The Accountant
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Dear all, this is continuation of the series I started with the title “Desperate Time Desperate Measures - A differential view of Pakistan's Economic Problems”. A big thanks for all of those who contributed.
After consolidating all the problems now I have moved to second stage i.e. prioritize the issues as per its severity and then try to find out the possible solutions.
Out of all the issues, I feel that lack of skilled work force is the biggest hurdle in development of Pakistan.
To prove my point I would refer to the alternate approach for computation of GDP (known as income approach). The formula of income approach of GDP is as follows:
GDP = Salaries and wages + rent income + interest income + business profits
Salaries and wages is one of the components of GDP along with Business Profit; hence, higher the salary higher will be the GDP. However, on the contrary, increase in salary without increase in productivity will only result in reduction in business profits and hence overall GDP will remain the same.
By the formula of GDP it is obvious that increase in salaries without decreasing the profit will definitely results in increase in GDP. However, if salaries increased at a pace faster than competitors then it will render the product expensive and in competitive in the market. For example, Pakistani textile items is expensive than similar products being manufactured in Bangladesh as minimum salary of Pakistan is 50% higher than Bangladesh. It means we have to keep the salary cost per unit of goods manufactured minimum but still keep the salaries and wages per employee higher.
Now on the other hand in developed economies salaries are much higher than ours but still they have high GDPs and still they are able to sell their products. The core reason behind keeping the product competitive while keeping the labor cost high is by selling premium products. Premium products have more profit margins and hence can afford to give higher salaries and therefore having higher GDP. For example prime exports of developed economies are plant & machinery, cars, aircrafts, weapons, softwares, and other high tech items.
Now without going into further details of complexities of GDP let’s summarize the discussion so far. Generic relationship between labor force and economy is as follows (without reference to Pakistan):
1. Salary is one of the component of GDP.
2. Increase in salary will result in increase in GDP (provided that it is not at the cost of profits).
3. However, salary per unit cannot be higher than the salaries of competitors.
4. Backward economy produce products which has low salaries for its workers (Like agriculture)
5. Advance economies works on products which has higher salaries for its workers (such as programming, robotics, defense, auto industry).
6. Inefficient work force will result in expensive and low quality product ultimately results in lower profit and lower sales which will also negatively impacts the economy.
Some people might argue that economy of a country is much bigger and the problems we are discussing here are micro economic problems pertaining to individual companies. However, consider business units as small organs of a whole body and assume if organs are not working properly then how is it possible for body to work properly. The actual issues of Pakistan lies at micro-economic level and if we get them solved we can improve our economic output.
Pakistan has a huge population of 220 million; however, most of the work force is unskilled and uneducated as a result of which we are manufacturing basic goods only and compete with products of low income countries such as Bangladesh, Africa, India and even Afghanistan.
For example if majority of workforce is producing wheat and rice then they have to compete with the farmers in Bangladesh and India producing the same product but ironically the wages and living standard of Bangladeshi worker and Indian rural worker are even lower than Pakistan and hence Pakistani product will be expensive and will have less demand unless we reduce standard of living of our worker (or in other words reduce salary further) lower than competing countries.
In short the job of economic managers is to keep the salary cost per product as low as possible but keep the salary per employee as high as possible just like the developed economies.
Another way of reducing the cost of production but without reducing the salary of your workforce is by making them more efficient in comparison to your competitor. For example if a farmer in Bangladesh can produce 1 ton of wheat (while keeping all other factors same) and Pakistani farmer can produce 1.2 ton then it means we can sell our product cheaper and will have more demand.
Without getting much into descriptive details, I am listing key problems associated with our work force and then we will discuss each of them in detail and will also evaluate possible solutions.
· Untrained workforce.
· Uneducated work force.
· In-efficient work force.
· No regards to ethics.
· Lack of training institutes.
· No regards to quality and wastages.
· Resistant to change and inability to adopt technology.
· Untrained workforce
This is the biggest of all the problem. Pakistan’s work force is mostly ill trained starting from top level executive till the end of the chain to unskilled workers.
First I would like to discuss the issues associated with top executives. Over the history of our economy we failed to create any professional industrial conglomerate except for Engro. Even Engro’s achievement are limited to within country only. This is failure of our executives that they failed to grow any single group beyond our boundaries. Despite having a significant foot print in textile industry at the time when textile was one of the most powerful industry of the world. We have not a single internationally recognized brand due to failure of our executive or entrepreneurial workforce.
Hiring and promotions are motivated more on personal preferences and ethnic associations rather than merit. Decision makings are based on personal preferences rather than demands of the merits. Reliance is more on gut feelings rather than financial feasibilities and projections. Whereas executive fails to design and implement efficient process capable of manufacturing product in the lowest possible costs.
On the lower end of work force we have inefficient line managers and supervisors who failed to design and run the process in efficient manner. Productivity is low whereas wastages are huge.
· Uneducated work force.
While untrained work force means inefficient work force, uneducated work force means that you are forced to work within low tech and low income industries only. We have plenty of workforce that can’t even read or write it means they can only do low level routine tasks only. Therefore, they are competing with the lowest possible wage earning work force living in countries like Bangladesh, Africa, Sirilanka and Philippines.
Such work force can’t even read the instructions of using fertilizer or pest control spray to achieve the most optimum results resultantly they are relying on decade old manufacturing process and hence have very low productivity.
It means no matter how many work hours we invest or how hard work we work we will always be below poverty line as we have plenty of competing workers all around the world who are willing to do same job at a salary even lower than ours. To develop or grow economy we have to educate such work force to a minimum level.
· In-efficient work force.
Pakistani work force in general is inefficient. We are so inefficient that rather than competing with other employees based on productivity we tend to hold on to information and knowledgebase from our colleagues resulting in inefficiencies and duplication of work.
Wastages are very high and people are tuned to work in relax environment without taking into account that time means money and more time we waste more expensive the product will become.
Furthermore, there are unnecessary layers of work force. In a world of horizontal organizational structures we are still working with vertical structures where manager feels it insulting to do their own analysis and feel that managerial staff is just for decision making and hence most of the departments are carrying additional work force putting more burden on product costs. And ultimately results in a product non-competitive in market.
· Lack of training institutes.
The above mentioned issues are a big problem in delivering the required product. However, such issues can be resolved by training the work force but unfortunately we lack any significant training institutes in Pakistan. As a result a work force entering in the institutes learn only by experiment and by on-job training which cost a fortunes to organizations.
Recommended Solutions
Rest of the issues already covered indirectly above. Now a million dollar question is how to sort these issues. Below are some of the suggestion from my side which we need to take immediately in order to address the problems mentioned above. Kindly note that these are out of the box solution specific to our problems and I expect you guys to share your thoughts as well:
A. Promulgate a law in which each business unit would be required to get association with universities and allow them to study the business process and recommend improvements. (System like this are already in practice in audit and medical field).
B. Introduce PhD programs in business management with special focus on behavioral studies.
C. Setup government backed trade institutes for each and every industry with the sole purpose of developing the work force at each level and teach them the latest trends prevailing in the industry.
D. Work on development of high profit high value addition industries that helps raising the per capita income of our workforce.
E. Establish quality institutes to give an internationally acceptable quality certifications and trained the work force to acquire the quality standards in the product.
F. Legislate to secure employees against discriminatory practices specially pertaining to ethnicity.
G. Setup special industrial zones with a complete facilities available in the zone including but not limited to:
a. Industry specific labor
b. Industry specific training institutes.
c. Industry specific government departments.
d. Industry specific research centers.
e. Industry specific warehousing facilities.
f. Industry specific expert data base.
H. Setup industry specific think tank community with regular publications from the community.
I. Make ethics part of basic education system.
@Peaceful Civilian @Oscar @Yaseen1 @AZADPAKISTAN2009 @CriticalThought @BHarwana @niaz
@ziaulislam @Jf Thunder @VCheng @Sidacca @313ghazi @niaz @American Pakistani @Verve @Mrc @fitpOsitive @Khafee @araz @Zibago @Imran Khan @DESERT FIGHTER @Horus @ghazi52 @Dubious@Areesh @Zarvan @BATMAN @AgNoStiC MuSliM @MastanKhan @Arsalan @WAJsal @Indus Pakistan@menticore @Pakhtoon yum @Syed Hammad Ahmed @The Eagle @HRK @MUSTAKSHAF @Yaseen1 @ziaulislam @Retired Troll, @PakSword, @Maarkhoor, @Reichsmarschall, @Well.wisher and @RealNapster @Shahzaz ud din @American Pakistani @valkyr_96 @PakGuns @shahbaz baig @VCheng @letsrock @CrazyZ @Sidacca @PAK spy @zulu
After consolidating all the problems now I have moved to second stage i.e. prioritize the issues as per its severity and then try to find out the possible solutions.
Out of all the issues, I feel that lack of skilled work force is the biggest hurdle in development of Pakistan.
To prove my point I would refer to the alternate approach for computation of GDP (known as income approach). The formula of income approach of GDP is as follows:
GDP = Salaries and wages + rent income + interest income + business profits
Salaries and wages is one of the components of GDP along with Business Profit; hence, higher the salary higher will be the GDP. However, on the contrary, increase in salary without increase in productivity will only result in reduction in business profits and hence overall GDP will remain the same.
By the formula of GDP it is obvious that increase in salaries without decreasing the profit will definitely results in increase in GDP. However, if salaries increased at a pace faster than competitors then it will render the product expensive and in competitive in the market. For example, Pakistani textile items is expensive than similar products being manufactured in Bangladesh as minimum salary of Pakistan is 50% higher than Bangladesh. It means we have to keep the salary cost per unit of goods manufactured minimum but still keep the salaries and wages per employee higher.
Now on the other hand in developed economies salaries are much higher than ours but still they have high GDPs and still they are able to sell their products. The core reason behind keeping the product competitive while keeping the labor cost high is by selling premium products. Premium products have more profit margins and hence can afford to give higher salaries and therefore having higher GDP. For example prime exports of developed economies are plant & machinery, cars, aircrafts, weapons, softwares, and other high tech items.
Now without going into further details of complexities of GDP let’s summarize the discussion so far. Generic relationship between labor force and economy is as follows (without reference to Pakistan):
1. Salary is one of the component of GDP.
2. Increase in salary will result in increase in GDP (provided that it is not at the cost of profits).
3. However, salary per unit cannot be higher than the salaries of competitors.
4. Backward economy produce products which has low salaries for its workers (Like agriculture)
5. Advance economies works on products which has higher salaries for its workers (such as programming, robotics, defense, auto industry).
6. Inefficient work force will result in expensive and low quality product ultimately results in lower profit and lower sales which will also negatively impacts the economy.
Some people might argue that economy of a country is much bigger and the problems we are discussing here are micro economic problems pertaining to individual companies. However, consider business units as small organs of a whole body and assume if organs are not working properly then how is it possible for body to work properly. The actual issues of Pakistan lies at micro-economic level and if we get them solved we can improve our economic output.
Pakistan has a huge population of 220 million; however, most of the work force is unskilled and uneducated as a result of which we are manufacturing basic goods only and compete with products of low income countries such as Bangladesh, Africa, India and even Afghanistan.
For example if majority of workforce is producing wheat and rice then they have to compete with the farmers in Bangladesh and India producing the same product but ironically the wages and living standard of Bangladeshi worker and Indian rural worker are even lower than Pakistan and hence Pakistani product will be expensive and will have less demand unless we reduce standard of living of our worker (or in other words reduce salary further) lower than competing countries.
In short the job of economic managers is to keep the salary cost per product as low as possible but keep the salary per employee as high as possible just like the developed economies.
Another way of reducing the cost of production but without reducing the salary of your workforce is by making them more efficient in comparison to your competitor. For example if a farmer in Bangladesh can produce 1 ton of wheat (while keeping all other factors same) and Pakistani farmer can produce 1.2 ton then it means we can sell our product cheaper and will have more demand.
Without getting much into descriptive details, I am listing key problems associated with our work force and then we will discuss each of them in detail and will also evaluate possible solutions.
· Untrained workforce.
· Uneducated work force.
· In-efficient work force.
· No regards to ethics.
· Lack of training institutes.
· No regards to quality and wastages.
· Resistant to change and inability to adopt technology.
· Untrained workforce
This is the biggest of all the problem. Pakistan’s work force is mostly ill trained starting from top level executive till the end of the chain to unskilled workers.
First I would like to discuss the issues associated with top executives. Over the history of our economy we failed to create any professional industrial conglomerate except for Engro. Even Engro’s achievement are limited to within country only. This is failure of our executives that they failed to grow any single group beyond our boundaries. Despite having a significant foot print in textile industry at the time when textile was one of the most powerful industry of the world. We have not a single internationally recognized brand due to failure of our executive or entrepreneurial workforce.
Hiring and promotions are motivated more on personal preferences and ethnic associations rather than merit. Decision makings are based on personal preferences rather than demands of the merits. Reliance is more on gut feelings rather than financial feasibilities and projections. Whereas executive fails to design and implement efficient process capable of manufacturing product in the lowest possible costs.
On the lower end of work force we have inefficient line managers and supervisors who failed to design and run the process in efficient manner. Productivity is low whereas wastages are huge.
· Uneducated work force.
While untrained work force means inefficient work force, uneducated work force means that you are forced to work within low tech and low income industries only. We have plenty of workforce that can’t even read or write it means they can only do low level routine tasks only. Therefore, they are competing with the lowest possible wage earning work force living in countries like Bangladesh, Africa, Sirilanka and Philippines.
Such work force can’t even read the instructions of using fertilizer or pest control spray to achieve the most optimum results resultantly they are relying on decade old manufacturing process and hence have very low productivity.
It means no matter how many work hours we invest or how hard work we work we will always be below poverty line as we have plenty of competing workers all around the world who are willing to do same job at a salary even lower than ours. To develop or grow economy we have to educate such work force to a minimum level.
· In-efficient work force.
Pakistani work force in general is inefficient. We are so inefficient that rather than competing with other employees based on productivity we tend to hold on to information and knowledgebase from our colleagues resulting in inefficiencies and duplication of work.
Wastages are very high and people are tuned to work in relax environment without taking into account that time means money and more time we waste more expensive the product will become.
Furthermore, there are unnecessary layers of work force. In a world of horizontal organizational structures we are still working with vertical structures where manager feels it insulting to do their own analysis and feel that managerial staff is just for decision making and hence most of the departments are carrying additional work force putting more burden on product costs. And ultimately results in a product non-competitive in market.
· Lack of training institutes.
The above mentioned issues are a big problem in delivering the required product. However, such issues can be resolved by training the work force but unfortunately we lack any significant training institutes in Pakistan. As a result a work force entering in the institutes learn only by experiment and by on-job training which cost a fortunes to organizations.
Recommended Solutions
Rest of the issues already covered indirectly above. Now a million dollar question is how to sort these issues. Below are some of the suggestion from my side which we need to take immediately in order to address the problems mentioned above. Kindly note that these are out of the box solution specific to our problems and I expect you guys to share your thoughts as well:
A. Promulgate a law in which each business unit would be required to get association with universities and allow them to study the business process and recommend improvements. (System like this are already in practice in audit and medical field).
B. Introduce PhD programs in business management with special focus on behavioral studies.
C. Setup government backed trade institutes for each and every industry with the sole purpose of developing the work force at each level and teach them the latest trends prevailing in the industry.
D. Work on development of high profit high value addition industries that helps raising the per capita income of our workforce.
E. Establish quality institutes to give an internationally acceptable quality certifications and trained the work force to acquire the quality standards in the product.
F. Legislate to secure employees against discriminatory practices specially pertaining to ethnicity.
G. Setup special industrial zones with a complete facilities available in the zone including but not limited to:
a. Industry specific labor
b. Industry specific training institutes.
c. Industry specific government departments.
d. Industry specific research centers.
e. Industry specific warehousing facilities.
f. Industry specific expert data base.
H. Setup industry specific think tank community with regular publications from the community.
I. Make ethics part of basic education system.
@Peaceful Civilian @Oscar @Yaseen1 @AZADPAKISTAN2009 @CriticalThought @BHarwana @niaz
@ziaulislam @Jf Thunder @VCheng @Sidacca @313ghazi @niaz @American Pakistani @Verve @Mrc @fitpOsitive @Khafee @araz @Zibago @Imran Khan @DESERT FIGHTER @Horus @ghazi52 @Dubious@Areesh @Zarvan @BATMAN @AgNoStiC MuSliM @MastanKhan @Arsalan @WAJsal @Indus Pakistan@menticore @Pakhtoon yum @Syed Hammad Ahmed @The Eagle @HRK @MUSTAKSHAF @Yaseen1 @ziaulislam @Retired Troll, @PakSword, @Maarkhoor, @Reichsmarschall, @Well.wisher and @RealNapster @Shahzaz ud din @American Pakistani @valkyr_96 @PakGuns @shahbaz baig @VCheng @letsrock @CrazyZ @Sidacca @PAK spy @zulu
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