Neo

Imaginative, eye catching, column titles are good for business; but seriously those of you expecting a discussion on the Matrix trilogy, come on give me a break, this is a business publication!

But now that you are here, come in, relax with a cup of your favorite brew, and witness the destruction of neoliberalism; perhaps this may even be as thrilling as the destruction of Matrix!

At least for some!

Neoliberalism, in accounting terminology, is a related party of free market capitalism, and simultaneously therefore a rival of government spending, regulation and public ownership. And in the same breath, demonizes the welfare state arguing that subsidizes for the poor impairs their will to work thereby intensifying poverty. If it was left to the neoliberals they would criminalize poverty!

If you are poor, then your right to life under neoliberalism is dependent on the philanthropy of the rich, contrary to the welfare state wherein the State looks after the deserving of the society. Take a guess, from a poor man's perspective, what is a preferred option? And do not forget the Lucifer effect when coming to an answer.

Let me put it thusly, if Orwellian is one extreme, laissez faire economy is the other; and both are, well, abominable. Funnily enough, both extremes, in their pure sense, as of today, are fictional constructs. If the private sector actually believed in free markets, lobbying and funding political campaigns would be alien concepts for the English dictionary.

According to the neoliberals the sole purpose of the State should be to facilitate their businesses in making more money.

Government, under neoliberalism, has no business subsidising wheat and other crops for the small farmers, subsidizing electricity and gas for the poor, subsidizing railway fare and public transport, subsidising education and health, subsidizing food and necessities and/or creating employment for the unskilled workers.

Personally, in which universe can those motivated by greed and lust for profit be trusted to look after the poor, and do the right thing? I just finished James O'Toole's "The Enlightened Capitalists", which may perhaps feature in a future column, but for now, the take away from the book was that socially responsible, ethical and environmentally conscious behaviour is a death wish for corporations; "The sole purpose of a corporation is to make a profit, and the concept of social responsibility is wrongheaded, if not abhorrent".

Do we still want free markets?

But morality aside, free market capitalism just cannot work in a developing country like Pakistan; where one of the joys of life include electricity being restored in a hot humid night after a couple of hours sweltering heat. And the poor don't have electricity at all!

Developing country problems include war, poverty, security, inefficient infrastructure if it exists at all, poor health facilities, lack of education, pollution, unclean water, malnutrition, garbage heaps, low wages, and the list goes on.

So expecting, as an example, that domestic food businesses, which have evolved in such an environment, can ever compete with the likes of McDonalds, is a rather ludicrous view.

In fact, even other than that, cost of doing business for domestic retailers is steeper when compared with foreigners once you start factoring in Bhatta payments, higher interest on informal financing, graft for utilities and legal protection, and what not.

The best part is that these costs are not claimable as an expense in the income tax returns, and not considered when the taxman wants to tighten the net around the undocumented economy. Perhaps the tax to GDP ratio is better in developed economies because businesses in that part of the world are better facilitated and protected by the State; and perhaps this is also the causation for a much larger informal sector in Pakistan. To repeat from a previous article, if we don't get to a precise and concise problem statement, there will be no solutions

The joke is that we provide more incentives, facilitation and protection to foreigners doing business in Pakistan. You need not agree with my views on protecting domestic businesses on their home ground as a policy, but reverse protectionism for FDI; does that even make sense?

Fundamentally, whether anyone likes it or not, in the absence of efficient legal and police services, imperative for protecting property rights and enforcing contracts, ab initio free market capitalism will remain a pipe dream for Pakistan. For a while I have argued that timely justice and upright police is one of the key steps for stimulating economic growth in Pakistan.

So why continuously bang our heads against an unbreakable wall; until the enabling system exists, there can be no markets, free or otherwise. Worse, opening up our markets under such a confused hybrid system, works to the detriment of domestic businesses; which is the reason why historically whenever we have opened a sector for foreign business, the first and biggest casualty is the domestic entrepreneurs, followed by the current account deficit.

While this debate may appear to be all over the place, I have tried to structure it, firstly identifying the moral values of neoliberalism, then arguing why a robust legal system is a precondition for free markets. Actually, our bigger problem with pursuing free markets in Pakistan is that we are trying to fit a square peg in a round hole; and it ain't gonna happen!

Next week the plan is to discuss the affordability of free markets and the drama over the uncreative and inefficient protected domestic businesses.

My apologies to those who really wanted to read about Neo.

(The writer is a chartered accountant based in Islamabad. Email: [email protected])

Copyright Business Recorder, 2019