The Pakistani business environment seems to be going through a kind of paralysis, which is not just making the investors (both domestic and foreign) shy away, but more dangerously, it is emanating signals that Pakistani markets may not be very lucrative to work in. Now, this is very dangerous because once the businesses feel that the returns in a market are not interesting, there is little else that can keep them interested. The arguments on market’s potential, eye on the future, hope, loyalty, nationalism, green etc, are all very good. But at the end of the day, it is all about return on investment and maximising shareholders’ profit. The debate on the trade-off between ‘austerity’ and ‘growth’ is an old one, can get complicated at times and, of course, may churn out a different winner each time based on the specific ground realities of the turf hosting it. But it can crystallise the two phenomena and the roots may lead back to the origins of Marxism versus Friedman, laissez-faire versus the ideal mix between free market and state’s control and the modern version pitting the equal distribution of returns from economic activity versus the equal distribution of opportunity itself. However, regardless of what option you focus upon, the underlying perquisite is always the same: economic activity per se needs to be unleashed first in order to generate both the required output and the opportunities, and only then can these be distributed, fairly or otherwise. And this is why while experts may debate the size, timing, structure, direction and the repeat-run of the quantitative easing undertaken by the Obama government, they stand united on the necessity of such an action to help resurrect the US economy and also, in turn, the global economy. The Europeans, who are in general considered quite conservative in comparison to the Americans, are also now following suit by implementing their own measures of quantitative easing across the troubled Euro Zone.
Today, we no longer widely share this once-commonplace illusion. Few people in the twenty-first century think that it would be economically advantageous for Europe to attempt to conquer the United States or the reverse, or for Japan to conquer Korea or the reverse. For us in Pakistan, the lesson from Angell’s work done more than a century ago is even more relevant: visionary and innovative governments focus on expanding their share of the pie by enlarging the national pie through supporting economic activities and not by grabbing the share of their own private sector!
It is dangerous for the overall well being of an economy when the government starts competing with its own private sector and ‘crowding’ it out. The function of a government is to facilitate and where necessary complement the activities of the private sector and that is why it is important that it at all times endeavours for fiscal consolidation. Fiscal prudence, as we know, not only prevents the government’s footprint from becoming oversized, but also helps growth since it allows the other more efficient market players to fill up the space left by the government and use it more efficiently.
Finally, business and resource generation is sacred and unless we start regarding business investment as a desirable activity and economic successes as national icons, the corporate culture of innovative investment, professionalism, meritocracy, and institution building will not gain momentum. In Angell’s terms, the analogous illusion that those in the business world will stand to benefit from business conquest, from aggressive and inhuman business tactics, and that they have a real incentive to use devious means to attack and subjugate, economically, the majority of the population needs to be done away with. To take a concrete example from the West, people widely assume that it was in Goldman Sachs’ interest to deliberately double-deal its clients, as it allegedly did in 2007, urging securities on them that Goldman thought would eventually fail, because the securities were designed to benefit a different client, Paulson & Co. - a fact not disclosed to the clients.
At the same time, Goldman Sachs was effectively taking short positions on these same securities. As another example, people widely believe that the American company Countrywide Financial Corporation deliberately issued and securitised mortgages that they believed would ultimately default. It has been claimed that the subprime mortgage collapse that brought on the current financial crisis was a deliberate plot by Countrywide and other mortgage lenders. There may well have been some moral lapses behind these events, but it is not correct to claim that these institutions acted deliberately in full knowledge of the actual outcome. To the extent that they misbehaved, it was simply not in their ex-ante interest to do so. At home, it is widely believed that most businesses are corrupt and don’t pay their taxes honestly. Again, there may be some element of truth in it, but to generalise the whole thing and for the government and its machinery to directly or indirectly imply this notion or promote such an illusion can surely not be in the national interest.
The assumption today in Pakistan, analogous to Angell’s great illusion, often seems to be that businesses have a real incentive to behave in an aggressive and evil manner. This assumption, if left unchallenged, will continue to create resentment towards business per se in Pakistan that, in turn, is bound to severely inhibit the proper functioning of the Pak economy, thus threatening to slow the advance in its growth and prosperity in coming years.
n The writer is an entrepreneur and economic analyst.