Privatization as an economic reform has swept the globe during the past two decades, as more than one hundred countries of all economic and political persuasions have launched motivated programs to privatize once state-owned enterprises (Megginson and Netter, 2001). Privatization programs have contributed to non liability financing of the public sector. It has attracted foreign capital and technology, and encouraged the return of flight capital (Perotti and Guney, 1993). Since the Thatcher government in the United Kingdom executed a privatization program during the late 1970s, privatization has developed into a global event. Countries in different stages of development and of different principles and sizes have all accepted, in one form or another, privatization strategies as a key element of their economic policies. It has become an acknowledged insight that privatized firms are better than state-owned enterprises (SOEs). As D’Souza and Megginson (1999) put it, results of scholastic studies jointly speak with a consistent voice: privatization persuades output, efficiency, and profitability improvements.

The philosophy of privatization comes out from the role of state in economic life. The philosophy of the international financial institutions and free market economists is that, as in USA, the state should detain itself to regulation only and the procedure and ownership of industrial enterprises and utilities should be left to the private sector.

Large privatization programs have happened in the recent decades equally in developed and developing countries. The key explanation has been that privatization guides to increased productivity and profitability, an agreement view which an enormous empirical literature has established.’ However, the large size of several privatization programs proposes they have important economic and political consequences.

Like the developing countries, the private sector is introverted, inexperienced and not prepared to embark on quick industrialization. Pakistan beside with other developing countries follows the campaigner role for the state in industrialization and the pace of industrial development in Pakistan has been very high.

The main thrust for privatization is the faith that private sector units are more competent than public sector units. The positive fiscal impact of privatization is estimated from the sale proceeds being used to retire national liability, as well as removal of losses of the public sector units as the losses were being financed from the budget. Necessary condition for the achievement of privatization is that the economy should be deregulated and needless restrictions and measures for industrial enterprises should be done away with. Privatization should consequently be part of a process to reinforce private sector by giving it assets as well as improving regulatory structure for their operation.

NATIONALIZATION IN PAKISTAN:

The decade of 1970s in Pakistan observed a massive redeployment of national assets from the private owners to the state. The motive underlying the then Government’s thoughts for this enormously radical action was that the national assets were being concerted in the hands of few families and the rich were getting richer and the poor getting poorer. It was stated by the proponents of this tactic that the state manage over allocation of the resources would endorse the best interests of the poor. The scholar support for this approach was drawn from the achievement of the Soviet Union and the socialist economic model experienced in that part of the world.

Two decades later it turned out that these statements and assumptions that drove this exacting line of action i.e. nationalization was not only impractical and defective but the consequences were precisely opposite to what the aims were. The fall down of the Soviet Union and the bankruptcy of the socialist model battered the ideological foundation of this approach and the actual results on the ground in Pakistan and approximately all the developing countries devastated the ideal and utopian dreams of the proponents of this thinking. Pakistan’s public enterprises including banks became an exhaust on the country’s finances through continuous bleeding and leakages and a draw on the economic growth impulses.