The political economy of job generation

During the election season, politicians compete with one another to sell pipedreams to the electorate. After Imran Khan promised to generate 10 million jobs, Asif Ali Zardari – the heir to the populist Bhutto legacy – was hardly expected to be left behind.

The former president has undertaken to provide, at the very least, one government job for each family. His faithful lieutenant, Yousaf Raza Gilani, who spent a few years in prison for making illegal appointments as a National Assembly speaker, has vowed to commit the same crime again if destiny bestows upon him yet another opportunity. Of course, a brave politician should never shrug at the thought of being put behind bars for whatever reasons. And Gilani is such a brave politician that as prime minister he preferred being disqualified to ratting on his boss.

What’s wrong with the promises to provide jobs? Isn’t employment creation one of the prime functions of the government? In view of the enormous personal and social costs of unemployment, the answer to the second question is in the affirmative and that to the first, by logical implication, is in the negative. Since the public sector is the largest employer across the world, including Pakistan, government departments take the lead in job generation. It is, therefore, difficult to question the government’s employment creation role.

That said, the manner in which employment opportunities are generated and people are recruited is as important as job creation itself. An ill-advised or shady way to hire people can do more harm than good.

In a mixed economy like Pakistan, governments generate jobs in three broad ways. First, they create jobs directly by filling vacancies in government, semi-government and autonomous departments. In Pakistan, normally thousands of vacancies arise in the public sector every year and are filled.

Second, through economic policies and administrative measures the government creates conditions that are conducive to employment creation in the private sector. Third, by imparting quality education and training, and making it mandatory for businesses to do so, the government can rack up the productive capacity of the labour force and make it easier for the unemployed to find a job.

Inducting people into the public sector is only one instrument of employment-generation for the government. Even this instrument is used in a way that plays havoc with the economy as well as the public sector, and results in more jobs being lost than created.

In order to make recruitments in the public sector, where favouritism is likely to take precedence over merit, it is important to introduce a credible mechanism. In the federation as well as provinces, senior positions (BS-16 and above) in government departments are filled through public service commissions and special selection boards (SSBs), while lower-level recruitments are made by departmental selection committees (DSCs). Autonomous organisations have their own prescribed procedures for inductions.

On the face of it, the mechanism leaves few powers in the hands of politicians to interfere in the recruitment process. All the same, parliamentarians promise and dole out government jobs, especially in autonomous organisations and at junior levels in ministries, as a matter of course. So how do they do this?

Well, the system has its loopholes. The boards of directors (BoD) of autonomous bodies are constituted by the federal or provincial governments, as the case may be, which also have the power to remove these members. In some situations, parliamentarians are also on the boards of these organisations. Armed with the power to hire and fire the BoD, the government (read: the ruling party) can manipulate the recruitment process.

By the same token, ministers have a hold over the DSCs working in the ministries. At any rate, these committees find it to their advantage not to be on the wrong side of the minister in charge and other powerful politicians. The SSBs also have two or more parliamentarians on their membership, which ensures that political considerations always weigh on their working. The recommendations of the SSBs are subject to approval by the chief executive – the prime minister or the chief minister– which brings political interference to bear upon senior-level appointments or promotions.

From the foregoing, it may not be inferred that only politicians deserve to take the rap for shoddy appointments. Bureaucrats, who only think about saving their skin and the associated perks and privileges, must also take the flak in equal measures. Without politician-bureaucrat logrolling, political interference can’t sneak up on government departments.

Political appointments may ratchet up the popularity of politicians, but they come at an enormous cost to society. If an organisation is run by incompetent people, it will soon go off track. In case of a public sector enterprise (PSE), the government will have to put in a large sum of money just to keep it alive. A cash-starved government like Pakistan’s will have to resort to massive borrowing at home and abroad to save its loss-making enterprises.

Political interference also results in the overstaffing of PSEs. Surplus employees are not only a burden on the finances of the organisation, they are also a drag on its output and efficiency. A case in point is PIA, the national carrier, which has been in the doldrums for the past several years.

As per a report that was recently submitted by the PIA’s management to the apex court, the organisation’s cumulative liabilities have ballooned up to Rs406 billion against Rs111 billion assets. Political appointments have been enumerated as one of the factors that have reduced the national carrier to a ramshackle organisation. Its employee-aircraft ratio is one of the highest in the world. Being a corporation, PIA offered an attractive salary package, which made it a first choice for job-seekers.

Elementary economics suggests that an excess number of employees leads to diminishing marginal returns. As a result, not only is overstaffing a financial burden, it also casts a shadow on the performance of an organisation. But who cares?

The politicians who look upon the public sector as an employment bureau are holding the wrong end of the stick. In order to create jobs in the PSEs, they should first be made profitable as it doesn’t make economic sense – though it may make a lot of political sense – to induct people in loss-making organisations. This will entail the restructuring of enterprises, which will shed jobs at least in the short-run – a major reason why the government shies away from shaking up these enterprises. The people in power – politicians or others – by and large don’t like to be hemmed in by rules or prudent economic behaviour.

Employment can’t be eradicated by simply inducting the entire jobless labour force into the public sector. If that were the case, no country would have people who are unemployed. To overcome unemployment, economic expansion – particularly that of the labour-intensive manufacturing sector – must outpace the workforce growth, otherwise the number of the unemployed people will continue to go up at a gallop.

Pakistan is remarkably deficient in the factors that underpin sustained economic growth and employment generation. These include human resource development; macro-economic stability; the competitiveness of the economy and of the institutions of economic governance; entrepreneurship; and business facilitation. We are ranked 115 out of 137 nations on the Global Competitiveness Index, 147 out of 190 economies on the Ease of Doing Business Index, and 147 out of 188 countries on the Human Development Index. Setting our house in order in light of these indicators has turned out to be a tall order for successive governments. But, to be sure, this is the only credible recipe for job creation.

The writer is a freelance contributor.

Email: hussainhzaidi@gmail.com