GETTING the government to be an enabler rather than a disabler is the real challenge. The weaknesses of our economic system(s) can be traced to a deficiency of governance at one level or another. The most crucial aspect of this is the desire of the state machinery to regulate most activities, a task carried out by creating visible and invisible road blocks.
Small enterprises, in view of their size and limited managerial resources, suffer more than larger enterprises from the cumbersome rules and regulations, their uncertain application and arbitrary amendments with little, if any, redress.
There is a need to reduce the footprint of the state by dismantling the overextended regulatory framework and apparatus strangulating private activity, facilitating corruption and shackling the economy’s growth prospects. A large part of the regulatory framework is structured around antiquated and superfluous laws and rules. It exists because of lack of clarity on the role of government, in a world that has changed dramatically over time.
Frequently, new products and instruments are available that are more effective mechanisms for achieving the objectives underlying the laws or administrative arrangements for their enforcement. For instance, there are building and electricity inspectors to ensure the safety of private buildings used for public purposes. These services are not required if such buildings are comprehensively covered by insurance companies. Through this instrument the owners of such buildings can be spared the frequent visits of such government functionaries, who would be denied opportunities to extort bribes, while assuring the public’s safety in using these buildings.
At times the regulations actually block private efforts to improve productivity, efficiency and sustainability of operations. For instance, the sugar industry needs restructuring to become viable, involving mergers and closures of a number of inefficient sugar mills with small capacities. Unfortunately, provincial government policies prohibit the relocation and consolidation of mills, required for achieving economies of scale and maintaining competitiveness, adversely impacting efficiency and productivity of investments.
The theological principle to regulate economic activity based on complete distrust of the market and a belief in the state’s omnipotence has restricted the space for private-sector operations. The role of markets is underestimated in the belief that the state is much more knowledgeable and objective and that markets are often rigged and imperfect and private behaviour shortsighted. Even civil society in Pakistan is suspicious of markets and provides the bureaucracy with an excuse to regulate.
The bureaucracy opts for direct controls rather than market-friendly fiscal rewards and punishments not only because of the powers that it gives them to extort money but also because they prefer certainty of command and understand little about the subtlety of induced behaviour.
Owing partly to the nature and history of Pakistan’s economic development, where even the middle class was not the product of a dynamic growth process but was created through public-sector employment, we seemingly cannot visualise economic growth without support and patronage. Thus, civil society continues to view the state as an all-powerful paternal entity that is supposed to protect us against all risks and also provide for all occasions. Not surprising then that government continues to be large and unaccountable and rules rather than serves.
Flawed concepts drive us to mimic big countries in constructing complicated state apparatus. Unfortunately, donors also provide us uniform advice, persuading us to set up the same institutions as in developed countries. Resultantly, we have regulators for each market, at times two for the same market — for example the State Bank and the SECP are simultaneously regulating financial institutions, and in the case of modarabas there is the third regulator, the religious/Sharia board.
In several instances (eg Nepra, Ogra, PTA, Pemra, etc) regulatory bodies have been created more to park retiring, well-connected civil servants who clearly do not possess the skill set required to perform the job to which appointed.
The official concept of a typical regulator is the head of the agency, two to three assistants (called ‘members’, again mostly retired bureaucrats), PAs and peons, office space, several cars and mobile phones. How the government views their utility is evident from its insistence that their decisions be implemented only after review and notification by the government. And without competent regulators privatisation could result in a public sector monopoly being replaced with a private sector monopoly.
Every good organisation makes periodical attempts to clean its own house. All procedures and practices are subject to a fresh review. However, our governments hardly ever question their own mechanisms and practices, except to protect their interests and those of the civil servants. Many agencies in the public sector are moribund with little or no accountability for the quality of their output, even for delivery of services. Hence, there is a need to redefine its role and the way it carries out its business, which would involve a major reduction in the areas of its activity.
Based on the discussion above the logical way forward would not be to review individual legislation and rules, and amend them through patchwork (our standard operating procedure), but to disband all regulatory laws in one sweep, demanding that those wanting regulation of an economic activity should argue their case with supporting regulatory proposals. Of course, such an exercise will have to be well planned so as not to create a void in some essential areas that can be readily identified beforehand.
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