The elections have successfully taken place, the euphoria will soon be over and before the new government realizes it will be time to start delivering on its election time economic manifesto. Budget is already overdue and the youth (a big chunk unemployed), which was in the end engaged by all successful parties, including PML(N), will not wait for too long before demanding jobs and the rosy future that was promised at the time of mobilizing them and seeking their votes. In this regard the key for the new economic managers will be to spur equitable growth and create employment through prudent endeavors that kick-start a process (currently stalled) aimed at revival of national industry – And that too one that entails short-term results yet long-term sustainability. Without going into the micro details at this stage, one feels that in order to achieve this successfully the government will be well served to carefully evaluate the following phenomenon when devising its industrial policy going forward,
First, understanding what Industry truly means, especially in context of Pakistan? Industry, as was explained by our elders, (not always explicitly taken up in business schools), is a commitment, a passion and a journey about long-haul. If one is looking for quick profits then perhaps trading would be a more suitable profession. Also, it would be pertinent here to go into the history of the term ‘Industry’: If one goes back to the 19th or even early 20th century, things were quite simple as one had to contend with mainly two activities, Business and Industry and Trading. The former referring to a notion that business and industry were intertwined and trading primarily referred to shop-keepers or wholesalers. This changed in the modern day economic world where the term ‘business’ took a much larger domain entailing everything from stocks to services to derivates, etc (in short anything that carried market value) and industry became reduced to or redefined as ‘manufacturing’. And it is in this transformation of its outlook where the real focus or the importance of industry took a back seat and as the world moved on towards the much touted service or knowledge ages, industry or manufacturing per se was pushed in the background in the industrialized economies of the West. Arrives the 2008 financial crisis and the industrial successes of China and India, and we now find the western economic experts again going back to the basic drawing board – Realizing that letting their manufacturing strength slip was a dire mistake and at the end of the day it is production that creates real value, both in terms of determining wages and creating employment. And this is precisely the lesson that the Pakistani policymakers should also not forget!
Second, the economic mangers need to focus on the Industrial opportunity that exists today for Pakistan in the world of global manufacturing. The factories of the world or the global manufacturing engines mainly China, South Korea and to a certain extent some Far Eastern Asian Tigers are witnessing a period in their history where not only have their wages risen sharply in recent years, but they are also seeing a shortage of basic labor force.
Pakistan on the other hand is amongst those countries that can be bracketed in a cycle where there prevails an economic slow down yet the corporate profits are healthy. Meaning, the increase in wages in recent years in Pakistan has not been commensurate with the increase in productivity. And now given the social accountability issues emerging in Bangladesh this period presents a real opportunity for Pakistan to capture manufacturing space from countries over which it today enjoys competitive edge. It will be a shame to waste this opportunity just because we could not get our own house in order.
Third, in the industrial revival concept itself, a correlation between corporate governance and industrial revival needs to be established. One realizes that this may not go down very well with some players who in fact complain of too much oversight as it is and are of the opinion that perhaps the SECP is in an overdrive gear in drafting the corporate governance structure in Pakistan. While no one here is advocating further bogging down of industry in the web of bureaucratic red tape, corruption and incompetence, what in essence one is saying is that if we are to base our industrial revival on equitable and sustainable footings then the right mix or the genuine equilibrium between private sector freedom and governmental oversight needs to be found. Numerous recent studies conducted and now also officially released by IFC and SAICG point towards the combination of good corporate governance and professional governmental oversight as an economy’s ticket to stimulating investment, enhancing competitiveness and curtailing rent seeking. One hopes and prays that they work honestly in building the necessary human resource for making this endeavor practically possible.
Fourth, though these may be early days they still need to have an open mind on adopting the ‘hunting’ approach (as it is popularly referred to in India), both at the provincial and national levels. This entails consciously inviting big investors to invest in one’s country or province by offering incentives that are simply too good for the investor to turn down. The destination attracting such an investment (primarily in manufacturing) may lose out in the short term, but stands to gain in the long term through employment generation, taxes and mainly because that large organization serves as an incubator that overtime can unleash its own dynamics vis-à-vis vendor industry, cluster formation, expansion, social accountability, development of key human resource, etc. A good recent example is that of the State of Indian Gujarat’s wooing the investment of Tata’s Nano car plant.
Lastly, ‘Visibility’, which in any process and especially in Industrial Revival is going to be the key. By all means enforce ethical business practices, catch the tax evaders or defaulters, punish the utility thieves, but please be fair and keep it very low key. The visibility of an action builds perception and as we all know that in business and industry perception can sometimes be more damaging than reality. In the dark periods of history the draconian actions of the time had specific purposes, public hangings or little minarets of skulls to instill fear and extract submission of people to the new rulers.
Whereas, today in the modern day world we instead seek inspirational leadership that desires support and not submission by its people – Going by this one hopes that the incoming government will work to encourage entrepreneurship and entrepreneurs and not otherwise. Trust me an industrial revival can only happen by recognizing industrial successes as icons and not as villains of the society!