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Monday December 06, 2021

Productivity pains

November 25, 2021
Productivity pains

LAHORE: Sustainable long-term growth solely depends on increasing productivity and maintaining a high growth rate is sometimes a formidable task for even the most productive economies of the world.

Out growth is lopsided because we keep productivity at the back burner.

There is no silver bullet to improve productivity. The countries that grew at a rapid pace promoted rapid globalisation, innovation, and deregulation.

Our planners claim their policies are pro globalisation, and they have de-regularised the economy. If it is true, then why is Pakistan's share in global trade so dismally low? It is time to analyse our trade and manufacturing policies.

Trade particularly exports increase only if high-quality products are produced efficiently. The fact we are an insignificant player in global trade proves we are not efficient producers. We are exporters of low value-added products, and our exports are less than 10 percent of our GDP.

Our imports are much higher accounting for 20-25 percent of our GDP. We beg for export orders as no country is dependent on our exports. Any disruption in supply of apparel from China, India, Bangladesh, or Vietnam creates ripples in the global textile markets. No country in the same way is dependent on imports from Pakistan.

We would not make any dent on the economies of any of the countries from where we import goods and services. India is important to China both as supplier of goods and services as well as importer of goods and services. India is vital to UAE and Saudi Arabia because of the huge bilateral trade with them. The United States depends on Indian software services to operate its corporate sector efficiently. Indian pharmaceutical exports under generic name command the US drug market. The government of United States procures generic drugs from India prescribed by the doctors under their healthcare welfare scheme.

We unfortunately do not have an FDA accredited pharmaceutical concern, while India has numerous and Bangladesh also has a few.

Bangladesh takes full advantage of Jute that it produces. We have a rare product in the shape of rock salt. Isn’t it unfortunate that India adds value to the salt cheaply imported from Pakistan and makes big money out of it? Basmati rice is a rare long grain variety exclusively produced in a limited region of our central Punjab.

This rice variety has a unique flavour and aroma not found in any other long grain rice produced in the world. Indians outsmarted us by registering Basmati as an Indian variety and we are fighting for our due rights in the international courts. The government of Pakistan should have got the Basmati patented more than three decades back.

Productivity growth is necessary but not sufficient to support broad-based well-being, which also depends on quality of life, health, and environment. It both affects and is affected by the distribution and volatility of employment and income —at the individual and household level— and these feed into well-being, both within and across generations.

We find lopsided productivity within the same sector. Few spinning mills are 30 to 40 percent more efficient than the general productivity of the industry. Some sugar mills produce sugar as a by- product as their major product is ethanol. The productivity within the cement sector is uneven. We see edible oil mills with lopsided productivity. None of these sectors are at par in productivity than the global best.

Under the principles of free market economy, the less efficient mills in all sectors should have been closed. The reason both the most efficient and the inefficient mills in each sector survive is unethical alliances within each sector known as cartelisation.

The prices are fixed under unwritten agreements. The production is uniformly curtailed to keep supplies tight. The price is fixed in such a way even the most inefficient producer earns reasonable profit. As a result the profit margins of the most efficient ones shot to a very high level.

The additional profit is siphoned off without paying income tax. The cost model of the most inefficient entities is used by all mills with minor variations for the payment of taxes.

In the presence of unholy cartels, the entrepreneurs are not hard-pressed to improve productivity. The culture of inefficiency thus impacts our exports as well. It is near impossible to prove cartelisation, but the state could at least set efficiency standards for each sector based on the average productivity of top 15 percent enterprises in each sector. Any mill or producers producing less should be heavily fined to pave way for the fittest.