Entrepreneur

Entrepreneur, entrepreneur, where art thou? Undoubtedly, based on empirical evidence, austerity and growth do not go hand in hand, and this has been proven again and again and again; most recently in the case of countries that had austerity shoved down their gullets after the Great Recession of 2008, like Greece.
Notwithstanding the debate around whether a country is a big corporation or not, the dictum that austerity and growth are polar opposites is best explained by strategies from the business world; anytime a corporation moves towards cost cutting, it has concluded that revenue growth is not achievable in the near future.
In fact, the only time a corporation even thinks of cost cutting is right after when the cash cow dies; and every time a business focuses on cutting costs, the market perceives it negatively, the end is near!
Austerity is cost cutting!
For the record, I believe that there are a lot of similarities between a corporation and a country and intend to take up this topic in a column soon; success in business arguably may not by default prove expertise in formulating economic policies, but for that you can always hire an economist, and start praying that he knows what he is talking about!
Last time around, the IMF program was not focused on an austerity drive; inflation was at an all time low because of collapsing crude oil prices acknowledged by IMF itself in multiple reviews, hence low interest rates were not an issue, and for some ambiguous reason the program allowed for external borrowing to keep the currency stable, and all that provided the fiscal space to borrow more and invest in infrastructure, resulting in growth.
Investing in infrastructure through borrowing, especially bridges to nowhere may temporarily act as a growth catalyst but will eventually invariably result in a financial crisis; the strategy of developing countries investing in infrastructure is overrated.
The economy is not about growing only, how a country grows is more important than the rate of growth; in my books even a 2% growth brought about by industrialization is better than an 8% growth led by consumption of imported goods.
This time around the IMF programme ferociously advocates and forces austerity; since we partied away the gains provided by low international oil prices and dried out our forex reserves, the currency is indefensible today - oil prices moving up has brought back the days of high inflation and high interest rates - and since we have already crossed the rational limits of national borrowing the government is desperate to appropriate resources from the private sector in the form of more taxation to pay for its debt servicing obligations alone.
The allowance for increased social spending for the poorest of society might not be a change of heart as some have opined; bankers, as the joke goes are heartless.
Increased cash payouts to the needy may in fact be a signal that those at the helm of the program are aware that austerity will drive out growth making it impossible for the poorest to even survive, probably resulting in anarchy.
I may be wrong.
There is a view that once the tax man successfully corners the informal economy into documentation and once the property tycoons are brought into the tax net, all this additional money will be channelled towards investment in the real sector.
On the face of it, there is merit in this argument; people are not expected to shut down their businesses and go home, and all the wealth parked in the real estate sector has to get invested somewhere.
But what if they are wrong?
There are unseen consequences of any economic action, and most of these are generally not in the right direction; for multiple reasons a discussion on what can go wrong is deliberately avoided!
The likelihood of wealth getting invested in industrialization via the private sector is not encouraging to say the least; inflation, weakening currency and increasing interest rates are not conducive signs for investing in projects that can take 4 to 5 years, after which time the project will still have to compete with foreign manufacture without any government protection.
Entrepreneur, is there no one?
Job creation through industrialization, in my humble opinion, is not a choice anymore; assuming the best and doing nothing is a high risk, almost fatal, strategy.
But what are the choices?
The history of the developed world is replete with examples of the State stepping up to do things which at that time were not being done at all by anyone; in the famous words of Star Trek, to go where private sector has not gone before.
To make an educated guess, all major technology advances have always been directly or indirectly sponsored by the State, in one country or the other; they were only commercialized by the private sector.
Hard times call for drastic measures.
If our private sector cannot, or will not, take up the role of the entrepreneur, the State shall have to step up; growth has to come from somewhere in the real economy.
The debate can move to the how and when level, when there is an agreement on who and why.
In my opinion, I remain confident, for Pakistan the State will have to be the entrepreneur.
(The writer is a chartered accountant based in Islamabad. Email: [email protected])