The profit abode

There is a pertinent saying amongst our circle of friends, somewhat on the lines of having bigger doors if your pet is an elephant, "If you buy a Mercedes, you don't look for bargains when hiring a driver". Contrarily, in our case, having head hunted the requisite drivers/profit-makers in the previous article; there is a pressing need to pursue the more oracular objective of shopping for a Mercedes, the coveted perfect business environment. By the way, the brand choice in the quote has everything to do with the author's preference!
Meandering through a maze of theories, ruminations in previous four parts had established the state's compulsion to be profitable together with the significance of the profit-makers to do so. Having short listed the profit-makers in the previous article, the next logical step is letting them do what they are good at. Pragmatically, a fecund abode is essential for extracting optimum results from the profit-makers. If the thoroughbreds are chained, the Kentucky Derby Cup will remain elusive.
Conceiving a perfect business environment, which implies an ideally balanced regulatory framework and incentives, is as baffling as inventing a better mousetrap. A more humble objective, however, is devising an environment, which is not stifling if not productive. The starting point is the key issue.
An objective diagnosis of a country's business environment is a complex exercise. Fortunately, the World Bank somehow manages to regularly publish a country wise ranking based on ease of doing business. For the record Pakistan is 105th on the list. The sub-components of this ranking structure provide insight on improvement; however our conclusions in earlier parts are already in conflict with the conventional thinking of attracting foreign investment. It may therefore be more beneficial to saunter down a path not trodden.
"Only tribes held together by a group feeling can survive in a desert"-Ibn Khaldun. This is a popular quote amongst Economist and Businessmen who then strangely, albeit quickly, move on to vigorously beat the FDI drum. Logically if a country cannot induce domestic investment, aspirations of enhancing FDI are at best a dream. In any case, super-profit led motives of FDI are contradictory to endeavours focused towards enhancing national assets. Without doubt, foreigners will invest beyond their boundaries only in search of quickly remittable super-profits. Domestic investment, on the other hand, is sans such consideration, eventually.
Kindling the animal spirit of the domestic entrepreneur, in a developing nation, is a gargantuan ambition, especially after the failure of numerous amnesties for disclosing wealth. Pertinently, here try, try; try again should be the motto, definitely with more imaginative provisos. In order to encourage the private sector, the strategies offered by the pundits probably hold true, to an extent. While political stability and security are pre-requisites, unregulated free for all is dangerous. While low interest rates and tax holidays are stimulating, non-directed easing of the private credit crunch can be wasteful, banking deposits are a national asset. Even if, miraculously, an appropriate balance between these variables is achieved, all this may still be insufficient.
Perceptions matter more than facts. The general dogma is that world class universities are a pre-cursor for a healthy business environment. Irrespective of whether this emanates out of the positive impact universities can have on economic growth by sustaining intellectual exchange or due to the availability of skilled labour, the perception remains irrefutable. At the same time, establishing world class universities has nothing to do with the national literacy rate. Universities are about quality, not quantity. The quandary for a highly populated developing nation is deciding if spending already meagre resources on universities is more beneficial than spending on primary education for the populace. The former is associated with visible political mileage; accordingly guessing where a perpetually struggling government spends does not earn brownie points. The consequent dilemma is that infinite matriculates still don't equal a doctorate. Unwisely spending development funds is even more destructive than the debt trap propagated by the global financial consultants to be the Damocles sword of under developed nations.
Nonetheless, establishing world class universities is time consuming and resource draining. Further, increasing budget deficits and uncontrollable geo-political circumstances are nightmarish when attracting private investment. Forget FDI, even domestic investors have a tendency to shy away in extenuating circumstances.
In today's highly advanced technologically and intensely competitive global village, countries like Pakistan are at a perennial disadvantage and will repeatedly strive to solve the age old riddle about what came first, the chicken or the egg. "Out of the box" thinking is critical in order to pull out of this self-destructing centripetal force. Accordingly, irrespective of predominant thought, state in business remains the only viable option.
Which brings us back to our conclusions from the previous parts in this series of articles on profit, profit is the life saving elixir at all levels including the state, notably for non developed nations. Nonetheless, even after having convinced the profit-makers, invoking patriotism, a starkly different environment is needed for managing national assets under public domain. Instead of pursuing pipe dreams of a perfect business environment it may be more fruitful, by default, to focus on achieving a vibrant public sector. Precedents of such an initiative are evident in China, Japan and South Korea who have been or are the engines of global economic growth.
Rather than reinventing the wheel, it will be simpler to imitate and replicate the policies of our friends in the East. Unfortunately, lacking a powerful change agent, the rigmarole of painstakingly cultivating a buy in at the top level will need to be endured.
Glancing through the history of successful nations and corporations, a singular commonality is starkly evident. Continuity of vision and policies is necessary for success. By default therefore, political governments brought in every five years are precarious for state business. Newly elected governments are generally burdened by lobbyists claiming loyalty rewards. Lobbying by its very definition, campaigning to influence legislature to vote for special interests, is allergic to merit. Realistically, therefore state business needs to be insulated from unwarranted intervention absolutely and completely, by constitution if needed.
Bureaucracy, even honest and well meaning, is another hurdle. Firstly, it is unrealistic to believe that career bureaucrats, accustomed to a nominal paycheck in exchange for job security, can appreciate market-based remuneration. How can a subordinate draw a higher salary? Ever since the takeover of private enterprise by the West, pursuant to the sub-prime crisis, CEO packages are the biggest scandal. Unfortunately, people who strive for profit work for profit. It would be impossible to hire a profit-maker at government pay scales, patriotism aside.
Secondly, governments Rules of Business are synonymous with a straitjacket in an environment, which begets decisions on the move. While devising public procedures, the key principle was to eliminate subjectivity, efficiency never factored in. Extremely cumbersome by nature, they scuttle initiative. Unless motivated otherwise, it is simpler to say no compared to walking an extra mile regardless of the benefits. Running a business under such norms if not impractical cannot be profitable either.
In conclusion, it is important for state businesses that they are completely divorced from political and/or bureaucratic influence. This does not imply that their stewardship is not vested with government, simply segregation of monitoring and managing functions is desirable. Setting targets lies well within the domain of governance, achieving them should be the responsibility of the profit-makers, given an enabling environment with zero tolerance.
The probable framework is somewhat like MITI of Japan, a concept most likely adopted by China and South Korea in one form or the other. Whereas the wheel may have been invented in the form of, let's call it, Ministry of Profit, there is a need to deliberate further on its authority and responsibility. That is most likely the subject of Part VI. In the meanwhile comments and views are again solicited and eagerly awaited.