The rationing of credit might look unreasonable in 1997 but it was revolutionary, considering the situation in 1977 when banks were serving only industrial clients of a privillaged class.

The document " Promises and Performance" also observed that " the nationalization of financial institutions, in effect meant the end of influence over them by industrial groups which had the potential to establish monopolies, in various sectors of economy ". Moreover it said Monopoly Control Authority (MCA) was keeping a strict watch over the industaries to ensure that monopolies do not develop.

Impact of Nationalization on Economy

Table of Contents

Pakistan's Economic Saga

Robber Barons Of Pakistan