Saturday, 27 June 2009

On the Causes of Fundamentalism

To understand why the Pakistan state has failed while fundamentalism has risen, we need to delve deeper into the political economy of Pakistan. My research suggests that dictates of nation-building as well as economic development have led to a strong centralization of government in a large and diverse country. As is well documented this led to state interventions in education that sought to unify the country through religion and language at the cost of productivity enhancing skills. What is often not noticed is that centralization of policy and funding has made capture easier for strong vested interests to capture.

These policies have gone unchallenged since policy continues to follow funding. There is little internal capacity –no social science research, no universities, no think tanks--for developing policy; nor are there policy debates in Pakistan. As a result policy retains a short term focus and has no domestic ownership and no constituencies for change develop.

Pakistan has a very young population. Neither the education system nor their environment offers them any modernity. Policy continues to fund brick and mortar development and subsidize and protect the usual sectors. An unintended consequence of this policy has been the suppression of domestic commerce limiting urban and market development and hence opportunities for youth and the poor. Lack of urban development based on domestic commerce limits their economic opportunities. Lack of any serious policy ideas and debates leaves them with only one vision that of the fundamentalist.

Policy and donor funding must deepen such political-economy analyses before making further interventions. The assumptions on which such funding is based-that the state is a partner in development-- are clearly wrong. Organs of the state-the civil service and the army-- have now developed a strong system for capturing donor funds for reinforcing rentseeking and resisting reform. These organizations are now more interested in the distribution of funds received than in their central functions.

Thursday, 25 June 2009

On the Pakistani budget 2009-10

Missed another opportunity for change and betterment!

I hate to say “I told you so!” But I did. This is a practical budget made by practical economists and wannabe “policy wonks”. Off course egghead economists were kept a long distance from it. What did we get? Same old! Same old! Same old!

Reviewing the last 3 budget speeches even the construction of the speech, the phraseology is the same. Thanks to Microsoft, the template remains the same! All we require is some editing and some new numbers.

What are my criticisms? Let me list a few.
1. There is unanimity that we are in the middle of an existential crisis. We have a failed state that has brought us into a civil war with 2.5 million displaced persons. All the budget talks of is that 50 billion is going to be spent on the displaced people.
Governance which has caused our problem is the last item on the agenda and comprises of only some salary increases and contributions to a donor project—“access to justice”. This project reputedly is not very productive anyways.
Is that all that needs to be fixed in a failed state. What about a civil service reform with monetized perks? What about a new devolved police service answerable to the community? What about a devolved and quality driven education system independent of the education ministry? What about better training for better governance? Any investments into communities?
2. After a long time our growth rate is actually negative in per capita terms, balance of payments seem to be out of control, inflation is stubborn and the fiscal situation despite the fiscal responsibility act is not really under control. What is on offer here? Virtually no analysis of the situation, leave alone any ideas to address them. Instead we have the usual budgetary trick that has been used for sixty years stray numbers on allocations for agriculture, industry and an intended increased PSDP allocation. Any new sectors that can be opened up through deregulation?
3. The PSDP allocation as all economists of any merit have been arguing is full of flaws where cars and housing for the powerful and prestige projects in Islamabad and Lahore take all the money. Let us stop calling this development funding. It is time for a serious review of our earlier PSDP and the Planning Commission.
4. The federal government has for years denied devolution despite the law and the constitution requiring it. Part of our governance problem lies in the fact that excessive centralization has weakened public service delivery. Nothing on that! NFC again gets the customary paragraph when the federation is severely strained. When will these practical people learn that politics is the glue that holds us together and do the NFC.
5. In these difficult times the budget speech which is an important moment for the leadership to show their helmsmanship, says nothing interesting or new about a new economic strategy that will put us on a sustainable growth path. Instead we have what we have always had: some handouts for the poor (more charity not opportunity); programs for agriculture (dairy, model villages and more extension—how often have we heard that –do they not even have new lines?); more subsidies for cars (how much is enough?); and this strange return to DFIs. In the midst of our biggest economic crisis, is this all?
6. For industrial development, we are creating an enterprise development fund, a venture capital fund and a DFI. Do we learn nothing from history? All our failed experiments with NDFC, BEL, IDBP etc. Or is it “jobs for the boys” again! A better strategy would be to review the EDF and the Trade Development Authority with a view to closing them down!
7. Amazingly, though we are looking for handouts, the budget envisages no expenditure reduction measures. Numerous redundant government departments (See Furrukh Slaeem News Jan 4) remain on the books.
8. Nowhere is there any mention of government efficiency and measures to improve that. I guess the implication is that the government is extremely efficient. Does anyone agree? The international world does not. We are among the lowest in every list from corruption to Property rights! Should the government not be addressing its efficiency in its own budget?
9. We are told that our tax GDP ratio is low, yet no real tax measures are announced! A mere change in name for the existing petroleum tax and a minor increase in the registration fee for real estate. Is that all?
10. Without going into details, I found it strange that the investment energy and new education projects was almost the same as the government contribution to the investment fund for “jobs for the boys”!

Very briefly how an economist would do the budget. She would determine the role of the government and focus the on improving government productivity in all three branches –executive, legislative and judiciary. Then the budget would announce a multiyear program of reform to improve governance through streamlining government (close down departments and agencies and devolution) and clear measures (monetizing perks) and investments (better training, use of technology, improved processes) in improving productivity. Reform would be the main activity of this budget--a mainstream activity fully transparently budgeted. In actual fact, poor governance is the biggest drag on the economy. To make it the ninth point on the nine point agenda is a travesty. But then the nine point agenda is neither serious politics nor serious economics.

The economic strategy underlying the budget would depart from past failures. The sectoral focus on agriculture and industry has not paid off. Why harp on the same theme? Focus instead on building better markets. Domestic commerce which is the leading sector even today and not mentioned in the budget once. Why? Is it because it is full of the small guy—retailers, wagon drivers, chaiwallahs and petty tuck owners? Of course practical men do not think they engage in “value addition”—a very strange term. Only men in air conditioned offices and golf course add value?

But even for an obvious sector such as domestic commerce, an economist would think carefully on what the government could do to help the sector before committing budgetary resources. The last thing a good economist would do is committing to a new government agency without a good sense of purpose and clear monitorable goals. Increased bureaucracy is neither economic growth nor good governance!

It is time to end amateur economics and bring some serious economic thinking into the government. But then our seriousness about economic thinking is obvious from the fact that the government has not been able to appoint a permanent (not acting) Chief Economist for the Planning commission for the last 3 years. Not even a banker would take that job!

Monday, 22 June 2009

"We know all the solutions--All we need is implementation"

Opinion pages, dinner conversations and official meetings in Pakistan are all full of prescriptions. The claim is that we are in a hurry, “Research and inquiry is not necessary, we know it all. We need to act and not think.” Alternatively, “we know it all! The only problem is that no one will implement what we are suggesting.”

The elite including the politicians and bureaucrats would say “No research or thinking is necessary. We know what needs to be done. There is nothing to read or research. In any case, I have no time between my shadi/janaza/meeting/political functions.” They have no time to read or understand and they need to justify it by means of putting down thought and inquiry.

In this rush to act, we created the FCD problem, created a half chewed local government scheme, increased electricity with IPPs, protected car monopolies, created hotelling monopolies, built up housing scheme scams and so on and so forth.

Yet the advanced countries do not agree that prescriptions are easy. They have an enormous infrastructure for generating policy research and discussion. Unlike us, they have deep teams for developing policy thinking. Whatever policy initiative is taken is well researched frequently debated. Political parties, even in opposition maintain think-tanks for the development of policy initiatives to be used when they come to power.

Why is it that the policy in the industrial countries has been following academic thinking and not activism? Keynesianism prevailed for a long time and when it lost the academic debate to the market based system, policy changed. It seems that research leads policy and that policymakers do not seem to rush into the most easily available prescription.

Why should prescription and implementation be separated? Granted socio-politico-economic systems are extremely difficult to understand. Often for convenience of analysis or improved understanding we have to look at partial views of the system. But a good analysis will take into account the prescriptive and implementation aspects of the particular situation. All analysts worth their merit will examine the practical aspects of their prescriptions. To separate the two is, at the minimum, naive.

What most critics of the thinking and analysis are implicitly expressing is a frustration with the lack of political will for a change. Unfortunately, the impatience and its accompanying disdain for inquiry and informed analysis may itself be the reason for the difficulties with implementation. Perhaps they should examine the two types of inputs that the policymaker is getting:

  1. The activist input which throws up prescriptions too quickly and cavalierly at the policymaker without backing it up with a clear analysis of the costs and benefits and possible pitfalls. Why should all such quick reactions should be implemented? Who can distinguish between these?
  2. The donor promoted consultant report approach also does not inspire much confidence: hire a retired bureaucrat for a quick consulting job that presents the donor’s favorite viewpoint. That is then considered to form the basis of reform and policy. The donor’s agenda is visible, the skills of the consultant are apparent, and therefore the honesty of the inquiry is in question. The policymaker and domestic groups are divided on the issue if at all they are interested. Where is the ownership of reform?

Imagine that you are sitting there as the policymaker and are willing to follow the maxim of “prescription is easy,” would you follow all these prescriptions? How do you distinguish between the good and the bad prescriptions?

Given our current state of understanding of socio-politico-economic processes, we should be more humble and inquiring and not claim that “prescriptions are easy.” On the contrary, the hypothesis can be advanced that the reason that change is so slow may be because of our cavalier attitude towards prescriptions and the prescription-making process.

What should be done? There are no shortcuts. First, we must build up thinking and debate into policy. Unfortunately, the leaders of policy are too defensive making statements like “anybody who disagrees with us is not an economist” and protecting their turfs from other serious Pakistani professionals. Second, we must build teams in institutions. Most institutions remain one-man affairs with no coherence or depth to the team. These heads remain totally insular and are not subject to any form of peer review. Why is there no policy debate in Pakistan and why are their no teams in various institutions that will define and debate policy in their sectors? These are questions that we must all ask, perhaps even more vociferously than the perennial questions on our macropolitics?

Finally, our thinking community must write more well-researched and informed critique of policy rather than blame it all on NS or BB. What happened in the FCD crisis? Who was responsible and why? How did the IPP’s happen? Why was such a strange pro-monopoly policy on cars and hotels developed? Why are our urban development laws so archaic? What is wrong with the archaic cooperative law that it continues to plague us in the current housing scams and in the past coop society frauds? These and many other such issues need considerable research.

Saturday, 20 June 2009

Meritocracy---Learning from King Arthur

Why did Britain dominate the world for so long? Why does Anglo Saxon culture still dominate the world? These are important questions that have long interested serious scholarship.

Many people (eg Landes) point to early development of property rights, rule of law, limitations on sovereign power, development of an individualistic yeoman culture and the early acceptance of learning and innovation as important answers to these questions.

But most of these ideas can be traced back to the seeds sown in the legend of King Arthur.

Review the legend and you see a king preoccupied with good and efficient government even to the point of developing constraints on himself. He had an advisor in the form of the most learned man of the time. Merlin was not a magician but a wizard who was steeped in knowledge of the times and was known for his wisdom. Thus very early on, England had accepted the role of knowledge, research and wisdom as guides to policy. Indeed policy was subservient to research and knowledge.

The king ruled through a council called the Knights of the Round Table. The knights were chosen for their professionalism which they had to repeatedly prove at tournaments. In those days, law and order required that the sovereign had muscle. For this reason, the knights continuously showed their martial skills at tournaments. But here lay the beginnings of meritocracy!

Once elevated the knight had to take an oath of chivalry and gallantry! Basically this obliged the knight to protect the weak and enforce justice and the law. The concept of honor lay in the knight’s ability to adhere to this code. Herein also lay the roots of noblesse oblige where the strong and the rich took upon themselves the task of looking after the weak thus holding society together.

The combination of enlightened sovereignty, relying on wise and learned counsel, backed by a professional executive, while establishing a culture of honor, gallantry and noblesse oblige have been at the heart of almost all successful civilizations. From Rome to Japan, mythology and history will re-affirm this combination at work.

Even the latest corporate gurus talk of this combination of professionalism, meritocracy, honor, and noblesse oblige for success.

Developing countries still do not recognized professionalism. Most appointments at any level are made on the basis of official favor! Merit is word not known. Swordsmen are appointed locksmiths; locksmiths are running mints while blacksmiths are printing books.

Friday, 19 June 2009

Why are public officials transferred so rapidly?

Egoism has led to a certain form of transparency in government and it is disturbing. Most offices now have nice wooden boards with names of all officials who have warmed that seat in the last few years. But wait a minute, for some reason they hardly get to warm the seat or for even the paint to dry. Let me explain!

These wooden boards have the names of officials who served in those offices as well as the dates of their tenure. In recent visits to many of these offices, I did a quick calculation and found that the tenure of officials in a posting has been extremely short. Most officials are lucky if they remain in a position for more than a year. Secretaries are rotated out almost on a yearly basis, customs officials are lucky if they last a few months and the director cooperatives board is moved so rapidly that he probably remains in a daze.

Why do we have such quick transfers? The explanation is a combination of the following 4 factors.

  1. Each of these offices confers certain power and privilege and in some cases even possible certain pecuniary advantages. Quick transfers may be an egalitarian method of sharing these advantages.
  2. Longer tenures could make the officer more entrenched, increasing corruption and power gains and possibly even making it difficult to remove her. Quick transfers would prevent any one from being too powerful.
  3. Longer tenure could also create a sense of pride in the job leading the officers to improve the situation to the detriment of those that follow. Quick transfer would therefore, keep the rentseeking equilibrium stable.
  4. There is a stable group around any leadership that is strengthened by these quick transfers. Key secretaries, such as the principal secretary and the finance secretary are relatively more stable. Their role is obviously strengthened by these quick transfers.

Do these quick transfers affect efficiency of the department? In every job there is a learning content. Management specialists say that a person takes few months to a year to learn the job. Every job also has a creative content in that the incumbent can once having learnt the job develop better methods of doing the job. Learning by doing in a job and innovation through such learning, often results in productivity improvements and reforms. If both these internationally proven facts also apply to Pakistan then certainly these quick transfers are detrimental to efficiency.

Transfers are a colonial legacy. Nowhere in the advanced countries do you have the concept of transfers. Most civil services do not have common cadre. Each department employs, trains and manages its own staff. No transfers are forced on any official to arbitrarily move either location or department. As a result employees are happier and specialize in their respective areas.

Thursday, 18 June 2009

“What a rich country?” or “Nice to be rich in Pakistan!”

I took around my friend Miskeen Shah around Lahore and to my surprise he kept saying “what a rich country this is?” Let me remind readers of Miskeen Shah who is not well known in Pakistan at all since he does not belong to the late night crowd that meets every night at shadis, parties etc. However, Miskeen Shah is a well known in economic circles overseas because of his expertise and publication record.

Finally I asked Miskeen to explain his remark reminding him that he is in a country that is classified as poor by all international agencies.

Here is his explanation.

“It is a rich country in the sense that it can support such a large amount of waste. If the waste could be eliminated, all the people would experience a serious increase in the standard of living. Currently the system seems to support the waste of a small elite. Indeed the elite is invisibly subsidized in many ways.”

To support his argument, he made three points.

First he pointed to how our city centre was organized. “How surprising that all the land in the middle of he city is not only owned by the government but put to such suboptimal use as spacious VIP housing, government training institutions in palaces, Polo and Goff clubs for the elite! None of these uses reflect the economic needs of the country or are based on any rationale. No one seems to be aware of the hidden subsidy in this resource utilization. To be able to play polo in the heart of town at a negligible fee is a serious luxury and one that can only be supported by the implicit subsidy of government provided land and a tax shelter. Obviously this rich society has no care for extracting the maximum benefit from a resource. But what if it could?”

Second he noted how we manage facilities like the stadiums. “Even the roman forum was utilized regularly. Never have I seen a stadium like the fortress stadium that is utilised 14 days a year. And what a strange approach to a shopping mall---build shops in the wall of a stadium. A huge opportunity exists to use this land better: house a shopping mall, hotel, convention centre and sports complex in the space where the fortress stadium stands.

“But of course, any facility like a stadium, sports complex must be professionally managed. In the US no stadium remains unutilized for even a day. Often they are running multiple events in a day. Obviously Pakistan does not need to make money of such assets! Obviously, the rich beneficiaries could not care less! ”

Third, he pointed to the work habits of the elite. “It seems that every night there is a party and that it starts late and finishes late. Even the country’s leaders make time for such events. It seems that work is of secondary importance.

“Networking seems to be the most important activity and successful networkers seem to be very rich. Clearly productivity is of minor concern! Once again only very seriously spoilt inheritors of some serious wealth have that attitude to life. You are lucky to be one of the rich here!”