Wednesday, 1 January 2014

Interview with Pakistan Today

Pakistan needs Imagination and Reform

We Need to Move to a New System that Promotes Competition and merit
  1. You have long advocated better management of cities to lead growth. Why? And why did the government not heed your advice?
Answer: We must recognize that the government is seriously depleted of talent to make a development agenda. Such an agenda requires serious research, thinking and debate. When we had such an agenda, there were people like Mahbub ul Haq, Burki and Parvez Hasan charged with this responsibility and they had the ear of the leadership. Today the system has no room for such people. And the leadership is distracted from development.
All our think tanks universities work for donors on their consulting agendas which are always following some fads. Today it is trade with India where donors are spending millions of dollars and everyone is focused on that issue. Planning Commission needs to put up some funding for research to allow a domestic policy agenda to emerge and liberate our intellectuals from being mere research assistants to donors.
On cities, my view is the real powerhouse of growth is deregulation of cities. Powerful well organized cities naturally reach out to their supply lines even if they are across borders. But such cities create entrepreneurs, innovation and creativity. They will lead to high inclusive growth and transform Pakistan.
  1. Why is it that military governments seem to achieve better production and growth than our more democratic setups?
Answer: Military dictatorships have been lucky that a neighborhood crisis sends money into their laps and therefore growth picks up. But let us also review their performance. The increase supply of aid gives them an opportunity which they waste on populist ideas like giving their MNAs development funds, building without clear thought, and pursuing agendas that are anti-development. Sadly our military has never had a vision for reform and restructuring society for development.
Both military and democratic governments suffer from a common problem that they lack the imagination and capacity to think through the reform that is needed. Both rely on an outmoded and a rentseeking civil service. They pick up “hearsay” agendas and do not have the attention span to make serious considered policy.
Protocol, perks and foreign trips take up all their time. This method of governance is such that there is not time of process for serious thought.
Does heavy feudal representation in democratic parties, eventually, make for policies that are not working-class friendly?
It is surprising how many cabinet members, parliamentarians and senior officials (both army and civilian) claim to have connections with agriculture and argue for higher support prices and subsidies. This is at odds with the situation where the majority of Pakistan now lives in urban areas. The lack of a census and proper redistricting seems long overdue.
It is also surprising how many are beneficiaries of the perk/plot system. The incentive system at decision-making seems to perpetuate rural subsidies and the plot/perk culture. And this is a drag on development.
  1. Do we have a way out of repeated structural adjustment programs of the Fund?
Answer: Fund programs are not to blame. Our policy is. I certainly do not share the common perception that policy should worry only about tax/GDP ratio or only about exports. Policy is about getting a right mix of interventions towards a clear goal. We have a confused and outdated agenda. We are continually chasing aid and trying to please people with ill-thought out populist schemes.
My view which I put in the Framework for Economic growth (FEG), (which was approved by The National Economic Council in 2011 and 12, was that we have to be clear that we are going to be growth driven and that growth is going to come from deep structural reform. We pointed to several areas where reform could be made to generate quick wins and achieve sustained economic growth. Urban reform and openness would boost our growth and investment very quickly by a few percentage points. If we develop a serious government through civil service reform many of our governance problems will begin to be addressed. If we follow the FEG approach, we can unlock a virtuous cycle of growth investment and reform.
  1. You have been a champion of civil service reform. Can you explain why and what kind of reform do you have in mind?
Answer: The human enterprise, from the pyramids to the modern day capitalism has always been maintained and developed by a bureaucracy. I argue for a civil service reform not to rid us of bureaucracy but to develop a strong and modern bureaucracy that we need.
Building a bureaucracy for the 21st century will require a continuous process of reengineering. The principles, however are clear. 1. More decentralization; 2. Increased competitive recruiting especially at senior levels; 3. Merit as opposed to seniority; 4. Monetization for transparent compensation and to end “enclave mentality” 5. Modern technology based work processes.
As argued in the FEG we need to move to a results based system of management rather than the current input based system. Movement to that system will allow a much more open and decentralized system to emerge. Currently the economy and all decision-making is being destroyed by the secretaries in Islamabad controlling everything from the power sector to railways to PIA through what is known as the Principal Accounting Officer. Their grip on government must be loosened. The current mess has been made by this over-centralized system. It creates large incentives for corruption rentseeking and maladministration.
  1. Why do you think your Framework for Economic Growth (FEG) has been, discarded even though it had been appreciated in several circles?
Answer: Let us not fool ourselves into thinking that our government is based on sustained hard work or sound considered policymaking. We would not be in this mess if that were the case. Everything is now done on a whim. Work is considered to be ill-prepared meetings where hasty decisions are taken by pointing to an impending crisis or the urgency to deliver to people. No one Islamabad reads or has time to read a complex document like the FEG.
Ministries like to operate in silos and arbitrarily. No one wants the discipline of a plan. Collaboration and teamwork requires effort and seriousness. It happens in an atmosphere of professionalism and not in a plot/perk/protocol culture.
We arranged many meetings conferences and other activities for the FEG. Sadly none of the ministers, MNAs and secretaries had the time to come to them. Sadly they go to no learning events or seek knowledge. We have to rid ourselves of the arrogance of all knowledge residing in powerful people. That is not a modern concept. It harks back to feudalism.
Aid supplied consultants have made government lazy. Policy is handed to ministers like fast food to ministers in donor conferences where announcements are made and loans signed without adequate thought or ownership.
  1. Remembering the good times of the dictatorship era, people question the ability of democracy to arrest our economic slide?
Answer: I have already told you I am no fan of dictatorships and I do not think they have performed better. They frittered away opportunity through arrogance, lack of knowledge or sheer adventurism.
I can make a case for better decision-making by democratic governments by pointing to financial sector reform, accepting openness, moving to decentralization etc. But I do not want to make it a dictatorship v democracy debate.
Remember both dictators and democrats have maintained colonial institutions without much updating. And those institutions have atrophied over time and are impeding development. Lots of international data—cost of doing business, governance indicators—point to this. This is the major failing of our system.
However, this is not to say that our democratic system cannot be improved through reform. We should be thinking and evolving ideas for framing better democracy. But unfortunately all types of government, our bureaucracy and our society has not thought along those lines. And we have starved the thinking sector so that they are incapable of giving us ideas. But as I said earlier the thinking sector needs funds and support by the government to liberate it from being totally beholden to donors.
  1. Why are we still confused about merits, or otherwise, of privatization? Can you please explain the economic rationale of hanging onto Public Sector Enterprises that hemorrhage hundreds of billions every year?
Answer: I think privatization is no longer opposed anywhere in Pakistan. People are suspicions of the process expecting some form of cronyism. Without reform the most common term I hear about the government is “trust deficit”. This is why I think we should make reform a central process of governance for many years to come.
PSEs are very lucrative to those who control them. They are slush funds with no accountability. Board members, mostly civil servants and friends of incumbent governments get large perks and payments. Those who have influence can get comfortable and lucrative lifetime jobs. All these people will fight tooth and nail to preserve this system. It is up to the rest of us to break this nexus.
But for good privatization we need good government and regulation.
  1. How can entrepreneurship be encouraged when the government is crowding out the private secor form credit?
Answer: FEG argued for entrepreneurship as one important engine of growth. But please remember that there is a difference between and entrepreneur, an investor and a businessman. An entrepreneur is and passionate innovator with ideas and is willing to take his risks without resort to subsidy or government support. They seldom use credit. Venture capital markets support them.
Governments cannot create entrepreneurs. They can only create a framework in which entrepreneurs can flourish and then let things happen. FEG was based on developing such a framework. It consists of vibrant markets backed by an efficient regulatory and legal system and a strong state providing security of life and property. Entrepreneurship happens in dense people centered cities. Such cities put commerce before privilege of peks/plots and kothis. In short such cities allow for density, high rise, mixed use and walkability.
  1. Considering the trajectory of the last 10 years, what is the most optimistic expectation for the decade down the road?
Answer: Without reform and a change of mindset, we will muddle along. We have a youthful population, large and rich diaspora and there is a large informal economy beyond the pale of government. I think these things will keep us afloat. There will be no major crisis. However we will not break out like India China and Korea. For that reform has to accelerate. And that reform must build institutions of the 21st century.
The current SRO/perk/plot culture promotes rent-seeking and discourages entrepreneurship. We need to move to a new system that promotes competition and merit.
I spelt it out in the FEG. That course will be followed. It takes time for complex ideas to be understood. I knew it will not be immediately implemented or understood. My desire was to change the narrative of growth. It will take time but the seed has been planted and the narrative will change. They can deny me a citation or credit for my ideas, which are based on years of research, but they cannot rid themselves of the idea.