A nightmare for entrepreneurs

LAHORE: Maladies of our economy are well-known to the planners, but they cannot push remedies because of the politically-backed vested interests embedded in the power corridors.

We see many industries closed to competition because politicians favour the existing operators to reap rents. Sugar industry in Pakistan is one example where establishing new mills is banned but many incumbents expanded and modernized their mills hundreds of miles away at some other location in the same province. In some cases the courts took action but most are still operating in regions suitable for cotton cultivation. The cotton area has been encroached by sugarcane.

The sugar produced from this crop costs higher than the global price. The cotton production has gone down appreciably and we are forced to import it at high cost putting pressure on our textile industry.

There is no dearth of entrepreneurial spirit in Pakistan but they remain sidelined when politicians act as income-boosting suppliers of policy favours. Rent-seeking lobbies are a norm, making political systems and vested interests partners in trading political influence for economic benefits.

Protection of domestic industries is a free licence to loot the voiceless domestic consumers. Trade protections benefit the influential. Vested interests use the influence on politicians to block reforms that could spur growth fearing that real growth would undermine their hold on power. When the reforms agenda is dictated by the vested interests we can say goodbye to effective reforms.

Politicians differ in approach towards life; some go for money, others for honor; some aspire for longevity in power, while few want a place in history. Politicians’ actions are based on these aspirations. Those that have lust for money and longevity are the targets of powerful business interests who would ensure that monetary and trade policies serve their interest instead of national. This does not necessarily mean suppressing the economic activities but fostering it in a way that enlarges their economic base.

Excessive focus on vested interests can easily divert us from the critical contribution that policy analysis and political entrepreneurship can make. The possibilities of economic change are limited not just by the realities of political power, but also by the poverty of our ideas.

The entrepreneurial potential of this country would be unleashed once we separate vested interests from the economic policies. We need to implement intellectual property rights straight away. We have to open our economy to foreign competition. We have to provide a level playing field to all citizens where a man with talent and intellect could rise to become Bill Gates, Steve Jobs, or Jeff Besoz of Pakistan. These gentlemen did not have financial resources but the intellect they introduced in the market was fully protected. The world is changing very fast and we cannot plug the development gap by continuing to pursue low value-added production. Our huge labor force would then be confined to low paid jobs both at home and abroad.

Planners should understand that going for better technology labour market needs can only be addressed with more and better education. A substantial proportion of cognitively capable people do not respond well to formal education. This is the reason for the prevalence of highly educated, unemployed young people in our country. By providing workers with more options to improve their knowledge and skills we could provide them with tools to capitalise on developing technologies. Some of these technologies include mobile Internet and social media.

Pakistani youth has shown remarkable ability to learn these technologies. Besides getting gainfully employed these youth can get absorbed in existing companies, but could also launch their enterprises. Self-employment is a better option for workers that aspire for job security in an unpredictable and challenging labour market.

It is in the national interest to promote entrepreneurship’s potential to drive innovation and GDP growth. Financial sector in Pakistan still remains reluctant to finance new ventures by unemployed workers. They want collateral that is not available with them. The absence of venture capital makes entrepreneurship a difficult path of labour market adjustment in Pakistan. Prime Minister’s Youth Loan Scheme could have unleashed the entrepreneurial talent had the loaning been restricted to youth capable of penetrating the knowledge economy.

It would have been better had these loans been combined with subsidised entrepreneurial apprenticeships, similar to those provided by vocational training institutions to masons, carpenters, plumbers, and electricians for decades. We need to scale up from these low-paid professions.