Devising a Growth Strategy for Pakistan (5): Answering The Critics

Posted on February 24, 2011
Filed Under >Ahmed Jamal Pirzada, Economy & Development
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Ahmed Jamal Pirzada

(Editor’s Note: In this, the fifth in a series on Pakistan’s New Growth Strategy – see here and here and here and here – the author (a consultant with the Pakistan Planning Commission working on the new growth strategy) responds to some of the concerns raised by critics of the strategy.  The Planning Commission of Pakistan has invited ideas and suggestions on this and we invite and encourage our readers to please help in highlighting the best and most innovative ideas they can think of.)

Much of the response received by the Growth Strategy document of the Pakistan planning commission has so far remained very much encouraging. It will be alright for me to reveal that significant number of comments received from the civil society, youth, educationists, donor agencies etc. have been incorporated in the revised draft which will be shared in few weeks time. However, there still are some comments which can only be answered through increased interaction between the strategy team lead and the interested community.

In the interest of encouraging exactly such a conversation, here I present some of the criticisms which have been observed on different forums and some preliminary responses.

Whats so ‘New’ about it? The word ‘new’ is often received with lots of skepticism. A clear distinction needs to be observed between growth theory and strategy. While the growth theory remains the same, overall strategy is significantly new when looked at in context of Pakistan. In economics, growth (output) is treated as a function of productivity, labour and capital. Throughout Pakistan’s history, productivity has been observed as an exogenous variable – something that will happen on its own. The ‘New Growth Strategy’ endogenizes productivity by looking at the microeconomic underpinnings of this macroeconomic problem. The result will be improved growth levels through enhanced productivity even if labor and capital do not change.

Expecting people’s welfare from Private Sector? The strategy does not talk about complete withdrawal of government from market management. Instead it is to confine its role to market regulation: away from its current approach of acting as an active market player.

Formulating and implementing regulations is a sufficient tool to deal with cartels/monopolies. One needs not be a market player but require a strong regulatory framework in the form of regulatory bodies such as competition commission, PTA etc.

Why do we still have cartels despite having numerous regulatory bodies? We often tend to hear this question in response to the idea of government withdrawing itself as a market player. Answer to this question lies in the strengthening of regulatory bodies and not in government re-entering the market. Our existing institutions not only lack the required strength but in some cases their own organizational structure is also contrary to promoting competition and fighting cartels. It is well established that privatization without regulation often leads to consumer exploitation. This is exactly what the role of government should be – ensuring that overall consumer welfare is not marginalized.

Why talk about cities alone? In almost all the conferences organized by the Planning Commission as a part of consultative process, one standard question was always raised. What about the rural areas? This takes us to another interesting question. What are cities? Out of many things, cities must also be seen as markets for rural areas. It is in the cities where much of the rural products are bought and sold. Therefore cities are the only place where major chunk of rural income is generated.

However, the Growth document is not silent on rural development. Under the ‘Markets’ pillar, the document talks about agricultural markets in great detail. Similarly, constraints to infrastructure development at municipal level are also highlighted under ‘Connectivity’ theme.

‘Implementation.’ Here comes the tricky bit! Ask this question and many policy makers would prefer to shy away. In my personal view, it’s not up to any policy maker to implement his/her policy unless the public wants it. This is especially true when you are a democratic country. Why is it that the judiciary gets restored despite significant pressure from the opposing group? The answer is simple. Our general public wanted it to happen.

What we here at Planning Commission intend to do is to get people to own this strategy. It is exactly this reason why this wide consultative process is being carried out. It is exactly this reason why we are doing our best to incorporate majority of the received comments. And it is exactly this reason why we are having this much more direct and interactive blog to reach people. Once people – like the respected reader – start owning the Growth document and wish for the proposed changes to take place, implementation will soon follow its own course.

(Editor’s Note – 2: ATP readers who may wish to submit posts of their own on the growth strategy and what should go into it are encouraged to do so.)

14 responses to “Devising a Growth Strategy for Pakistan (5): Answering The Critics”

  1. Anwer says:

    An article worth reading before accepting “Private Enterprise has all the solutions” as gospel truth.

    http://tribune.com.pk/story/124278/dont-privatise- ogdcl/
    Published in The Express Tribune, February 27th, 2011.

    Don’t privatise OGDCL

    By Abdul Sattar / Khwaja Sarmad / Malik Maqbool / Sarwar Bari

    Earlier this month, the Cabinet Committee on Privatisation took stepsto issue convertible bonds for the Oil and Gas Development Company Limited (OGDCL) and other companies — all steady workhorses of the state budget — and to privatise the Heavy Electrical Complex on a public-private partnership basis by transferring 26 per cent of its shares along with management rights to the successful bidder. We say, in this article, that this is a terrible decision that will harm the state budget and welfare of the working people. We expose the flawed rational for privatising state companies, argue against privatising the OGDCL and give an indictment of the public-private partnership programme, using PTCL as a case study.

    Trojan horses of a discredited regime spearhead privatisation. They base its rational on myths and mantras. The Privatisation Commission’s website says privatisation is necessary because “worldwide experience has demonstrated private companies to be more efficient than public ones.” It results in “improving technology, improving competitiveness and thus leaving more funds with the company. This, in turn, is likely to result in increased employment opportunities.” Officials argue that business is not the business of the state, and therefore, state companies should be sold to state companies of other countries, just as PTCL was sold to a UAE state company.

    The website also says that privatisation is a “matter of principled ideology rather than a matter of expediency.” It should add that its laissez faire ideology is found only in textbooks and in the minds of our economic policymakers! As HSBC’s chief economist says: “Western governments have used the methods of state capitalism for hundreds of years in their bid to shape the world around them. The idea that market forces alone led to the West’s success is nonsense.” Official claims about privatisation are a fundamental misrepresentation of reality. Even The Economist (November 13) admits that the ownership of a business in a capitalist economy is irrelevant. State capitalism is surging — state companies account for a fifth of global stock market, twice more than 10 years ago. Thirty nine state-supported French companies are in Fortune’s list of top 500 global companies, while two of the world’s four biggest banks are state-owned.

    Industrial policy or government support for national industry is frowned on by our economic policymakers, conveniently ignoring that the policy was used even during the time of Walpole to subsidise British exports, and more blatantly in the Opium Wars against China — a lesson that China has learned too well. France used it to create ‘national champions’ in strategic sectors, including transportation and energy. Industrial policy created the miracle economies of Japan and East Asian countries, and brought about China’s industrial transformation.

    Three quarters of the world’s oil reserves are owned by state companies and two of the 10 biggest oil companies are state-owned because securing access to natural resources is a fundamental pillar of national security. This alone should suffice as a strong argument against privatising the OGDCL and other resource-based state companies. Also, the corporation contributes in a major way to the state budget: Last year, it gave Rs80 billion to the state budget and Rs86 billion in 2009, i.e. its annual contribution to the state budget is about as much as the amount ($1.08 billion) to be raised by privatising it. In the current year, the surging oil price will swell the OGDCL’s profit. No wonder its share price is skyrocketing to over Rs169 from Rs105 in July. Last year, the increase in average price of oil by $6 per barrel raised the OGDCL’s revenue by Rs68 billion. A likely further increase this year in the average price to $80 will add Rs23 billion to the revenue. Higher expected prices of gas, liquefied petroleum gas and sulphur will swell the windfall revenue — a golden opportunity for visionary, hustling and thuggish oligarchs to make unheard-of fortunes from the OGDCL’s privatisation!

    Published in The Express Tribune, February 27th, 2011.

  2. Talat says:

    It recalls to me the story related by a friend of mine about his tour of France:

    ” I noticed the south of France to be much less developed than the north. When I questioned about the reason for the disparity from the French host, he said, “Here up to this river, dividing north and south, that the Muslim marauders had set their foot.”

    Is it not a fact that the Muslims and Economic development are antithetical? The reason for this is quite obvious. Muslims live in the ‘other world’ and are interested mostly in their future in that world. As it is their economy in this world is based on Jihad, Ghazwa, maal-e-ghanimat, charity, etc., with no place for production of wealth.
    This mode of economy worked well with the conquest of the Ajam (foreign lands) with the sword but stopped when met by modern technology. So now they live only on charity, either material or technical, like oil discovered and exploited by the western technology or by serving the west.

  3. Mansoor Malik says:

    Growth strategy for Pakistan should be just one word: INNOVATION. We need to create new wealth, especially from the educated class in our Universities thru Innovation Centers under a National Innovation System.Voluntary work has already started by putting up in the first phase Provincial Innovation Centers at leading Technical Universities in all the four provinces and in the second phase District Innovation Centers would be established to launch off the Innovation Economy WITH or WITHOUT any Government support. This is a new development paradigm involving the PRIVATE SECTOR & ACADEMIA collaboration without the concept of PC-1.

  4. Ahmed Jamal Pirzada says:

    Following is the link to the draft report: http://planningcommission.gov.pk/nda/PDFs/conceptu al_framework_2.pdf

    Remember this is the old draft and much has changed in the revised version which is still offline…….

    Also most of the relevant material can be found this following webiste: http://planningcommission.gov.pk/nda/publications. htm

    Coming to this article, most of the arguments are in response to few question raised from different corners. therefore they are very generalized and do not go into much detail. those interested in the detail can kindly visit the links i have provided above.

    Also I acknowledge that implementation must also be a part of policy making. But the point i am trying to make is that all the concerned parties including the public must want this change to happen. otherwise political leaders will not have enough incentive in implementing it.

    regards

  5. saeed says:

    Even in developed economies, governments are not merely regulators; they are enablers and owners of policies. This is their job!
    Overall, the idea is good that governments shouldn’t be market participants because they are pretty bad in allocating and managing resources. Their focus should be on implementation of polices and developing infrastructure.

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