The Accountant
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I am starting a series of threads to discuss Economic Problems of Pakistan along with the solutions. My approach will be different in the sense it will not be based on traditional view of economy but focused on more practical areas of the economy specially the trade and commerce.
The most important point I would like to focus on; I am not an economic expert but a mere student of business and commerce. The issues I will be raising here will be based on my own limited practical exposure in various industries. Therefore all learned fellows are welcome to share their views and experiences and feel free to correct me where they feel I am wrong.
In this first thread I will try to present my own introductory view of the economy in general and economy of Pakistan in particular from a non-conventional point of view understandable to a layman as well ...
Economy is measurement of a country's resources produced in particular time period generally an year. We have various tools of measuring economy but the most common tool is GDP. Economists use different methods of computation of GDP, the most common method is the expenditure approach (by combining all expenses in the economy) having the formula as follows:
GDP = Consumption + Govt. Expenditure + Private Investment + Net Exports (Export - Imports)
From computation point of view there is no problem with the formula however, from government planning and approach point of view I prefer the income approach formula (sum of all the income of the nation). GDP can also be computed as follows:
GDP = Salaries & Wages + Interest Income + Rental Income + Royalties + Profits
(It is important to note that higher the salaries higher will be the GDP hence the industries where salaries are higher (along with profits) adds much more to the economy then low income industries. We will come back to this in our future threads)
Government has a job to give a direction to the economy and has two tools for this. The most important tool is taxation which basically results in reduction in consumption and private investment and transfer the same resources to government expenditure.
During the process government setup the priorities where they suppress some of the sectors by putting taxes while uplifting others through government expenditures. For example during the last year government has increased taxation on vehicles which resulted in decline in expenditure on vehicles by Pakistani cosumers and then the same resources can be used by government probably for construction of Dams.
Since last couple of years Pakistan's GDP per capita is on declining phase (in comparison to to others). Even Bangladesh is expected to surpass our GDP per capita during next few year. The core reason behind such a catastrophic decline is implementation of imported solution to cure a domestic problem.
I believe that Pakistan core economic problems should be divided into two categories:
1) Macro-economic issues
2) Micro-Economic issues
Most of our economic advisers in past few decades were imported ones or were influenced by western economists. The core focus of the economic managers was on macro-economic levers as their knowledge base was limited to experience gained from developed economies where micro-economic issues were already resolved and the businesses and firms were already operating much efficiently in comparison to the other nations and no one bother to look at state of affairs being run at micro-economic levels.
An indication of poor performance at micro economic level is indicative from the fact that ranking of cost of doing business in Pakistan is 136 v/s 77 of India whereas despite of having big work force availability of skilled work force in Pakistan is really difficult.
In order to turn the tables we have to list down our own domestic issues and should identify innovative solutions for them that suits our own needs. My focus would be on micro-economic issues rather than macro-economic issues as the same are being tried again and again but without generating desired outcome. As per my own list key problems of Pakistan's economy at micro-economic levels are:
The list is not exhaustive and I would like to add more points based on comments and suggestion received. In future threads we will discuss each of the above problems in detail along with the solution and keep it as running threads. The purpose is to learn and innovation as a mutual exercise and may be we can contribute something really positive to our nation.
The most important point I would like to focus on; I am not an economic expert but a mere student of business and commerce. The issues I will be raising here will be based on my own limited practical exposure in various industries. Therefore all learned fellows are welcome to share their views and experiences and feel free to correct me where they feel I am wrong.
In this first thread I will try to present my own introductory view of the economy in general and economy of Pakistan in particular from a non-conventional point of view understandable to a layman as well ...
Economy is measurement of a country's resources produced in particular time period generally an year. We have various tools of measuring economy but the most common tool is GDP. Economists use different methods of computation of GDP, the most common method is the expenditure approach (by combining all expenses in the economy) having the formula as follows:
GDP = Consumption + Govt. Expenditure + Private Investment + Net Exports (Export - Imports)
From computation point of view there is no problem with the formula however, from government planning and approach point of view I prefer the income approach formula (sum of all the income of the nation). GDP can also be computed as follows:
GDP = Salaries & Wages + Interest Income + Rental Income + Royalties + Profits
(It is important to note that higher the salaries higher will be the GDP hence the industries where salaries are higher (along with profits) adds much more to the economy then low income industries. We will come back to this in our future threads)
Government has a job to give a direction to the economy and has two tools for this. The most important tool is taxation which basically results in reduction in consumption and private investment and transfer the same resources to government expenditure.
During the process government setup the priorities where they suppress some of the sectors by putting taxes while uplifting others through government expenditures. For example during the last year government has increased taxation on vehicles which resulted in decline in expenditure on vehicles by Pakistani cosumers and then the same resources can be used by government probably for construction of Dams.
Since last couple of years Pakistan's GDP per capita is on declining phase (in comparison to to others). Even Bangladesh is expected to surpass our GDP per capita during next few year. The core reason behind such a catastrophic decline is implementation of imported solution to cure a domestic problem.
I believe that Pakistan core economic problems should be divided into two categories:
1) Macro-economic issues
2) Micro-Economic issues
Most of our economic advisers in past few decades were imported ones or were influenced by western economists. The core focus of the economic managers was on macro-economic levers as their knowledge base was limited to experience gained from developed economies where micro-economic issues were already resolved and the businesses and firms were already operating much efficiently in comparison to the other nations and no one bother to look at state of affairs being run at micro-economic levels.
An indication of poor performance at micro economic level is indicative from the fact that ranking of cost of doing business in Pakistan is 136 v/s 77 of India whereas despite of having big work force availability of skilled work force in Pakistan is really difficult.
In order to turn the tables we have to list down our own domestic issues and should identify innovative solutions for them that suits our own needs. My focus would be on micro-economic issues rather than macro-economic issues as the same are being tried again and again but without generating desired outcome. As per my own list key problems of Pakistan's economy at micro-economic levels are:
- Lack of skilled and semi-skilled labors.
- No culture of research and development.
- Inefficient production.
- Charity v/s investment.
- Sick industries.
- Lack of public listed companies.
- Lack of capital investors willing to take risk.
- Lack of culture of entrepreneurship especially in manufacturing industry.
- Lack of export support to the business organizations.
- Trade friendly laws and policies rather than manufacturing friendly policies (mirco as well macro economic issue)
- Smuggling and duty avoidance.
- Job security in government organization resulting in lack of initiative and commitment.
- Culture of middle man.
- Culture resistant to change.
- Priority on low income industries such as agriculture.
- Lack of value addition products.
The list is not exhaustive and I would like to add more points based on comments and suggestion received. In future threads we will discuss each of the above problems in detail along with the solution and keep it as running threads. The purpose is to learn and innovation as a mutual exercise and may be we can contribute something really positive to our nation.
