- Government’s highest priority?
In last week’s article, lack of government’s presentation of policy at the federal and provincial levels, would have rightly left the readers — just like the writer himself — with tones of pessimism. But just like every cloud has a silver lining, the government should pluck those strands of hope — like roses from among the thorns, which are present no doubt every which way they would look — through hard work and vision, and pleasantly surprise the electorate with coming up with a proactive economic policy — one that is not reacting to day to day issues, but rather presents something innovative. As Robert Frost, a famous English literary figure, aptly puts, ‘the road not taken’ in our economic history, needs to be taken. That will bring much needed optimism because after all before the economy improves, the expectations that it can improve, need to be generated. That positive sentiment is still missing in the mindset of consumers and investors.
At the same time, the innovative policy needs to not only create appetite for investment — both foreign and domestic — but also should try to direct it to areas, which will put the fundamentals of economy on strong footing. For long the country suffers from consumption led growth, at the back of little domestic manufacturing and high import costs — where imported goods are highly tilted in either supporting the energy and locomotive sectors — in the shape of petroleum imports- and in fancy consumer items.
I say suffers, because a) this type of consumption puts pressure on foreign exchange reserves, b) does not allow human resources to be developed because private investment is not in areas of making schools or hospitals, primarily at the back of weak government and financial institutions’ support, and c) promotes a culture of enjoying living standards that are mainly based on foreign produced goods — and not home manufactured — which lead to i) rise in inflation through inflation-pass through at the back of international commodity sector shock, and domestic devaluing pressures- like little exports and foreign investment to bring needed stability and built up- on the value of foreign currency.
Policy needs to re-engineer the composition of demand of goods and services, and the avenues which this demand determines
Policy needs to re-engineer the composition of demand of goods and services, and the avenues which this demand determines for the loanable funds to be invested in, for example, numerous clothing outlets that thrive at the lopsided demand of clothes. For that incentives will need to be provided that requires some proactive and innovative policy, some of which could be:
- Government in Pakistan should inject domestic currency into the economy to boost long gestation social sectors targeted investments. That would build up needed infrastructure, and also cause little impact towards demand-pull inflation.
- In the same vein, government should purchase foreign currency from international markets — in a hedged way to curtail exchange rate volatility — so that it provides foreign currency at a subsidised rate to importers, who would use that to boost the needed competitiveness of their exports.
Both these steps will influence much needed re-direction of domestic investment into production activities, which are needed by the masses; away from those areas that are only desired by the elite.
The other part of this proactive policy would require fixing the markets, for which the government will need to reduce the number and extent of variables involved. Markets in developing countries need predictability, even in the short run, for which it is important to bring in some sort of hierarchy to see to it that price of goods is fair for both consumers and producers of goods. Also, asymmetry of information needs to be reduced, and this is a big ticket item when it comes to whether someone will think of buying or investing in a certain market.
The second thing would be to bring fairness in the labour market, in terms of working conditions, and pays and welfare benefits. What it needs most is that the education system supports firms in receiving productive labour force. While the education sector is made to improve overall, the government should create educational centres that focus on harnessing labour force for the type of industry that the government needs to focus on most; and in time the circle of such focus envelops all sub-sections of education and needs of economy, including that of firms.
At the same time, while the firms are assisted in obtaining sound labour force, transparency needs to be brought in firm activities. Firm hierarchies have come to be known for their exploitative practices in terms of labour rights — wages, benefits and working conditions are well-below satisfaction. Even competition regulations are not followed, for which the Competition Commission of Pakistan will need to show more understanding and vigour. Firms, and in the broader sense the private sector, has come to become virtually totalitarian structures, where commands follow a top-down pattern of hierarchy, and decision making is not at all democratic. Labour unions, especially in developing countries in Pakistan have become next to non-existent.
Proactive policy will be needed to approach policy at the local councils level, which includes elected local councillors provided funds and authority to meet the local council needs, but what should also mean that a local council should be made to stand on its feet in meeting all the needs of that area. For example, there should be up to the mark schools and hospitals, labour bureaus and welfare centres for the poor and needy, but should also have a tax and subsidy mechanism that allows local, provincial, and federal funds to bring to power all local councils; even for special area-specific needs of an urban, sub-urban, or rural local area needs.
To exemplify further, a master plan for each type of local council needs to be developed, for which a national level survey should be initiated to fill-up on needed information gaps, and that this plan includes a financing plan. The plan should include planning for libraries within council-level community centres, along with parks, and some sort of standardised market architecture. In the city local councils, there should be planned and legislated commercial and residential area policies, for example, while in the rural local councils, there should be planning to provide well-monitored centres for agriculture extension services.
Proactive policy also demands that government should, a) line canal banks, and b) see to it that the institutional and organisational arrangement is there to meet i) natural calamities, for example floods and earthquakes, and ii) man-made disasters like outbreak of fire, both of which would require, among other things, sifting local councils for renovating buildings that are old and weak, cleaning electricity wiring that is hazardous.
Development of economy, restoration of environment, and uplift of the level of democracy would all require that this type of proactive policy should cut-through the heart of issues. The list is long but to achieve the obvious and the most urgent — like the areas mentioned above — should be the highest priority of the government. For change to be positive, and for it to be seen and felt, would require proactive policies; a pro-active collaborative approach by all tiers of government.
