New Delhi, February 15 – Pakistan’s economy cannot be fixed without first addressing the political issues, as a corrupt government is hindering economic development, according to an article in Pakistani media.
An economic system is inherently a product of the political system. The political system is at the top of the hierarchy, and any malfunction there affects all other sub-systems. The deteriorating economic order cannot be viewed in isolation from the political economy. It is a function of the political order, designed to support extraction and rent-seeking, the article observes. The two go hand in hand, the article, written by Sakib Sherani in the leading daily Dawn, said.
"Any entity, whether it be an elite institution or a panel of experts, talking about 'deep' economic reform while ignoring or implicitly ruling out reforming the corrupt and misgoverning political order is fooling itself and us. The bottom line is that economic reform requires political reform," it observed.
The article highlights that genuine, fresh investment that brings about innovation and efficiency, and improves the country's overall competitiveness, will remain a pipe dream until the extractive, rent-seeking political order that shapes and produces the underlying economic order is cast aside.
Sherani, a member of several past economic advisory councils of Pakistan, trashes the concept being propagated by an elite panel that "creative destruction" of companies would lead to economic growth.
He pointed out that at the core of the elite policy recommendations is the implicit assumption that the inefficiency and lack of competitiveness in the economy are all internal to the way firms choose to operate, inherent in their business decisions, and independent of external factors. The assumption is that firms have agency over their environment, or that the environment in which they operate is neutral and does not exert any negative influence.
"This is obviously a heroic assumption in the case of Pakistan. And completely off the mark. Formal sector firms in the country operate under a dizzying set of constraints such as the most expensive electricity in the region (with frequent interruptions); the highest tax burden (up to 50 per cent plus with the super tax); an over-valued exchange rate; widespread smuggling and under-invoicing that produces a $68 billion supposedly underground (but very much above-ground) parallel economy that undercuts the formal economy," he wrote in the article.
Besides the executive overreach and regulatory burden, there is the cost of corruption and bribes, the non-availability of a skilled workforce, training costs for an unskilled and semi-skilled labour force, the product of chronic under-investment by the state, paying for water, security, extortion by local criminal gangs, forced hiring of political appointees, and dealing with frequent policy reversals. This set of constraints is not even exhaustive, the article added.
