Monday, 23 February 2015

Beyond begging and Taxing!!

I for one am ashamed of our constant begging. How do you feel when you see the PM sitting in front of Gulf Sheikhs (with countries the size of Gulberg) begging supposedly on your behalf?.

Meanwhile our analysts have only one refrain “tax more”. They can’t seem to think independently of donors who employ them as consultants on trifling contracts. I have in other writings that donor claims on taxation are misguided economics.

They point to our deficits arising from the government’s incompetence and self-aggrandizement a reason to tax the people of Pakistan more. As a further reason for taxing us more they point to the abysmal level of public service here. They fail to see that the government has no motivation to provide us public service as it is preoccupied with self-aggrandizement and useless mega projects for ‘unknown’ reasons.

We do have a national employment emergency. The youth of our nation constitute over 50% of our labor force need jobs and the economy is not growing fast enough for them to find jobs. Our government should be doing all it can to create jobs.

‘Begging and taxing’ is not creating jobs instead it is keeping the government distracted from the work that needs to be done to create more jobs.

Let us get some answers by looking at ‘distressed companies’ with cash flow problems and slow growth. Such companies go through a ‘restructuring’ at all levels to come out of this situation. The ‘restructuring/reform’ plan does not involve “rob (tax) your customers more!” nor does it allow more mega-projects. In actual fact, grandiose plans are slashed.

‘Restructuring/reform’ involves three key areas of work

1.     Review and refine your product line for focus, efficiency and increased margins.

2.     Review costs to cut them

3.     Restructure assets and liabilities for increased income in the years ahead.

Of course this requires some thought and expertise which is missing in our government. 

An ‘economically-distressed’ country such as ours sadly has no ‘restructuring/reform’ plan but many ill-advised mega-projects for which it is constantly seeking funding and debt.

Here I want to focus on asset restructuring for 4 reasons. First to show the strident lobby for increased taxation that the government has huge investment, growth and income options in the restructuring of the many assets that the government is holding. Second to show the ‘tax first’ lobby created by donors that if the economy is allowed breathing space through such restructuring and investment and growth takes place, it will lead to more employment, growth and taxes. Squeezing more taxes of a dead economy is what austerity is and it destroys societies. Third, government assets currently are ‘dead capital’ that is weighing on the economy making us an ‘economically-distressed’ country. Fourth, this dead capital amounts to a tax on the rest of us and must be included in our tax calculation when we are called a low tax country. So dear donors, please stop abusing us!

If only our government took asset restructuring seriously, we could hold our head high and neither suffer donor abuse and poor policy nor have our PM be a supplicant to every tiny country. Here are a few examples of asset restructuring.

·       City center government property could be made available for big time mixed use development ranging from hotels, shopping malls to apartment blocks. My estimate made at the PC is that such development in Islamabad alone could generate over 6 trillion of investment sales generating about 6 million jobs.

·       Then there are large tracts occupied by government training institutions. NDC, Staff College, naval War College, NIPA. Civil service academy in Lahore all come to mind. Why can they not be moved to Quetta or Kohat and this land freed once again for serious development? If converted into serious mixed- use development, this could easily allow large commercial construction and much employment. 

·       A large part of city center land is given over to the elite for their entertainment at subsidized rates. This includes the polo ground, golf courses as well as club such as Sindh club and the Punjab Club. If the peasant’s land can be acquired for DHA, why not take over these ‘rich man’ facilities for serious commercial development that relieves our debt burden. This could be a large bonanza yielding many jobs. We could even build libraries and community centers on this land.

·       Creative destruction could yield a huge bonanza. Take Gulberg Market, liberty in Lahore, Jinnah super market in Islamabad! If we merely find a way to turn these relics of another time into modern assets, dead capital can be converted in to gold. For example, liberty is a huge area which could house a beautiful modern multi-level shopping mall as well as hotels, apartments, offices and parking. Use of this concept in other places could mean more output, revenue and jobs.

·       Still more creative destruction! Our cities look dated and decrepit because our silly bureaucracy does not allow renewal. Housing stock has normally an average age of 20 to 30 years. Zoning also needs renewal each generation. Yesterday’s suburb or housing could be today’s commercial hub leading to large valuation gains. As I have been arguing for many years, our zoning laws are antiquated and anti-development. Allowing our housing stock to be renewed from low slung kothis to high rise flats and commerce in all our cities from Karachi to Kohat could be a big bonanza. I think this could be huge leading to an acceleration of growth of about 2 percent per annum for about 20 years.

There is more but I am limited in space. With so much dead capital lying around, why do we beg with dishonor? My calculations suggest with these simple changes GDP could double in about 10 years or less through the growth of construction, hospitality, retail and ancillary industries. Moreover, none of this requires financing; only a rule change. More important it will vitalize investment!

Sunday, 8 February 2015

Bikes, Density and Cars

Lord Keynes in a famous statement said that “Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back”
It is not surprising to know that nowhere is this statement more true than in Pakistan. We are really a sucker for this so called “best practice” never even questioning the possibility that new thinking may have overtaken such “best practice”.
Now we are into designing the most expensive public transport system of metro-buses stretching 20+ miles across the city without thinking of options and without even a discussion on a proper feasibility. In a rush to build these we have generously committed public funds in a plethora of contracts that represent future guarantees and commitments of the exchequer.
Could there have been other approaches? This was never considered.

Before metrobuses, our leaders were enamored of underpasses and flyovers to facilitate cars to move across that suburban sprawls that we are developing. Once again you can see that these are ideas that were in vogue in the US and other advanced countries in the 60s. We did this 30 years later still listening to old ideas.

The urban sprawl and the huge road network of wide avenues flyovers and underpasses through generous use of public funds is a subsidy to cars and a tax on the poor. To see how, note that before policy started favoring sprawl and cars, the poor used bikes and walked. Now they cannot.
Enrique Penelosa, the famous mayor of Bogota has shown that mobility is an important right for all in a city and public transport is an important part of it. Our leaders have started to appreciate this lesson. But again not the whole lesson. 

Increasingly cities are learning that mobility is more than cars and metro-buses. Walking and bicycling are also mobility choices. But this will happen if a) cities are allowed to densify and b) the current policy of subsidizing cars and taxing bicycling and walking is discontinued.

Densifying will begin with discontinuation of the current sprawl model where single family homes spread into the countryside, destroying agriculture and the environment. It means allowing for mixed use, commercial development of offices and shopping malls and flat based living. It also means a liberal building code that does not disfavor high rise and commercial development. It also means a city development administration friendly to construction. 
The current model favors the car as a mode of transport in our cities. The expense of the new metro-bus routes has been raised because of the need to provide space to cars. Otherwise it was easy to simply ban cars from Ferozepur Road in Lahore and use it only for buses. No big pillars or construction.  

With densification, a lot of people can choose walking and bicycles as a mode of transport. But not if we keep the current car-favoring model in place. City administration’s 50 year romance with the car has to give.
I have argued for long now that we need a complete paradigm shift in our approach to city management. Along with densification, we need a car policy. Such policy would be based on pricing the use of the car to discourage use especially in denser, more congested parts of the city. The following principles would be used in making this car policy.

·       Congestion fee over the most dense mixed use area which should be attracting the most traffic.

·       The elimination of free or cheap parking in a big city like Lahore. Instead a graduated (distance from the center) metered electronic parking system should be developed.

·       Traffic flow should be studied for one way systems to reduce congestion and also to find space for sidewalks and bicycle lanes.

·       Sidewalks and bicycle lanes should be given priority everywhere to induce people to take these healthy alternatives. Motorists crossing over into those areas would be heavily penalized.

·       With densification, zoning laws should allow more neighborhood commerce for increased use of walking and bikes to be used.

·       Technology should be used for fee and fine collection and through cameras for enforcement. This could be a reasonable source of revenue for the city.
Somehow the powers that be cannot leapfrog into the modern era taxing us and our cities. The sprawl from Kasur to Sialkot is wasteful in every way. The Lahore smog has robbed us of our lovely winter sun and jammed our airports and our streets. Jobs and output are lost as is agricultural land, while we build in the most energy intensive manner. Yet the old mindset remains fixated on cars and their space leaving little room for people and community.,

Changing the paradigm as suggested here, urban renewal will start. Construction industry will get a huge boost and we may even begin to see that symbol of development—the tower crane-- in our cities. It will also lead to a more inclusive growth as the poor will find space in our cities in flats. And they will be able to walk and use bicycles as cars are priced right.
More than likely new services—such as delivery, carpooling, even taxis-- will develop, providing much needed employment to that worrisome youth bulge.

The Chief Minister Punjab agreed with the vision but could not persuade his officials to implement it. Can the media?


Wednesday, 4 February 2015

Building Social Capital!

The Framework for Economic Growth (FEG) that was approved by the National Economic Council in 2011-12 was never seriously pursued by the bureaucracy and has since fallen into disuse (never discarded through due process) was a program of reform for unleashing the productive potential latent in the economy. FEG importantly noted the development of the much neglected area of “social capital” as an important cornerstone of the reform program.

“Social Capital” is the potential for collective action among groups and individuals in society. It implies a high degree of trust, networking ability and capacity for teamwork and collaboration. For example it was the collaboration capacity among the US research and university system that gave birth to the internet. The industrial revolution and the success of Europe in attaining economic advance and conquering the world has been attributed to the development of network of merchant towns and collaborative science across Western Europe.

In Pakistan relationship capital exists sometimes in ‘biradaris’ and in extended family contexts. The level of trust and collaboration outside such historical relationships remains low. This is severely limiting as large ventures require high levels of social capital. Historically trust networks let to the development of long-distance partnerships and joint stock companies that were able to leverage way beyond local jurisdictions and conquer the world.

How did Europe develop social capital and we despite our many claims to history manifested so well in our monuments could not create an East India Company or Royal Society or a stock exchange? Broadly speaking the answer is found to lie in the development of the urban middle class that had cut its rural roots and developed new forms of associations such as clubs, trade and professional guilds, schools, universities and many other forms of collaboration.  English Public Schools through conscious development of an esprit de corps, discipline and team sports prepared the Company administrators who ruled us for over 200 years.

While we have learnt to pay lip-service to enrolment ratios and school attendance of low quality literacy, we have yet to learn the value of social capital. Even when we do get school or college completion, questions remain about the attitude to discipline, collaboration, responsibility and accountability. If our leaders are any evidence of this we can certainly see that all elements of social capital are at very low levels.

My dream in the FEG was to take some initiative for social capital. I knew big steps were difficult for indeed the level of comprehension in the cabinet and among ministers was very low. Indeed presenting the framework in the cabinet confirmed this collective comprehension deficit. All they wanted was the ‘fat’ in their projects.

Several approaches are needed. The one that I tried to initiate was something like this.

I dreamt of an innovative Community Center in every urban locality (mohala). The premise was something like this. A place where the whole family can come in and actively engage in creativity, teamwork and knowledge development etc. with neighbors and strangers. In some sense this would be better than sending kids only to school. The involvement of parents and the whole family could set up currents and eddies of knowledge, creativity, collaboration and more that would cultivate kids way beyond our deficient education system.

The community center must be very attractive flexible space that adapts to various needs and facilitates all manner of activities. One such configuration is a 6 floor building. If possible land in front of the property (1/2 an acre) would be dedicated to a flexible playground with volleyball, basketball, badminton etc.

A basement would contain auditoriums and meeting rooms that for a nominal fee could be booked for meetings and events.

Floor 1 would have a subsidized cafeteria and coffee houses for people to sit and chat in. Such places have been shown to be great for development of ideas, innovation and networking among people.

Floor 2 would be a flexible space dedicated to women’s activities such as games, support groups, self-help, learning etc.

Floor 3 would be a similar flexible space to organize men’s activities of various kinds

Floor 4 could be a similar flexible space for the whole family to engage in activities together.

Floor 5 would be a library and networking space with high speed net access. 

Floor 6 would be a dedicated to net learning where Khan Academy and MOOCs would be organized in sessions to draw the whole family in.

(Important caveat DMG will have to allow the height restriction because this cannot be done on a 2 level building that they love.)

The point is to create a space where families can be involved in creative interaction and play. The difference spaces should allow enough activities to attract all in the family at different levels.

On each floor there will be counsellors who will try to guide and develop activities in collaboration with active participants. The counsellors should be handpicked to be the brightest young people, graduates of our finest universities and fresh graduates of foreign universities. They would be given a good salary with a 2 to 3 year tenure. More importantly this should be a challenge for them and they should be ranked on a competitive basis. Experience at these centers and a positive recommendation should be a big plus in their future ventures.

The counselors and their creativity would be an important cornerstone of this program. Activities could be competitive such as creative games, fitness programs, talks, internet activities, Khan Academy and MOOC courses etc. Groups of Counsellors would meet and share experiences within the center every week and across centers every month.

My view is that the center usage should be on membership basis although there should be a government subsidy for developing community spirit and social capital. Yet a membership charge and some activity fee would help select more serious, interested people. But the membership should not be selected like our elite clubs where it becomes friends and relatives only and restricted. The government subsidy should ensure it is for everyone and not just some select segment.

This is just one initiative for building social capital. If we have a string of these well managed embedded in the community a large number of people will develop a variety of skills and knowledge. More importantly, the process is likely to lead to a lot of innovation and further development of the theme. Social capital will develop as a result of this positive feedback. 

What a pity, this was not allowed to happen. Worse still it never will happen!