Building up on our recent coverage of USIP's latest study (titled: Informality in Karachi's land, manufacturing and transport sectors), today's column will flag a key methodological concern over the report.
The report says that informality in Karachi's economy was borne out of three dimensions. "The first and most common for developing countries, was rapid population growth and reduced capacity to deliver goods and services. The second was state policy that deregulated and privatized large swathes of the economy. The third was the states direct or indirect support of certain groups and/or turning a blind eye to their violence, thus gradually decreasing the states monopoly over violence."
While the first and third reasons appear plausible with much evidence elsewhere and in the report, the second reason seems to lack sufficient evidence. It is an unfortunate reality, but based on our interaction with research community, there hasn't been any study aimed at finding the household financial position or livelihoods of erstwhile PSE employees who were given a golden handshake after the privatization of firms they were employed. Nor has it been studied whether the entry of private sector in previously highly-regulated sectors has led to more informal economic activities.
The USIP study mentioned above also fails to offer any evidence to that effect. There is not even a secondary citation that makes a causal link between growing informality and privatisation. At best, the report talks about reduced bargaining power of labour unions due to deregulation, but that is not the same as saying that privatisation is the second biggest cause of growth in Karachi's informal economy.
"Also in the 1990s, an important economic policy shift began in Pakistan. The process of privatization and deregulation further expanded informality in service delivery and the labour market. On the one hand, this reduced the bargaining power of labour (as several strong public and private sector unions weakened) and slowly created more jobs in the informal sector. But, on the other hand, this led to gradual erosion of the states regulatory capacity and a decline in fiscal revenues as a result of privatization, which, in turn, led to further underinvestment in services. These consequences created a vicious cycle where services that were not ready for privatization were also being starved of resources. Underinvestment in transport, water, and urban infrastructure, in particular, led to their increasing informalization," the report said.
However, this line of reasoning begs the question whether if privatization wasn't followed up by adequate regulations and sectoral policies, then can one really blame privatization itself for informality, or blame the way it was handled. There is a fine nuance between the two, and the intention here is not to make a mountain out of a molehill or to be pedantic. The point is that evidence-less statements like these can distort the privatisation debate in this country. Don't be surprised if the anti-privatisation camp ends up citing this report to build their case against privatisation (even though that may not be the intention of its authors), when, in fact, the report itself is wanting of evidence.
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