Improving returns on all factors of production as well as encouraging efficiency in the production of goods and services have been termed as fundamental pillars of the 'New Growth Strategy' formulated by the country's Planning Commission.
In the draft of the 'New Growth Framework', the commission has spelled out myriad reasons for a renewed focus on developing human capital and promoting private sector to spur economic growth; not the least of which is the realisation that public-sector investment is not effective in driving the economy in a sustainable way.
Successive five-year plans implemented by the government focussed on different sectors of the economy but always relied heavily on government spending to create the necessary infrastructure and delivery of services. But credible research conducted at home and abroad has cast shadows over the efficacy of government spending in spurring growth.
PUBLIC SPENDING: BOON OR BANE?
Researchers Ejaz Ghani and Musleh-ud-Din, writing for the Pakistan Development Review in 2006 observed that "growth is largely driven by private investment and that no strong inference can be made about the effects of public investment and public consumption on economic growth".
"Public investment has a negative though insignificant impact on output, and this raises some concerns about the efficiency of public investment", in a research paper titled The Impact of Public Investment on Economic Growth in Pakistan. In fact, given the burgeoning government debt and the recent shift of this debt to private banks; it may well be argued that government spending is impeding the growth of the private sector by choking its credit supply.
Add to this, the presence of state-run entities in most major sectors of the economy; often as the only player: Pakistan Railways, PIA, Passco, TCP, Pepco; it seems that the private sector is a foster child primarily being used to generate precious revenues while the white elephants are kept alive on subsidies and preferential contracts.
The Planning Commission has in its own findings; highlighted these inefficiencies. General consensus among economic experts appears to be focussed on the creation of an independent board comprised of experts as well as representatives from the private sector for the reform and privatisation of inefficient, state-run enterprises.
JOSTLING FOR POWER However, actions speak louder than words and the nature of the implementation of the 18th Amendment, so far suggests that the narrative belies the actual progress on many fronts. According to news reports, published in national dailies throughout July 2011; out of 169 subjects that fell under 7 of the devolved ministries; only 42 subjects were transferred to the provinces while 127 subjects were retained by the federal government.
In a recent conversation with this scribe; a DMG-bureaucrat commented that "the introduction of local government system was carried out, not in the spirit of empowerment of local populations but to link the federal government to local levels while surpassing the provincial governments".
According to this official, this was the reason for the system's poor performance, barring some exceptions. He cautioned that "now the devolution of federal departments is being done in a similar way and this may again lead to results contrary to those envisioned". Renowned management consultant and organisational behaviour expert Margaret Wheatley may as well have been talking about Pakistan's policymakers when she stated that, "even though worker capacity and motivation are destroyed when leaders choose power over productivity, it appears that bosses would rather be in control than have the organisation work well".
In the Pakistani perspective, it is the reluctance of policymakers, legislators and members of the military establishment alike, to give up control that has made it difficult to implement many of the reforms that have been promulgated on paper.
COURTS IN CENTRE STAGE But there is still a way forward. The judiciary is a vital pillar of the state and one of its primary functions is the implementation of the constitution in letter and spirit as well as safeguarding the vital interests of the people of Pakistan, even from other state functionaries.
Some of the cases pending judgement in the higher courts will drive the future of issues such as devolution and reintroduction of the commissionerate system. Speedy and comprehensive judgements on such issues will provide clear and unequivocal precedents for future reforms and their preferred scope. By ensuring that their orders are implemented swiftly, the courts can kick-start the process of accountability and transparency in government functions.
"In the new framework, private sector should be the growth-driver in open market environment that rewards efficiency, innovation and entrepreneurship, while the government is facilitator that protects public interests and rights, provides public goods, enforces laws, punishes exploitative practices, and operates with transparency and accountability" states the Planning Commission. The enforcement of laws and need for accountability warrant further empowerment of regulators such as the State Bank of Pakistan, Securities and Exchange Commission of Pakistan and the Competition Commission of Pakistan.
SOFTWARE SHORTAGE It is also pertinent to note that the Global Competitiveness Report 2010 has ranked Pakistan at a not-so-dismal 87th position in terms of the overall quality of infrastructure. This implies that the state of the physical infrastructure in the country is slightly better than India and Indonesia and comparable to other regional peers.
The Planning Commission has rightly pointed out that "the lagging aspect" is comprised of inefficient management of resources, low productivity and poor infiltration of IT in business practices. In fact Pakistan ranks 99th in "firm level technology absorption" compared to India's ranking at 30th position. High cost of credit is an impediment for local industrialists looking to implement newer, more efficient processes in their factories. However interest rates have not always been in double digits and industrial innovation has lagged at the best of times, even in sectors such as textiles which received incentives for research and development.
A more fundamental hurdle to investing in businesses is the poor enforcement of contracts as well as property rights and intellectual property rights, and Pakistan ranks poorly compared to other countries on all these counts. One of the oft overlooked components of the "New Judicial Policy" was that the courts would provide speedy justice and would also work towards reducing the back log of cases stuck in the legal system. Simply fulfilling this commitment will go a long way in easing long-entrenched negative sentiments regarding the country's legal system.
The legislature should also revisit laws that unduly favour tenants or restrict the ability of property owners to use these holdings for commercial or industrial purposes, by easing zoning restrictions.
There are of course, myriad other shortcomings in the development of human capital. Public education is severely neglected, indigenous research is sputtering and crucial sectors such as agriculture and livestock are fraught with inefficiencies, not least due to the lack of awareness of modern techniques and inputs. But the doctrine of universal education does not necessitate a government-built school in every village. Instead, the private sector can be incentivised to cater low-income areas and rural populations. Again, the key lies in effective regulation of each sector through an empowered and independent watchdog.
If enhancing productivity is the new mantra for the nation; facilitating the private sector must become our holy grail. An old adage states, "Give a man a fish and you feed him for a day; teach him how to fish and you feed him for a lifetime". However conventional wisdom that stressed the role of government spending in spurring economic growth has been replaced with visions of creating an enabling environment for the private sector. Countries across the globe have placed faith in the people's aspirations for growth and prosperity and governments have been limited to doing what they are supposed to do best: provide governance.
Now it is time that the government of our country too, rethinks its strategy of free hand-outs and over-involvement in developmental plans. Let the private sector take the lead in this quest while the government ensures that all the fishermen play fair.
The writer works as Asst Editor-BR Research at Business Recorder. He can be reached at [email protected]
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