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December 15, 2020

Competence makeover

Opinion

December 15, 2020

In a recent brainstorming webinar on forging a minimum development agenda for Pakistan, a participant inquired if corruption was a key issue hampering economic development.

Anecdotal evidence, together with governance indicators, provides ample validation of higher levels of corruption in the developing world. Low levels of institutional development are usually blamed for these higher levels of corruption. Subsequently, calls are made for strengthening institutional capability with an inherent desire to emulate institutions which have evolved over centuries in the more developed world within the confines of a different context.

Pakistan’s case is no different. Need for speed money at different levels has an added cost for doing business, in a country where the well-off pay much less than their tax potential; around $20 billion is the tax gap for FY21. This lost potential is largely attributable to weak competence levels. It is possibly many times the leakage due to corrupt elements. Thus, there are those who believe the economic decay in some ways is a ramification of decline in competence more so than corruption in many countries.

Competence is envisioning the right development agenda in the longer run for countries. The way countries struggle and succumb to less-than-ideal solutions concerning economic and social issues adds credence to this hypothesis. There are several theoretical reasons for the weak competence point of view as well. Unsatisfactory competence levels potentially hurt productive outcomes at all levels of government, from decision-making to implementation. They also tend to hurt labour productivity in the private sector. A weak level of competence can hinder the development of an economic narrative adversely affecting entrepreneurial instincts and innovation in society.

No country has ever progressed without an ability to forge strategies, implement them, make mistakes and correct course when necessary. We have learnt that many pragmatic, sometimes even unorthodox, state policies have been at work to stimulate domestic manufacturing and agriculture. Looking at the history of successful developers in Muslim world including Malaysia and Indonesia, other countries in East Asia and China, we see that competence is a common thread. It is their sufficient competence in delivering good governance to their people that has brought great economic success and remarkable human development to their nations.

Let us consider some interventions made by state functionaries and key decision-making bodies in Pakistan. The recent crisis of food items has seen a response titled towards ad-hoc administrative actions, and intensified state involvement in managing imports to solve the shortages. A contrary response could have been of creating well-functioning agriculture markets, freeing up imports, moving away from minimum price setting and tackling the productivity issue.

Productivity leaps have become an elusive dream with staple crops in Pakistan at almost 50 percent lower yields compared to the world’s best. The more things remain stuck in a low productivity equilibrium, the higher is the inflationary impact. Food inflation has been galloping at double digits for the last 15 months. The productivity thought seems to have somehow gotten lost.

Private-sector competence is also not at par when compared to Pakistan’s most important competitors. The wage rate in Pakistan and Bangladesh is roughly the same at $100/month. However, labour productivity in Bangladesh is 25 percent higher. In China, the average minimum wage is almost twice that of Pakistan. But in contrast labour productivity is four times higher. Higher competence levels impact entrepreneurship, innovation and help build collective wisdom to nurture a prosperous society.

It may be more concerning to see the themes that are emerging in Pakistan from a more medium-term economic management point of view. Inordinate focus continues on price tinkering of electricity, gas and petroleum development levy rather than fundamental reforms and/or divestment of bleeding assets. Stabilization and austerity as the model for economic development appears to triumph a growth strategy for the country. The nation is exposed to an economic narrative tilting away from the economic ideas debate. Focus has shifted to showing how a particular high-frequency indicator performs better to inadvertently proving a stronger economy.

Solving competence may need a stronger response in Pakistan through a wider involvement of multidisciplinary expertise within the country. Involvement of such expertise may also have a snowball effect to influence key structural issues. The larger institutional agenda of good governance, which is much harder to accomplish and may take a while, can continue to progress on the side.

Our development experience has taught us that context-specificity trumps all other facets in success. Pakistan has to write its own heavy lifting agenda, which will be possible only with competent multidisciplinary effort and involvement of the wider wisdom. Lack of context specificity in our agendas from a predominantly outsourced model of advice has left Pakistan’s economy in a low growth equilibrium, premature deindustrialization, persistent high fiscal and quasi-fiscal deficit, and an unsustainable debt profile. The economic narrative should refocus on economic growth as our only way out of the daunting issues of poverty and debt. There is always light at the end of the tunnel.

Taking refuge in the convergence theory in economics, one feels hopeful that poorer countries can catch-up quicker. My concerted opinion to answering the questioner at the webinar was to lean towards competence as a key constraint on development – one that may be rated higher than corruption.

The writer is former advisor, Ministry of Finance, Government of Pakistan.

Email: [email protected]

Twitter: @KhaqanNajeeb