On one side, we have about 200 Public Sector Entities (PSEs) that are bleeding the country dry for a long time. Their combined debt stands above Rs1.5 trillion at the moment. In the last fiscal year (2018-19), these entities borrowed a record Rs330 billion to run their (loss-inflicting) affairs. Like it or not, ordinary Pakistanis will have to repay these loans and carry their burden despite the fact that majority had nothing to do with their deplorable descent into useless structures. As a whole, they are an apt reflection of Pakistan’s government - both at federal and provincial levels: incompetent, unproductive, rent-seeking and clueless in terms of innovation.
A World Bank report - Distortions to Agricultural Incentives in Light of Trade Policy - A Study on Pakistan - identifies four major rent-seeking lobbies: bureaucracy, military, industrialists and landowners. As per their calculations, the cost to Pakistani economy due to the presence of these groups is about Rs860 billion per year. Without the government’s support through financial incentives like subsidies on agricultural products and subsidised land, these rent-seeking lobbies would find it very difficult, if not impossible, to exist.
Combined, these two groups inflicted a loss of Rs1.19 trillion upon the country in the last fiscal year!
What I described above is akin to state-led transfer of resources, which is a norm around the world and is based on the premise that resources are transferred from the richest to the poorest. But in Pakistan’s case, as with many governments around the globe, these transfers assume adverse proportions: a transfer from the poor and middle classes to the rich. No country can prosper in such circumstances.
Now let us contemplate the other side of the picture. About two weeks ago, I was invited as a guest speaker at an event held by Alternate Solutions Institute (ASI), an organisation that owes its existence to the tireless efforts of Dr Khalil and his colleagues like Dr Raza Ullah. The institute holds trainings and dialogues and invites youth from all over Pakistan. The training, roundtables and discussions are centred on a very important concept: economic freedom. The topics covered under this theme included entrepreneurship, intellectual capital, copyrights, law and economic growth, ideas and incubation centres. It keeps clear of the typical ‘media-hit’ topics (like politicians and celebrities, and their shenanigans), keeping the intellectual exchange centred on issues that matter most for wealth creation.
It was a very pleasant surprise for me; in my professional career, I have rarely come across such an event. Even more pleasant was the intellectual curiosity and zest for entrepreneurship exhibited by the youth that had come from all across Pakistan. I met brilliant young men and women who were also budding entrepreneurs. The stories of some female entrepreneurs were really inspiring, since the kinds of odds they had to face to realise their goals were formidable. Yet, without any government support or subsidy, they made it possible. The opportunity to interact with young journalists like Syed Naumanul Haq was also quite a revelation. Being associated with the impressive National Incubation Centre in Karachi, he has now been working for years to educate people about benefits of entrepreneurship, innovation and achievements of incubation centres for wealth creation and economic growth.
Aside from ASI, I had the pleasure to work with Policy Research Institute of Market Economy (PRIME), another think tank that was also founded on the basis of spreading the idea of economic freedom within this country. Dr Khalil was, again, a main proponent of this initiative along with Ali Salman. Institutes like the ASI and PRIME represent the other side of the coin, running without rent-seeking or government mandated subsidies, and working for the cause of spreading the idea of economic freedom.
Now you have the two sides of the wealth creation equation: one that is depressingly familiar, and works tirelessly to sift out our wealth from us through a legally mandated edifice known as the government. The other side is the unfamiliar one, where unheard of individuals are striving for the betterment of this country without any dodgy financial intentions. And they are doing it without getting any support from the state.
The PM and his team, as well the citizens of this country, are at liberty to choose any of these sides. I am sure, though, that if there is seriousness about wealth creation, then the choice will have to be the latter rather than the former. If the latter is chosen, then it is important to understand the concept and application of economic freedom. The detailed discussion, including the intellectual basis of the idea, can be found the FRASER Institute’s yearly publication on Economic Freedom Index (EFI). However, just to give readers a heads-up, it would suffice to point out that the countries lying in top bracket of EFI have per capita income that is seven times higher than countries lying in the bottom bracket. The same countries are also way ahead in terms of other socio-economic indicators.
Thus, if PM Imran Khan is really serious about wealth creation in Pakistan, he should peer into the workings of the government machinery and how it stifles economic freedom of the citizens. For example, he should consider the fact that it would hardly take a few billion rupees to setup an efficient legal procedure that leads to faster resolution of issues confronted by businesses, and also for giving protection to intellectual property rights. Also, it would hardly take a few billion rupees to support incubation and entrepreneurship efforts, and to provide support to institutes like ASI for furthering the wealth creation agenda. This proposed expenditure is nothing compared to the combined Rs1.19 trillion loss inflicted upon this country during last fiscal year by the rent-seeking groups and debt taken by PSEs.
Pakistan’s state needs to change tract from being a supporter of unproductive ventures to being an entrepreneurial state, one that facilitates and protects productive ventures, entrepreneurs, new ideas and innovation. That is how Pakistan’s wealth will be created in the true sense.
The writer is an economist