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Privitization vs. the Private Sector

In the speech by The Minister of Economy, Shukri Ghanem and that by Mummar Ghadafi in front of the General Peopleís Congress last year, there was a call for the so-called privatization of the Libyan Economy. The reasons outlined by both centered on the premise that an era of public sectors has long passed and that no government in the present time can afford to keep such a sector. At first glance, this argument would gain credence among the majority. However, what was not said or discussed is what makes a viable private sector: 1) the selling of public companies and state institutions to private entities; OR 2) the creation of a legal and institutional environment that can bolster the success of such a sector?

The recent history of such schemes, Sadatís Egypt, Russia and the rest of Eastern Europe, shows that this would largely benefit the present elite who control both the political and state institutions, and have access to money to purchase governmental properties. The economy and the average citizen would definitely suffer from the disappearance of goods and services.

Letís take the oil sector for example. It is the most profitable in the whole economy. It has provided the political leadership with a vast resource so to implement political, economic, and social endeavors. Yes, it has suffered during the period of US sanctions. This can easily be changed in light of the recent development between Libya and the US. Does it show a lack of an optimal development in the marketing, earnings and overall management? The answer is a resounding yes.

The reasons are not because it is owned by the public sector, however. Its ills lie in the fact that extra-Statel forces have some control and can direct its earnings to their narrow goals in achieving political and personal gains. If the legal and constitutional environment, the necessary Inspection and Regulations government institutions existed with real teeth of enforcement and powers, such practices would be eliminated if not greatly curtailed. For despite the fact that the national economy suffers from high rates of employment (over 25%), the government has invested in refineries in both Egypt and Tunisia. These two countries do not even have the comparative advantage in labor and land rent as Ricardo may argue.

To jump start the Libyan economy from its stall stage, we need to make several structural changes. To begin, the main goal must be the re-establishment of the middle class that has disappeared from the scene. The purchasing power of the average professional (teacher, doctor, shop owner) has declined by over 70%. Yet, consumer prices have risen with the rise of prices of manufactured goods in the Western economy. Second, we need to invest in the Education and Health sectors. For no economy can prosper if its labor force suffers from lack of skills, and its health and occupational safety is suspect. Instead of withholding salaries, the government needs to double the salaries of its employees to the level of 1970. In that year, the average public sector base salary was at LD150 or $500. This would translate to a present day LD750. With family and housing allowances, this would come to an average of LD 1,000. The private sector would have to follow the lead of public sector and top it to lure skilled professionals to its staff.

The mere infusion of this level of investment into the economy would spark a tripling of consumption and spending levels, not to mention the level of savings that is absolutely absent these days. The increased levels of income would lead to higher consumption levels. This would in turn fuel higher demand levels, and hence, the need to create businesses to provide products and services. Business opportunities encourage new investments (both local and foreign) and result in higher levels of employment. The idea is basic and simple, yet the magnitude of its force is liable to eliminate many of the ills in the Libyans economy.

Usama Endar
Economic Development and International Relations Specialist
ABD, the American University
Washington DC

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