Wealth creation

The PM of the Islamic Republic of Pakistan is bent upon ‘creating wealth’ within Pakistan. The FBR must understand that “tax is a by-product of economic growth. With more economic growth we would have more taxes.” If the FBR simply sends out hundreds of thousands of tax notices to meet certain arbitrarily set tax targets it will end up killing growth and this ‘murder of growth’ shall result in less taxes – not more. This is anti-wealth creation.

The PM is bent upon ‘creating wealth’ within Pakistan. We need to ask ourselves five questions. Question number 1: Has the government reduced regulations? The answer is in the negative; the government has not reduced regulations. Imagine: we have four-dozen types of taxes including five kinds of corporate taxes, a dozen social security regulations, education cess, professional tax, tax on interest and all kinds of stamp duties. Overregulation is killing growth. And overregulation is anti-wealth creation.

As far as wealth creation is concerned, the government of Pakistan is a ‘disabler’ – not an ‘enabler’. Shahid Kardar, the 16th governor of the SBP, wrote: “There is an urgent need to reduce the footprint of the state by dismantling the overextended regulatory framework and apparatus strangulating private activity and shackling the economy’s growth prospects.”

Question number 2: Have we altered our savings rate? Gross national savings is a “nation’s collective ability to save” – personal saving plus business saving plus government saving. For the period 2011-13, Pakistan’s gross national savings as a percentage of GDP stood at a pathetic 12.5 percent of GDP.

National savings is the most important determinant of wealth creation. In Pakistan, the government is the biggest dis-saver. Is the government now trying to alter the nation’s savings rate? The answer to this question is in the negative; the government has not made any attempt to alter our savings rate.

Question number 3: Has the government undertaken policies to raise the rate of productivity growth? There are three major routes to raise the rate of productivity growth. One, enhance competition. Two, policies to increase the skills of the workforce. Three, enhance R&D funding. Has any of this happened? The answer is the negative.

Question number 4: Has the government designed policies that will promote technological progress? Has the government started encouraging the private sector to allocate funding for technological innovation? Is the government providing incentives to knowledge-intensive industries? The answer to all of the above questions is in the negative.

Question number 5: Do we have a robust industrial policy? In the Ayub era (1958-1969), the share of manufacturing in our GDP stood at 12 percent. During the ‘Decade of Development’, rapid industrialisation had taken the share of manufacturing in our GDP to 16.5 percent.

During the Bhutto era (1971-1977), the share of manufacturing as a percentage of GDP fell within a year. Bhutto’s ‘socialist economics’, along with his three-phased ‘Nationalization and Economic Reforms Order (NERO)’, ended up depressing economic activity for at least three years.

During the Zia era (1978-1988), for the first five years industrial activity remained depressed but then picked up steam whereby in Zia’s last year the share of manufacturing in our GDP came out to be 16.79 percent. In 2005 (Musharraf, 1999-2008), the share of manufacturing as a percentage of GDP came out to be 18.56 percent – the highest ever recorded in the history of Pakistan’s manufacturing sector.

Red alert: By 2006, a wave of ‘premature de-industrialisation’ had taken over and by 2017 the share of manufacturing in our GDP had fallen back to where it was in 1962 (13.5 percent).

Wealth creation needs an enabling environment – just a strong desire won’t do.

The writer is the government’s spokesperson on economy and energy issues.

Email: farrukh15@hotmail.com Twitter: @saleemfarrukh