True entrepreneurship is not growing because of the pampered treatment business community has received and still wants it. This includes subsidies, undue incentives, rebates and tax concessions. Besides, the businesses in Pakistan are deficient in professionalism, risk taking for innovations, research and development and adoption of technology to compete in international arena.
This is the upshot of the discussions a PIDE survey team had with business community in Sialkot, Lahore, Sargodha and Gujranwala and a study of economic policies, particularly relating to trade and industries.
A PIDE working paper "Entreprenuership in Pakistan" prepared by its former director and IMF economist Dr Nadeem-ul-Haq, brings out pertinent issues of patronage to the landlords, industrial tycoons an avaricious politicians, creating and elitist society and neglecting the poorer sections of society.
In its chapter on discussions with Pakistani business community in its 54-page working paper, the author says that their discussions revealed certain interesting themes.
Innovation which is key to entrepreneurship seems to be nearly absent. Most of the businessmen seem to be involved in inherited business. The few entrepreneurs that had stumbled upon their business, did so as a result of some information advantage. Either they were employed in that business or involved in trading or some acquaintance provided some information. This is in keeping with entrepreneurship stories in other countries of the businesses.
Business is not dynamic; few businesses seem to grow to be large conglomerates and multinationals. Small businesses seldom seem to even develop across cities, leave alone grow into international conglomerates. The businessmen identified the following factors for the poor business environment.
(a) THE ATTRACTION OF RENTS: In all the group discussions the businessmen, by and large, expected of the government to provide incentive of one or another kind that would either place their business in a favourable position vis-à-vis other businesses or that would protect their business that has run its course.
Given the rent-seeking culture that has now been established, businessmen, rather than focusing upon innovation, expect that the government will help. For example, most were always seeking a tariff or a subsidy advantage. Consequently, they were not comfortable with free trade in all products. Another example was the demand for cheap credit regardless of the cost to the tax payer.
(B) THE COSTS OF CORRUPTION Corruption is a serious impediment to the growth of entrepreneurship. The businessmen involved in manufacturing said that numerous government departments (numbering around 15-20) 'visit' enterprises with various threats to extort small sums. They collect anywhere from 0.2 percent of annual sales to about 5 percent. Obviously the tax incidence is higher on smaller firms. Businesses dedicate from 1 to 3 employees for dealing with this extortion. Their view was that if there could be a single tax that could be collected by Central Board of Revenue (CBR) and distributed to these people transaction costs could be significantly reduced.
(C) LACK OF RESEARCH, EXPERTISE SKILLS AND KNOWLEDGE Business in Pakistan remains largely owner-operated and resistant to developing professional management. Partly this is because business growth has traditionally depended on policy favours rather than on professional management and strategy. However, there is also a clear mistrust of professional managers given that the legal and judicial systems may not prevent fraud, theft and outright misuse of business information.
The PIDE paper however, noted that businessmen are beginning to understand the demands of globalised business growth. They admitted that an important reason for slow growth as well as developing new business was the lack of expertise and knowledge. In all cities, there is no expertise for providing advice on key areas such as assisting project feasibility, operating a business, establishing brand names, and marketing.
Almost all the businessmen complained of the scarcity of skilled labour, this emphasis an educational system that develops skills of entrepreneurs as well as that of the workers to foster entrepreneurial economy.
The paper noted while various management schools have emerged, technical and skill-based professional education remains in short supply. Trade bodies and chambers ask the government to invest in this area, but development to not incur the cost themselves. This again reminds of the rent-seeking paradigm.
Interestingly, technical skills are not adequately rewarded by the employers; nor are blue collared jobs held in esteem by society.
Chambers of commerce and trade bodies which could have been influential in filling the information gap have been politicised largely through the control of the government bureaucracy once again for its own rent-seeking.
(D) CITY ADMINISTRATIONS UNFRIENDLY TO SMALL AND TRADING BUSINESSES Another reason why imitation occurs in business development is the lack of information on potential projects.
Poorer retailers who could not afford structured shops had to remain mostly in the informal market. Most of their operations were allowed only in the poorer crowded areas of town. Urban administrations would not allow them better parts of town.
Today, cities have not developed as business clusters because they have not developed as attractive sources of migration.
(E) POOR LEGAL FRAMEWORK To begin with all pointed to the lack of rule of law a basic institution underpinning business. No one seems to be sure of the framework of rules in which they are operating. Rules such as property rights, zoning, and licenses are often changed for individuals on the basis of their clout.
There is no faith in the legal system to enforce even the basics of business-property rights and contracts.
(F) LACK OF TRUST AND SOCIAL CAPITAL: Sialkot especially noted how the lack of governance and a quality legal and justice system was impairing business conditions. They pointed to an extreme lack of trust among their business community.
An important reason that businesses remain owner operated and do not grow is that professional employees cannot be trusted.
(G) THE CONSTRAINT OF FINANCING: Small businessmen have little recourse to bank financing. Almost all the smaller businessmen were of the opinion that banks lend only to big borrowers for non-commercial and political reasons. This was true in the past before banks were privatised.
Raising funds from the stock market is also not preferred to avoid sharing important business information with competitors and tax authorities.
CONCLUSION: The crux of the report is that if entrepreneurship is to develop and be at the root of development, it is imperative that there must be deep government reform, which limits rent seeking, encourages innovation and fosters enterprise.
The role of government must be to provide rule of law, law and order situation and a legal and judicial system that enforces contracts. Returning the government to take seriously its magisterial function has to be an important first step and remove the instruments of rent seeking.
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