The Bitter Economic Pill
For those who are starving, are without adequate shelter or potable water, living in absolute poverty and in unhygienic filthy conditions without necessary medical care, etc “trickle-down” economics has as much meaning as gibberish. Regretfully unpalatable measures taken to resuscitate the economy adds to the miseries of the poor and downtrodden. Sacrifices being necessary to make things economically better, the underprivileged are the only ones who have to do all the sacrificing they are the only one swallowing a bitter economic pill. “Efficiency” means reducing overheads, during “downsizing” jobs are lost. There is a time lag before a revitalized economy creates job opportunities again. The middle class gets on the gravy train gradually, in direct proportion many more are beggared in the process. This is the time-tested route to economic emancipation, unless off course we have a major strike of oil and/or gas, etc. Even then endemic corruption can take the stash away to Zurich or some other money-haven, look at the state of many of the former East European countries, Russia included. The government’s responsibility is to maximize the number of people benefiting from the new economic opportunities, while minimizing the number suffering from rising prices attempt to keep the gap between the rich and the poor close. The poor have to be cushioned against the hard times they have to endure to make the economy dynamic.
Economists look to “housing starts” and “automobile sales” as the major indicators of economic progress. A third indicator is now getting recognition, “mobile phone” sales. Notwithstanding the government’s inability to provide good governance, and notwithstanding the fact that Pakistan is the major beneficiary of 9/11, both economic and political (and for that we can heartily blame President Musharraf’s timely U-turn), and though the indicators are based on some wishy-washy premises, one cannot discount economic dynamism being in the air of Pakistan. More important, is it sustainable?
Sustainability is dependant upon the government taking some fundamental steps to ensure that our vibrant economic indicators do not have feet of clay. Local automobile manufacturers promised must adhere to the “deletion” program promised by them. There are increases in “manufacturing” only when it is not mere “assembling”, something this country was already doing as far back as 40-45 years ago. I for one had a Chittagong-assembled “Ford Consul 315” car in December 1965. Unless majority of the parts are made in Pakistan and the vendor industry proliferates, the indicators’ potency is missing. With more and more parts being made locally, the economy of scale would bring the price down, the prices are ridiculously higher than in India. The quality of the vendor industry has enhanced over the years, the local assemblers must deal more firmly with their foreign principals. Financial institutions have helped the car boom by providing credit on easy installments, this “consumer financing” in turn has been extremely beneficial for the financial institutions. At the moment each car sale contributes immensely to the Japanese and/or South Korean economy.
“Housing starts” is on the rise, some of it sustainable for the economy, most of it is not. The government has encouraged banks to give housing loans, thereby increasing real-estate purchases. With people soon exploiting loopholes, borrowed money started to fuel skyrocketing prices of land. Some shortages of cement and steel can be attributed to local building of houses and apartments, most of it is because of increasing demand in Afghanistan and the high prices thereof. After 9/11, the apprehension of “freezing” of accounts and assets by the west fueled the local boom in real-estate as Pakistani expatriates sent their money home!
Some of the development has been spectacular e.g. the Creek City in Defence Housing Authority (DHA) Karachi, easily one of the most brilliant housing plans conceived in Pakistan. A brainchild of Lt Gen (Retd) Tariq Waseem Ghazi, the present Defence Secretary when he was Commander 5 Corps, and therefore President of the Governing Board DHA, Karachi, Creek City has played a major contribution to the perception of economic boom, it was a force-multiplier in Pakistan’s property market. True, DHA Karachi had (and has) infra-structure problems but give credit to Ghazi that soon after launching Creek City, he embarked on major renovation and refurbishment of water, sewerage, roads, electricity, facilities, etc in DHA. The DHAs are criticized normally for many reasons, most of it is patently unfair. The fact of the matter is that people like to live in DHAs. Why are property prices high in the DHAs? Why do housing schemes floated (or being floated) by DHAs have maximum participants? Government should heavily tax unused plots of land like in the DHAs and at their market price (which the DHAs should also do). That will not only deter speculation, it will encourage construction. Consider what is happening in Gwadar. There is no development, only exchange of plots! Prices of real-estate must be artificially forced down, otherwise the middle class dream to own an apartment or a small house will evaporate in frustration, more dangerously it will expand the gap between the haves and have-nots.
While multitude of cellular phones do qualify as indicators of a good economy, almost all developing countries in the world are going through the same phenomena. New companies (Warid and Telecom) each targetted 500000 phones in Pakistan by the mid of this year, they are already plus of 1 million each and going strong, Mobilink is upto nearly 7 million, or maybe even more. The thing to remember is that mobile phones are imported and the profits from calls made thereof also go abroad. That really does not matter if they make a direct contribution to the exchequer but we do need to tap into the windfall profits of mobile telephones by increasing the direct taxes on local calls made. Contrary to common perception this should not burden the economy as basically it is “taxing” ether. People are talking on mobiles far more than they need to, a little taxation will help both ways, viz (1) the government by increased revenues and (2) the consumer by economically curbing his enthusiasm for long mobile conversations of not much consequence.
We keep on talking of Foreign Direct Investment (FDI) when we should be talking of what is possible, Non-Resident Pakistanis’ Investment (NRPI). Foreign investment will come but mostly in partnership with NRPs, however first we must make it convenient for the foreign investor to come to Pakistan, not treat them like dirt! This message does not seem to have gone through to the diplomats. Except for foreign terrorists of all ilk who seem to have a free run into the country, and sometimes they don’t need a VISA because they have Pakistani passports, an investor will find that our Counselor officials are no better than “Changez Khans”. Invariably the applicants are misbehaved with! What can we expect from the poor Ambassadors, who are for the most part very responsive, if they are given material who are not only corrupt and arrogant, but also do not know their job. For the people of this nation to swallow bitter pills, one has to choose the clerks (babus) at the nation’s diplomatic gate carefully. One may take all sorts of economic measures, without outside investment we are going nowhere.
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