The government has a number of issues to resolve first
When a city is not trade friendly, it does not create enough economic opportunities and resources necessary to provide for the services citizens need. Therefore, it is plausible that no city, big or small, can ignore being or becoming trade friendly. The recent economic changes also require making cities places of economic growth. Innovation, competition, and employment-generation in cities have become the hallmarks of survival of economies across the globe. And why should they not be? Trade helps cities deliver their promises of human, societal and economic growth in major ways. Lahore is no exception to these trends.
The good thing is that signs of trade friendliness are already visible in Lahore. But Lahore’s formal and informal institutional arrangements are not friendly with all traders and all trades. These arrangements are selective, exclusive, and inequitable in their treatment of various traders and trades. It is due to these exclusions that Lahore is not doing well on all account of trade friendliness. But Lahore has hope: Lahore can move up the ladder of trade friendliness by acting prudently.
Without doubt, trade is growing in Lahore. But is it working well? Not all of it. Why? Because top notch traders are becoming richer, while small vendors and small traders are merely surviving. Entrepreneurial acumen does not find encouragement both from the traders’ community or the government. Other indicators are also not satisfactory. If traders are not happy with the government, and if the government is not happy with the traders, the consumers and citizens are unhappy with both. That is not encouraging, of course. A good trade environment provides a win-win situation for all of stakeholders: government, traders, regulators, consumers.
The government should lean towards an option which reduces transaction costs. It should withdraw from its previous role of controlling and regulating trade to helping traders compete and create.
Of all the troubles trade and traders face in Lahore, regulatory troubles are the most important to highlight and deal with immediately. As a result of the regulatory troubles in vogue, transaction costs — costs involved in doing business — remain high and trade does not grow as it should. Trade related government agencies, ranging from ministry of commerce at the federal level to the industries department, operate under multiple logics and hence they move in multiple directions. Sometimes their logics are contradictory. As a result, the role of non-state actors has increased in trade: most of the trade has become self-regulated. Yet this rise has benefits as well. As non-state actors, traders’ associations provide social, legal and political support to their members in various ways. This is their brighter side. On the other hand, the same associations also serve the purposes of political parties they are aligned with. This is their darker side. It bears noting that traders associations are becoming powerful actors in politics, refusing submission to official policies. Problems such as low-tax recovery, poor quality of goods, and hazardous materials trading, mainly stem from the unaccountable power of traders associations. Therefore, regulatory restrictions and rise of non-state actors both contribute to make Lahore less trade friendly.
Other trade troubles relate to the unpredictable working of law and contract enforcement, land use and zoning, poor facilities for circulating goods, inequitable distribution of development funds for markets, and extortion and tax evasion by public and private parties.
Given this, Lahore has options available to make trade within its boundaries better. The first option is the complete deregulation of trade. Advocates of this option suggest the economy should be left to its own devices. The second option is to give meaningful role to the government in managing the economy. The third option is to bring government and traders closer to manage the economy.
Let us try to make sense of these options for the peculiar case of Lahore. Lahore Chamber of Commerce supports the first option. It has claimed, time and again, that deregulation is the solution. Economists such as Shahid Kardar also concur with this view. If this position is accepted, officials from industries department will have to be deputed somewhere else. If Lahore adopts the second option, it will strengthen government departments. If Lahore adopts the third option, it will create synergies by bringing the government and traders closer.
The best way to encourage competition among traders is to stop providing protection and privileges and direct public funds to develop trade related legal and physical infrastructure.
Which option, then, is best for Lahore? The answer is not easy. All options have their brighter and darker sides. All have different implications for transaction costs and, therefore, Lahore should adopt an option or a set of options which reduce these costs. The option of deregulation is not workable as non-state institutions are not developed and have little tradition of being accountable to people. The second option gives too much power to the government besides increasing its financial expenditure. The government will have to spend a lot of money to keep the prices in control, for example.
The government should lean towards an option which reduces transaction costs. It should withdraw from its previous role of controlling and regulating trade to helping traders compete and create. It should act as a neutral arbiter among traders and their consumers. And it should gradually create conditions where none of the stakeholders involved in trade can trespass their legitimate roles.
Since a lot of trade in Lahore is taking place informally, and since trade has become self-regulating, the government needs to rethink its role in trade. The best option for Lahore is to create an enabling environment for trade. The government should not try to regulate or control trades and traders. It should rather help trade associations become new institutions to self-regulate trade. It should create an atmosphere of competition. The best way to encourage competition among traders is to stop providing protection and privileges and direct public funds to develop trade related legal and physical infrastructure. In order to make Lahore trade friendly, both the federal and provincial governments should unburden themselves with trade related responsibilities and delegate a lot of work to the local government in Lahore, where it actually belongs. A strong local government can rework itself to achieve the goals of trade friendliness and use the benefits achieved from the trade to develop Lahore.