LAHORE: Trust deficit between businesses and the government has now prolonged too much, and has had a significant negative impact on Pakistan’s the economy. Announced policies are not implemented and annual budgets are followed by mini-budgets.
The investors remain on their toes. They are constrained to make business plans on a short-term basis.
The trust deficit deters businesses from making long-term investments and expansion plans. Uncertainty about government policies and the potential for unfair treatment can make businesses hesitant to commit their resources, leading to a slowdown in investment and economic growth.
This lack of trust in the government, makes businesses less inclined to engage in productive activities, which results in reduced entrepreneurship, lower job creation, and a decline in overall economic activity. Business owners may opt for a cautious approach, holding back on hiring and spending, which can negatively impact consumer spending as well. This has been happening in Pakistan for the last three decades.
Trust is crucial for effective collaboration between businesses and the government. A trust deficit can hinder cooperation in areas such as policymaking, infrastructure development, and regulatory frameworks.
Lack of trust can lead to adversarial relationships, where businesses perceive government actions as arbitrary or unfair, making it challenging to find common ground and work towards shared economic goals.
Another drawback of this distrust is that businesses misguide the government during any consultation process on sector-based policies. They make irrational demands which if accepted are not implementable in the long run.
Lack of trust results in inefficient allocation of resources. Businesses distrusting the government focus more on protecting themselves from potential risks and uncertainties arising from government actions, rather than allocating resources based on market demand and productivity.
This misallocation has led to suboptimal economic outcomes, reduced competitiveness, and hindered innovation. The inconsistency of policies particularly after every change in government has created an uncertainty that goes beyond mistrust.
Trust deficits also create distortions in the market. Businesses that lack trust in the government resort to unethical practices, such as bribery or corruption, to navigate regulatory hurdles or gain advantages.
This can lead to an uneven playing field, where businesses that are well-connected or engage in unethical behaviour gain an unfair advantage over competitors, stifling fair
competition and harming overall market dynamics.
These corrupt practices have now become a norm in our country. In fact some businesses that operate ethically and refuse to pay bribes are harassed by revenue officials who genuinely think that no business in Pakistan can be run successfully through fair practices.
The only way to mitigate the impact of a trust deficit, it is to prioritise transparency, accountability, and fairness in their interactions with businesses.
Open and inclusive policy making processes, clear and consistent regulations, and mechanisms to address grievances can help rebuild trust. To achieve this the state would have to eliminate vested interests that are beneficiary of current corrupt practices.
Businesses on their part should also welcome transparency and steadfastly adhere to ethical practices, engaging in responsible corporate behaviour, and actively participating in policy discussions to foster mutual trust and collaboration with the government.