The state vs markets debate was nearly over by the end of the last century. Humanity had learnt through experiments and failures that both state and markets are crucial for overall prosperity. But the question of how state and markets should interact and work together still needs a dialogue. Every society has figured out an arrangement — based on their political, cultural, historical and social milieu — but it requires continuous thinking and fine-tuning.

One way to understand state-market interaction is through the example of cricket (or other sports). International Cricket Council (ICC) formulates rules of the game and ensures their enforcement. Teams and players have to compete relying on their talent, strategies and skills.

The ICC does not have a preferred team in the competition. This enables it to provide a level-playing field. Competitive sport cannot be organized without ICC’s rule making role. This analogy can be used to understand the relationship between a state and markets.

Like the ICC, the state has to set the institutional framework (rules of the game). The participating teams (private sector) have to compete with one another in the level-playing field. Prime Minister Imran Khan can probably understand this analogy better than many other statesmen. How well he undertakes this task to improve state-market relations remains to be seen.

In Pakistan, the state has been promoting buddy capitalists in many areas including sugar, textile, auto, banking, fertilizer, and energy sectors. Rules of the game are changed frequently to favor a few buddy capitalists. Many of the capitalists are also politicians who make rules for themselves. Sugar sector epitomizes this conflict of interest in our political system and policymaking.

Having explained the role of the state as a rule-setting body with coercive power, there is a need to appreciate the role of the state in the provision of public goods. Is sugar a public good? If not, why does the government intervene in this market?

Services like health, education and water supply are generally regarded public goods. Here, the state has to play a role beyond rule-setting. It has to act, invest and work closely with the private sector in these areas. The need of the time is to discuss how state and markets can work together in the provision of public goods.

An important role that state has to play is the development of social insurance mechanisms. Not everyone will be able to make it to an international team to play cricket. Many will never be able to compete due to inherent disadvantages and vulnerabilities that stem from geographic, familial or ethnic backgrounds. In this case, affirmative action — which is social protection— is significant to protect the vulnerable members of a society.

While states intervene in markets, they need to assess the efficacy and rationale of their actions. A social protection system consists of cash handouts, public schooling, public health, water supply and care for the elderly and children, among other facilities. The state can engage markets in these areas but the provision of a level-playing field should remain the key principle.

Research and development too is an important area where state has an important role. Instead of establishing steel mills and grocery stores, the state should invest in research and innovation systems. In her book, Entrepreneurial State, Prof Mariana Mazucatto has found that many of the technologies, such as internet, batteries, touch screen, aviation, GPS, drugs, and renewable energy technologies, among others, have emerged out of research funded by various agencies of the US government and other countries.

The crux of state-market interactions in Pakistan is that the lack of transparency and research in this area has been hindering overall economic welfare and prosperity for everybody, particularly the vulnerable.

The key here is that the state, in this case, established research and innovation systems through allocation of funding to universities and research centres. The research and technologies are then commercialised by the private sector to create wealth and jobs.

Pakistan has been witnessing a start-up wave for the past few years. But many of these start-ups are engaged in low-value activities due to lack of localised research. We do have many public-sector research bodies but they have turned themselves into either bureaucratic departments or factories. The state needs to establish research funds. Grants should be awarded to universities on a competitive basis instead of establishment of redundant research organisations under the Ministry of Science and Technology.

Furthermore, instead of intervention in agriculture prices, the government needs to invest more in agriculture research and extension.

It is important to understand the channels and forums through which state and markets interact in Pakistan. Some of the key channels include the working of Economic Coordination Committee of the Cabinet, sector regulators, such as NEPRA, OGRA, PTA, SECP, SBP, among others, public procurement, commodity market interventions, which include price controls and support prices, city zoning, and taxation and public expenditures.

A lack of transparency and research in state-market interactions leads to corruption and suboptimal outcomes for the economy and people of Pakistan. Ultimately, the government and the end up being confused about how to support capitalists.

Frequently, the state has to save capitalism from capitalists through regulation and awareness-raising. Unfair competition and markets left to themselves can deceive and exploit consumers. Two Nobel prize-winning economists, George Akerloaf and Robert Shiller, have explained it in their book, Phishing for Phools: The Economics of Manipulation and Deception. However, this area of public policy requires a lot of research and state capacity. For a Pakistani context, Dr Nadeem ul Haque’s Book, Looking Back: How Pakistan Became an Asian Tiger by 2050 is a good source.

Another area for further inquiry has recently been highlighted by Raghuram Rajan in his book, The Third Pillar: How Markets and State Leave the Community Behind. He mentions that there are often discussions and research on state and market failures but many of the problems in our society have emerged due to our failure at the community level. He has highlighted the pitfalls of exclusive/ethnic/tribe-style communities but emphasised how some powers should be devolved from global and national level to communities to restore the balance among three pillars of the society. I consider it an important area for further research.

The crux of state-market interactions in Pakistan is that a lack of transparency and research in this area has been hindering overall economic welfare and prosperity for all, particularly the vulnerable ones. There is a need that the decision-making forums ensure transparency of the rationale and process behind such economic policy decisions.

The research community needs to deepen its work around such interactions. The government needs to establish a research fund to sponsor such work through the public sector, instead of relying on international funding for research. Civil servants and policy makers need to be trained to understand complications in state-market interactions and assessing the impact of their actions.