Economic Development: Is it really the government’s Job?

[NewStudent]

I need the attention of members for a fruitful discussion (Sorry in advance to die-hard supporters of political parties). While criticizing the government is always an easy job. We must look deep into the underlying issues that are still hindering our economic growth. I am listing one such reason, deep-rooted in our nations’ psyche.



1. Productivity:

There are two famous quotes on the long run in economics. First “In the long run, we all are dead.” Second is “In the long run, it is only the productivity that matters.” Denoting, two different schools of thought. In Pakistan, the first quote is usually practiced with the government focusing on short-run, managing monetary and fiscal policies for their myopic viewpoint “hum ne vote bi lena ha”. However, long-run is always missed, which focuses on productivity.

One can see the developed countries are developed because of how productive their workers are. USA is developed, because of LM, Boeing, McDonald's, KFC, Microsoft are productive, and these corporations are productive because their workers are productive. The same is the case of other developed nations, where they have a productive population. This productivity, in turn, lies in their innovative and risk-taking behavior.

Can we see such behavior in the Pakistani population in general? I am not talking of exceptions. In general, we see our middle-class approach, whose first, preference is “sarkari or pakki nokri”. If not available, “private nokri karlo”, still not available “koi karyane ki dukkan dal do”. Do you see any innovative behavior as such?

I do believe the government is an important economic agent; however, criticizing the government is not the option. It seems we really close our eyes from what our nation is, capable of and ought to do.

I appreciate members if they could provide their inputs on our nation’s psyche about the economy and their way of doing things.

 

[jamal18]

Yes.

 

[313ghazi]

Yes and No.

Government is responsible for creating an environment where business can happen easily. This is quite a broad set of responsbilities, from little things like ease in registering businesses, paying taxes, to more complex things like attracting investment, helping promote commerce through trade fairs, making business loans available at cheap interest rates, ensuring there is enough energy/resources to support industry, ensuring we have a workforce that is skilled and equipped.

Pakistani governments have failed to do this for decades. It's been on the decline or stagnant since Bhuttos attempts at making everything publicly owned.

If the state is failing to do it's duty, who should step up? The businessman. Pakistan is lacking in governance, but it is more lacking in entrepreneurial spirit. We have cheap labour, we have skilled craftsman, cheap raw materials - who is making and exporting things from Pakistan?

Bakwas has sold all over the world, why is the traditional charpai not sold around the world? A well tightened khat provides excellent back support when lying down, it keeps you cool at night and is excellent for sunbathing. It's great garden furniture. All across the west people are sitting in Ratan sofas and plastic beds when they could be lying on these.

There are tens of thousands of examples, woodwork, leather products, textiles - why is the kurta (female design), not on all the high streets in the world? Jeans are, why not kurtas? Everyone is buying pizza, why is nobody buying Biryani for lunch?

It's a lack of branding, a lack of marketing, a lack of exposure of our products to the markets. GoP is never going to do that for you. Alibaba is a chinese site, we know about it worldwide, why does nobody know about daraaz?

Even closer to home - what is the Pakistani ikea? Pakistan has a great motorcycle industry - which brand is entirely domestic? Pakistan leads the world market in sports goods, the best equipment is made in our country, which brand is from Sialkot?

 

[NewStudent]

@313ghazi

I must appreciate your response. I also agree with your partial yes and no answer. I also do believe in govt facilitating the business, while not doing itself (nationalization). Don't you really think that branding and marketing are basically the entrepreneur's idea and effort? Does the government necessarily have to support its marketing as well? My thesis is, it is basically the people who are to blame for their poverty, instead of govt.
It is the deep rooted psyche of our nation to be dependent on govt support of whatever things they do. I will appreciate other members as well to come up with the reasons why our nation is behaving in such a way?

 

[313ghazi]

@313ghazi

I must appreciate your response. I also agree with your partial yes and no answer. I also do believe in govt facilitating the business, while not doing itself (nationalization). Don't you really think that branding and marketing are basically the entrepreneur's idea and effort? Does the government necessarily have to support its marketing as well? My thesis is, it is basically the people who are to blame for their poverty, instead of govt.
It is the deep rooted psyche of our nation to be dependent on govt support of whatever things they do. I will appreciate other members as well to come up with the reasons why our nation is behaving in such a way?

I would never go as far as blaming people themselves. We are all products of our environments, ultimately the people in power are responsible for creating better environments - however they are not the only people with the ability to do that. All around us there are stories of people who strived through adversity to become successful, unfortunately their stories are the exception rather than the norm.

The developed world went through the industrial revolution, the population was re-skilled from rural farmers, to urban workforces. This was done hand in hand with government and more importantly businessmen. The house i was born in and grew up in the UK was built by a businessman who built whole streets of similar houses over 150 years ago to accomodate the work force he required to run his factories. Later on when cities were established these were sold off to workers and they entered the general market.

If i want to setup a business in Pakistan, i can lament there not being a capable workforce, or i can train one.

In our country we did not have that revolution. We went from a rural society ruled by Kings, to a rural society ruled by the british, to a rural society ruled by an elite who from whom many had been propelled into power by helping the British. These people didn't need industrialisation - that's why our parliament is still full of landowners - they are still rich men, the "industrialists" benefit from the lack of competition and the cheap unskilled labour. They are big fish in a small pond - it doesn't matter that there is an ocean full of whales and sharks - they are kings of their very small safe, secure kingdoms.

The industrialisation of Pakistan was cut down at the knees by nationalisation and it's never really recovered. Those responisible for creating conditions for it to come about, are also the ones who stand to lose from it happening.

Our industrial revolution with come through IT, other tech and supporting SME's. Build an ever growing middle class and also attract FDI for manufacturing, engineering, even farming etc.

 

[Bilal Khan (Quwa)]

I need the attention of members for a fruitful discussion (Sorry in advance to die-hard supporters of political parties). While criticizing the government is always an easy job. We must look deep into the underlying issues that are still hindering our economic growth. I am listing one such reason, deep-rooted in our nations’ psyche.



1. Productivity:

There are two famous quotes on the long run in economics. First “In the long run, we all are dead.” Second is “In the long run, it is only the productivity that matters.” Denoting, two different schools of thought. In Pakistan, the first quote is usually practiced with the government focusing on short-run, managing monetary and fiscal policies for their myopic viewpoint “hum ne vote bi lena ha”. However, long-run is always missed, which focuses on productivity.

One can see the developed countries are developed because of how productive their workers are. USA is developed, because of LM, Boeing, McDonald's, KFC, Microsoft are productive, and these corporations are productive because their workers are productive. The same is the case of other developed nations, where they have a productive population. This productivity, in turn, lies in their innovative and risk-taking behavior.

Can we see such behavior in the Pakistani population in general? I am not talking of exceptions. In general, we see our middle-class approach, whose first, preference is “sarkari or pakki nokri”. If not available, “private nokri karlo”, still not available “koi karyane ki dukkan dal do”. Do you see any innovative behavior as such?

I do believe the government is an important economic agent; however, criticizing the government is not the option. It seems we really close our eyes from what our nation is, capable of and ought to do.

I appreciate members if they could provide their inputs on our nation’s psyche about the economy and their way of doing things.

Pakistanis, in general, are reluctant to invest and engage in difficult entrepreneurial ventures...

...and I don't blame them.

We did have an entrepreneurial spirit in 1947, and it was crushed multiple times by the British (via the Pak Gov't) in those days. So, one example, a business man from Hyderabad Deccan (Liaquat Ali) started speaking to Lockheed to manufacture jet fighters in Pakistan for the PAF. The process starting gaining momentum, but the British stepped in and basically twisted our arms into buying Super Marine attackers. Source: The Official PAF History Book: 47-88.

The most egregious example was in the 1970s when ZAB decided to full-retard and nationalize private corporations -- like BEC and others -- while leaving the actual feudal landlords free.

So, here's the underlying problem. Pakistanis can be industrious (we are, after all, on the same continent as Indians and Persians), but a system above and around them stifles the spirit. If one manages to somehow escape the initial challenge of setting up an enterprise, then the system could come back and take it away later.

The exceptions to the rule ended up nurturing their fruits outside of Pakistan, e.g., Careem. Otherwise though, the population by and large doesn't want to 'risk it all' to do business right, and we know why.

This is where government must step in -- i.e., correct all the wrongdoings of the past. I believe that the Pak Gov't will need to shell out billions in dollars in grants, loans and other favours to would-be entrepreneurs to get the latter to start moving. Basically, if you want to set-up something in a high-value sector (e.g., manufacture auto-parts, or refine crude oil), the gov't will give you the money (in return for a silent 10-33% minority stake).

This policy could achieve two major benefits. First, it would lessen the risk of the entrepreneur, while also forcing the government to have a vested stake in the business' success. Second, if the business succeeds, the gov't could reap the rewards as an equity owner, either get its share of income OR divest for a profit.

The profit of the latter can go into the national treasury, and allocated exclusively for health and education (which will feed back into skilled labour for our businesses).

Yes, there's a risk of shadiness. You could, for example, have grants exchange hands between parent and child, or relatives, or political loyalists. However, if you bind the transfer under a legal framework, then a future gov't would still have partial ownership of said venture, and could still profit from it.

Nonetheless, you should legally limit funds to only businesses in target sectors, e.g., manufacturing cars or car parts, refining petroleum, consumer electronics, integrated circuits, etc, or strategic industries, like aerospace, gas turbines, etc. So, even in case of corruption or unfairness, you at least set a minimum bar for qualifications, skills, etc. Moreover, the majority investor is still the private sector, the gov't is just there to help 1/3.

Finally, if you co-invest in high-value sectors, you'll eat into unemployment. You'll reduce the number of people on the market available for cheap import-driven businesses. If anything, whoever's left could end up being exporters of your high-value goods. Of course, this is where gov't needs to step in to carve out good markets for these goods via free trade agreements, export loans/credit, etc.

And never mind the effect of people leaving their old companies to start their own businesses, and in turn, resetting the cycle all over again. So, an engineer in an auto manufacturing plant can team up with 2-3 others, and set-up a facility that manufactures a specific component or the machinery/jigs itself. Likewise, if your companies grow, they can buy other businesses in other countries, and in turn, bring back more technology and expertise our way.

 

[GeraltofRivia]

Yes absolutely it is government’s role, not as a player (except for certain industry sectors) but as a facilitator, planner, rule maker and enforcer.

Any keen observer of economic development would notice the significant role that governments have played in the process of industrialization for 2 countries in the post-WWII era, namely South Korea and China. SK’s economical takeoff was overseen by a powerful central government that dictated the economic policies, some of which are highly radical.

In a country that seeks rapid economic development, the government should be empowered to see resources and production factors like land, worker, and capital allocated and flow to the right sectors and players and ensure market competition takes place. The process of industrialization requires the release the production factor from inefficient to efficient part of the economy and it is highly political. That’s why the central government needs to be empowered to execute them.

The developed world went through the industrial revolution, the population was re-skilled from rural farmers, to urban workforces. This was done hand in hand with government and more importantly businessmen.
.

Also need to note is how “developed” countries triggered industrial revolution in the first place and the mechanism that provided them with the vast capital required. It was driven by ruthless war, colonization and other things which is no longer possible for the developing countries to follow.

Also many industrial countries have seen revolution e.g. French Revolution and English revolution, which was basically “re-model” the social economical structure and transformed the society fundamentally. Most of developing countries haven’t experienced the same thing and a lot of old social and economical arrangements remain intact.