Trade dynamics

By Mansoor Ahmad
May 21, 2024
Pakistan suffers from one of the highest illicit trade in Asia amounting to 20% of the formal economy. — AFP/File

LAHORE: The entrepreneurial spirit in Pakistan remains underutilized as politicians act as income-maximizing suppliers of policy favors for rent-seeking lobbies, making political systems and vested interests partners in trading political influence for economic benefits.


Economists lament that despite knowing the solutions to fix the economy, they fail to persuade successive rulers to implement them because of the political-vested interest nexus that insists on doing things that are economically irrational. We see many industries closed off to competition because the politicians favor the existing operators to reap rents. Sugar is one example. Cartels in major industries are another, as cartel members make it impossible for any new entrant to operate.

Protection of domestic industries through duties and regulatory tariffs is a free license to loot the voiceless domestic consumers. Trade protections benefit the influential who enjoy the favor of the politicians that block all reforms that could spur growth, fearing that real growth would undermine their hold on power.

Politicians differ in their approach towards life; some go for money, others for honor; some aspire for longevity in power, while others want a place in history. Political actions are based on these aspirations. Those that have a lust for money and longevity are the targets of powerful business interests who ensure that monetary and trade policies serve their interest instead of the national interest. These actions may not necessarily suppress economic activities but rather nurture and foster it in a way that transfers all benefits towards entrenched vested interests, further increasing their influence.

This attitude of the state has squeezed revenue opportunities in our country. The addition of a few hundred billion rupees does not solve our problem. Even this revenue comes from hapless poor consumers. The government could get many times more revenue by withdrawing exemptions, through quick privatization. Not much revenue would be generated, for instance, by taxing domestic consumers using solar energy.

Excessive focus on vested interests can easily divert us from the critical contribution that policy analysis and political entrepreneurship can make. The possibilities of economic change are limited not just by the realities of political power but also by the poverty of our ideas.

The entrepreneurial potential of this country will be unleashed once we separate vested interests from the economic policies. For a start, we need to implement intellectual property rights straight away. We have to open our economy to foreign competition. We have to provide a level playing field to all citizens. We cannot plug the development gap by continuing to pursue low-value-added production. Our huge labor force would then be confined to low-paid jobs both at home and abroad.

We need to provide our workers with more options to improve their knowledge and skills to capitalize on developing technologies. Some of these technologies include mobile Internet and social media. Pakistani youth has shown a remarkable ability to learn these technologies. Besides getting gainfully employed, these youth can get employed in existing companies, but could also launch their own enterprises. Self-employment is a better option for workers that aspire for job security in an unpredictable and challenging labor market.

It is in the national interest to promote this entrepreneurship’s potential to drive innovation and GDP growth. The financial sector in Pakistan still remains reluctant to finance new ventures by unemployed workers. They want collateral that is not available with them, making entrepreneurship a difficult path of labor-market adjustment in Pakistan.