Tuesday, 12 November 2013

Understanding growth in Pakistan!




FEG was developed after many consultations across Pakistan mostly outside Islamabad, in many of the smaller universities, Janshoro, Quetta, Haripur, Sargodha etc. It was also based on the latest research on growth. It shunned the usual practice of endorsing a donor or consultant written paper. 
The FEG was approved by the National Economic Council in 2011 and 2012. Any new plan must take FEG into account as it is a part of the country’s policy and is not related to any political party. It is a totally non-partisan effort with ownership of many Pakistani intellectuals.
The key findings of the FEG were that

  • Current strategy of pursuing aid-funded projects and postponing reform would not lead to sustained growth; and
  • It was not the “Hardware” (roads, bridges, dams etc) that was constraining growth but the outmoded software (public sector management, productivity, regulation)

FEG then identified the software changes in the form of critical reforms that were necessary to lead Pakistan on to the path of sustainable growth.
First agenda item:  Developing quality governance through a civil service reform that builds professional, decentralized governance with autonomous results based agencies focused on public service delivery (law and order, property rights, managing social sectors as well as public sector enterprises). The envisaged reform called for open and competitive recruitment at all levels, removal of political influence through the old transfer system, introduction of merit at all levels, removal of the centralized federal control at all levels, and a modern incentive system based on results achieved and transparent cash payment (no perks and plots).
It is important to understand that the current system of payment through perks and plots is the genesis of rent seeking and no-professionalism. It also retains the raj mentality in government, where the executive can arbitrarily and without due process dispose of public property. This is where reform must begin.
Second agenda item: Developing vibrant and competitive markets by reducing the footprint of government in Pakistan. Reform would involve the dismantling of the various subsidy/protection regimes that are marinating a cartelized and rent seeking private sector in close collaboration with the government. The practice of arbitrary tax exemptions by the Ministry of Finance which costs about 3-4% of GDP loss of revenue while also retarding competition would have to be given up. It would also require careful deregulation and pulling the government or its various ministries/secretaries out of the business of managing markets. It is a much larger agenda than blind, unintelligent privatization without reform.
This reform can only happen if we have a professionally managed system for both economic management and market regulation two areas that are critical for modern economies to develop. Such as system also requires autonomous and competing agencies seeking to results for societal objectives. For example an independent central bank, an independent reform commission, an independent results monitoring agency, independent regulatory bodies. And independence means no secretarial, ministerial or even prime ministerial arbitrary interference.   Once again note that this will only happen if we do have a civil service reform up front.  
Third agenda Item: Developing creative cities through removing the excessive control of the civil service which have arisen from a system of self-dealing in a regime of perks. Autonomous cities run for commerce entrepreneurship and innovation will generate sustained growth, include the excluded, provide opportunity for the poor, and open up investment space. This would mean dismantling current regulation that prioritizes sprawl and bureaucratic “perk-seeking.”
City management has no reason to be beholden to a distant layer of government be it a secretary of a minister. The current system of DCOs, EDOs, being junior officials of a federal or provincial bureaucracy is destroying city government by placing people there who neither belong nor are they interested or motivated to make a difference.
In most cities, prime downtown is used for official housing, leisure activities etc denying commercial development to huge foregone opportunity cost. Once again note that this will only happen if we do have a civil service reform up front.
Fourth agenda item: Policy of building hardware has long forgotten social capital and the needs of the community. Community amenities (libraries, community centers, playgrounds etc) have not been favored in plans or visions for the last 40 years. Cities are devoid of such facilities. Meanwhile as governance has deteriorated, and rentseeking become entrenched, social capital and trust indicators are all showing a marked deterioration.
Officials are continually finding prime space for their exclusive leisure clubs, golf courses and polo grounds, yet libraries, community centers and playgrounds remain very scarce. Unless the paradigm of perks and exclusion is changed through a civil service reform, community infrastructure will continue to deplete and with that our society will continue to fragment and decay.
So what are the important lessons from the FEG that vision 2025 should take.
First, FEG is a reform program and hence not seeking aid or projects to the regret of many donors. Our leaders can stop begging and devote themselves to reform; the payoff is much larger.
Second, the critical reforms that will allow the current extractive structure to move towards competition and openness are identified in the FEG. They are outlined here and do not need volumes to detail.
Third, the centrality of civil service reform which historically sits at the heart of the rentseeking system must be the point of departure for progress.  We cannot run a modern state with a 19th century bureaucracy. Our many failures including the war against terror amply illustrates this. It is time this serious issue is taken up and our country’s intellectual muscle put to task on this. 
A word on implementation. Because these reforms are easy to understand it does not mean that they will be easy to implement. Indeed it will be very difficult. 
Such reforms are a process that will take many years to implement. What is necessary is to build a process of reform based on continued research and measurement. The process will be to make reform, measure results and correct course as required. Leadership must imbue the country with the spirit of reform.
PPP government at all levels (president, PM and FM) failed to think reform despite the FEG. Let us hope PMLN can learn. Sustained reform will require both to cooperate on reform and press on with the agenda with their own tweaks. The debate must be on aspects of reform with agreement that the status quo cannot be preserved. This means the childish struggle to “blame the past” or “erase the past” must stop.  
The FEG was based on the best of global knowledge and the best available Pakistani thinking. Newton noted, “I stand on the shoulders of giants!” paying tribute to his inherited knowledge base. The FEG should be a part of the intellectual legacy of Pakistan and should reflect in future policies, research and citations. But then our ministers do not know the Newtonian mission. Moreover, they are comfortable signing donor prepared documents resting on “some cookie cutter PowerPoint form an earlier assignment” and designed to push money.