Modern era, traditional practices

LAHORE: The mindset of our businesses has not changed from the licence, permit and protective regimes introduced five decades back when economic planners were trying to establish an industrial base in the country.

Entrepreneurs who accumulated wealth from that period are now the main stakeholders in all major sectors of the economy. Even though their second, and in some cases third, generation has entered these businesses, these companies still want the same guaranteed profits they enjoyed in the days of permits and licences.

The opening of the economy in the 1990s was a big shock for these protected souls. These big businesses were not prepared for the open market economy, and they still want protection for products they produce in the country.

On the government side, we are saddled with a stubborn bureaucracy that used to pamper and obey permit or licence holders. These permits guaranteed high profits and were issued to the privileged few. In the free market regime, bureaucrats have lost the leverage of doling out licences and permits. But the bureaucrats devised ways to maintain their hold on the businesses. The permits and licences were replaced by the bureaucratic red tape that strengthened with the opening of the economy.

The bureaucracy is now empowered with the power to assess the value of imported goods, delaying inspection for goods meant for exports, and withholding sales tax and income tax refunds.

Globally all these tasks are performed with the help of artificial intelligence. But our bureaucrats have found ways to bypass technology by creating engineered hurdles in software that forces businesses to seek human (bureaucratic) resource.

Globally, there are nominal cases where human help is needed for processing these issues, but in Pakistan only nominal cases pass the parameters of technology because the software is developed in a way to trap most cases out of automation.

Every industrial sector we analyze would reveal its reluctance to invest despite high earnings. Take the example of the automobiles sector that has enjoyed full protection for 30 years. Car makers complain of inconsistencies in government policies and failure to announce development programmes for the auto industry.

The fault on the government side cannot be overlooked. But an industry that posted billions of profits during the past two decades (last three year being an exception) should not complain. The automobile industry started investing in the last five years when the government accepted market competition.

Globally, sugar is the byproduct of sugar mills that instal distilleries where ethanol is the primary product. In Pakistan, more than half of the sugar mills operate without distilleries because sugar is a protected industry. Whatever they produce is consumed in the country and the surplus exported, relying on government subsidies if global prices are higher.

The textile sector is complaining of high costs when compared with regional economies. The spinning sector conveniently ignores the fact that there were periods when spinners minted money, and yet they still failed to upgrade their technology. Replacing 10 per cent machines with the latest technology every year would have kept the industry competitive globally.

New machines require 50 per cent fewer human resources; consume 60 per cent less energy; and produce double the quantity of yarn. Currently only those mills (the big ones) that upgraded their technology are in the driving seat while almost 30 per cent of the spinning capacity is closed.

Productivity is a major issue in Pakistan not only because of a lack of technology but also because of low labour productivity. In this regard the government cannot be absolved as it increases wages without linking it to productivity.