Short-termism

In the West, the short-termism debate is primarily limited to the corporate world and has its roots in increased volume and velocity of information, the need to take quick decisions and the urgency to deliver results quickly, more and more over shorter periods of time.
Initially the logic for incentivising corporate managers through stock options had to do with linking their reward with performance and the stock price was deemed to be the best barometer for determining value creation over time. Perhaps back when these stock option schemes were conceived, they might even have appeared rational, and most likely their inventors could not have imagined the mischief they had wrought upon the corporate world.
Overtime corporate managers, because of their stock-based pay, became more concerned with the value of their company's share price rather than the value of the company itself; the primary difference between the two prices being speculation. And their positions provided them sufficient control, what with selected Boards, to manipulate earnings by giving out more dividends rather than investing the money in the long term growth plans and projects. This obviously had repercussions both for innovation, future earnings growth and was also perhaps one of the causes of rising income inequality in the West.
Verily, short-termism is not a risk for Pakistan's corporate sector where in most companies, majority ownerships continue to be vested in groups or family, and even where professional CEO remuneration is stock based, they don't have sufficient control to influence decision makings. Low investment in innovation and long-term growth has more to do with the prevalence of monopoly rent and country risk, rather than short term objectives of management emanating out of their own greed-based agenda.
However, when you think about it, short-termism is an issue for Pakistan, and in all likelihood most similar developing nations, at the country governance level. Have we ever wondered why after dozens of the IMF and the World Bank reform programmes, we still need to carry out reforms? Every successive government, at least for the past couple of decades, talks about and initiates judicial reforms, police reforms, tax reforms and bureaucracy reforms, to point out a few, and the new incumbent is again talking about reforming the police, judiciary, taxes and bureaucracy. I deliberately avoid including land reforms in the list, since talking about that can be harmful for health!
Forget core governance reforms, we have not even been able to reform the education sector, with the judiciary recently ending up initiating price control on school fees. Considering the fact that education is a key hope for growth and development for a country like Pakistan, the fact that we cannot offer primary education to all our children is, to say it politely, embarrassing. At the university level, notwithstanding the quantity, the quality of education is dismal in general and research non-existent. Even our research councils don't appear to be researching a whole lot.
In the case of State-Owned Enterprises (SOEs), without debating the reasons for their spectacular losses, it is more likely than not, that any plans for their revival may take a few years for implementation. The short-term strategy of meeting their necessary cash flow requirements through budgetary allocations has only alleviated their decline. Ignoring SOEs, Pakistan does not even have a national industrialisation policy, and when did we invest in a long-term mega project last time? Even hydel power projects which can take 8 to 10 years for completion, are by and large, not a priority. And if by a quirk of fate, a long-term project does take off, the incumbents are subjected to all sorts of criticism and allegations by the subsequent government. All in all, the environment is not conducive for long-termism!
Arguably, the problem has to do with the uncertainty associated with the term of government; be it a dictator or an elected government. From day one, political pundits start debating whether the incumbents will complete their term or not, obviously history being the yardstick for such speculation. Even when, hypothetically speaking, it is certain that the sitting government will complete its term, it is very aware that it will be at the mercy of the electorate within five years; this obviously adversely colours their decision-making. Accordingly, decisions, projects and initiatives in general are focused towards achieving results within their own governance period, and that too tangible result. If by chance someone was brave enough to implement "Structural Reforms", the literacy levels of our voters will ensure that he gets no credit on that count because they would be able to physically see the development.
Even economic decisions are targeted towards improving short-term performance, since any initiative for long-term economic growth will likely initially cause hardship for the not so well-off of society; a risk no political government, or any government for that matter, will, logically, be willing to take. Unfortunately, what the ruling elite does not understand is that the way the system currently works, it's a game of musical chairs spiraling downwards and there can be no winners. Recall, in the case of the last three governments, when each assumed power the narrative began with them having been handed over the worst economic mess in the history of Pakistan; how long and how worse can the mess get and how long can this continue?!
There is an urgent need for reforms the kinds that ensure long-term decision-making at the government level, perhaps a constitutional amendment that ensures and protects long-term projects, so that we can once and for all be rid of the menace of short-termism.
(The writer is a chartered accountant based in Islamabad. Email: [email protected])