LAHORE: The challenge of governance in the economic sphere is to transit from a rent based limited access social order focused on the elite towards an open access order which provides economic opportunities to all rather than a few.
The elitist economy of Pakistan is a hurdle in job creation that mainly comes from small and medium enterprises. With all facilities and favours going to the elite the small and medium enterprises (SMEs) are hard-pressed to scale up and create jobs. Job seekers are unemployed, out of labour force or employed in jobs that they would like to leave. They strive for better salary and perks. In recession only a minority of new hires come from unemployed as the businesses have the choice of recruiting comparatively experienced hands. Our growth has slowed down appreciably in one year and those entering workforce now are unlikely to be accommodated by the existing industries, while new investment or expansion is not on the cards, at least for now.
Still there are many job openings available in almost all the industries but entrepreneurs rate lack of skilled human resource as one of the major impediment in the way of investment.
This government is wooing overseas Pakistanis without analysing the reason for their reluctance to invest in Pakistan earlier. Most of the well-off Pakistani expatriates have a burning desire to invest in their homeland but they want to do it in state-of-art modern manufacturing units, requiring skills that are not available in the country. In the past overseas Pakistanis used to bring in used and discarded technologies from abroad to produce products for local consumption. At that time the economy of the country was closed. Now imported products at lower duties are wiping out industries with obsolete technology.
Pakistanis, living abroad, also realise that in order to help their country they would have to establish efficient modern plants capable of producing global standard products that could discourage imports and be exported as well. The main assistance that they or for that matter local investors need is human resource with required skill-set. The importance of skills can be judged by the fact that around 60 percent of the unemployed persons in Pakistan are illiterate. The poor quality of our human resources is evident from the fact that 33.3 percent of the entire workforce has only one year of schooling, while 70 percent of the workers have an average 8 years of schooling.
We do not have many qualified engineers, experts or workers in enough numbers. What is even more alarming is that only 1.3 percent of the population in the 14-9 years’ age group is presently enrolled in vocational and training institutes. Average enrollment of same age group in Organisation for Economic Co-operation and Development (OECD) member countries is 35-60 percent, while even in Asia Pacific it is 6-20 percent. Another point worth noting is that most of the skill training is provided by state-run institutes that still run courses in outdated technologies.
As the small enterprises with older technologies are gradually closing down, we are regularly experiencing job destruction. Most employed are constantly on the lookout for better jobs. So separation rate that is the rate of departures from jobs owing to various reasons like layoffs, quitting, firings, and termination of time-limited or contractual employment, is expected in even normal times.
However, what is going on in the manufacturing sector is job destruction as SMEs, the main providers of jobs, are constantly closing down. These units are not being replaced by more efficient technologies that could create employment. Vital difference between job destruction and job separation is that at manufacturing-level job destruction occurs when employment shrinks, which means it is the separation rate less hiring rate or zero whichever is greater. We will have to make efforts to stop this trend or be prepared to lose the manufacturing base of the country.
The present government would have to take measures to remove market imperfections and structural imbalances in various manufacturing sectors. It is associated with the temporary loss of output. In economies with strong institutions the decline in the production of non-competitive enterprises and industries is offset by an increase in the production of competitive industries and enterprises. This again raises the importance of strong institutions. Fragility of our institutions is manifested by high and growing money velocity and in the decline of bank financing as a proportion of the GDP, in poor enforcement of property rights, bankruptcies, contracts and law and order in general, and increased crime rates.