Rightly or wrongly, we in Pakistan believe that economic successes and failures at all levels of the economy, public sector, private sector, large corporate business, small and medium-size enterprise, agriculture, agro-based industry and trade, food security, portfolio investments etc, are somehow directly linked to the performance of the Ministry of Finance.
We all live in a world of financial capitalism - an economic system that is increasingly guided by financial institutions (domestic or foreign) and financial policymakers; and in the wake of repeated economic failures at home, we in Pakistan tend to simplistically transfer the entire blame of all our failures on to the federal financial management.
The economic setting and issues in Pakistan today may be slightly different, but essentially the prevailing theme bears a stark resemblance to the times when Adam Smith wrote his classic Wealth of Nation in 1776, a book long acclaimed as marking the beginning of modern economics and written during a period when the pressing issue for thinkers and critics of the day was tariffs. Private interests lobbied governments to put their interests ahead of public interests and push tariffs up so high as to make it impossible for lower-cost foreign producers to compete. But Adam Smith and other economists who followed him were successful in clarifying the importance of trade cum economic activity per se for the widespread wealth of nations. Since Adam Smith, lobbyists for special interests have found it much harder to push up tariffs and as a result trade is substantially free today - a vital institution in creating the remarkable growth and widespread prosperity we have seen since the evolution of the eighteenth century.
At this time of severe financial crisis in Pakistan, the point of contention among critics and also the public, it seems, is not focused on trade but finance itself. Hostility runs high toward societal institutions that are even tangentially associated in people’s minds with finance. The hostility is reminiscent of the public state of mind during the last major world financial crisis - the Great Depression after 1929 - which led ultimately to a degree of unrest that shut down much of the world economy and contributed to the tensions that led to World War II.
What we need to realise though is that hostility among the general public generated by the prevailing economic challenges and hardships, if fanned by point-scoring politicians, may in all likelihood have the unfortunate effect of inhibiting financial progress. Performance, competitiveness and productivity, all have everything to do with discipline and efficiency and what is not being realised is that the same very workers, who today are being used as tools to pressurise and embarrass the government, will be required tomorrow to again reassemble and run the engine of the economy. The fear is that there are too many examples which tell us that once indiscipline and protests become the order of the day, then to reverse the process becomes nearly impossible - how to put the proverbial genie back into the bottle!
Ironically, better financial instruments, and not less activity in finance (as being advised by various quarters), is what we need to reduce the probability of financial crises today and as well as in future. We may not possess the cash resources to embark on our own recipes of quantitative easing or a financial stimulus, but nothing is stopping us from undertaking measures like, implementing long overdue key structural economic reforms to ease doing business in Pakistan, bring down cost of production and in creating an environment through fair management practices that aids economic activity and stimulates investment.
While it is impossible to overlook illegality and corruption as amongst the main causes of the current financial impasse, one feels that in merely situating the blame on this sphere one will fail to take into account the big picture. We have a financial system that malfunctioned because of a host of different factors and not just the above two. If we do not address the deeper sources of these problems by improving the system, we will have missed the main point of the problem - and the opportunity to correct it!
Certainly, who committed fraud should suffer penalties. But it is hard to blame the crisis on a sudden outbreak of malevolence. The protest movements, rallies, long marches or jalsas in response are only the most manifest signs of discontent that have been discernable in public conversations and media debates. Regrettably, we find that the words, demands or, more pertinently, the solutions advocated by the street protestors and angry businesspeople alike are without focus and offer us no clarity about what is wrong or what should be done.
And yet the underlying dissatisfaction with our financial system and its poor management, in wake of Pakistan’s ongoing financial troubles, reflect real problems with the system that needs to be fixed - problems that have not yet been solved by this government and regrettably, with little hope or confidence emerging from the way they continue to conduct themselves that they even have the capacity to do so in the future.
Pakistani society today, unfortunately, seems to be on a trend toward higher levels of economic inequality, and contributing to that trend has been the tendency to especially reward well some of those who go into activities that are unproductive and undesirable, while those who make their livings primarily in other legitimate sectors of the economy, including most of the middle class and poor, lose ground.
The government bailouts, nepotism, and injudicious deployment of its already scarce resources have enhanced public concerns about inequality. And we need to be very careful as the danger here is that documented business activity that constructively contributes to the national exchequer and employment, unless encouraged, can either be begun to be regarded as foolhardy or simply the reverse where it is regarded as inherently or exclusively elitist or as an engine of economic injustice. Fair investment in any form, despite its possible flaws and excesses in some cases, is the most potent force that can help us create a better, more prosperous and a more equitable society.
Governments succeed in resurrecting economies only if they find effective ways to successfully curb public anger about the perceived unfairness of the hand being dealt to them by their decision makers. A dark political climate stifles innovation and prevents financial management from taking root in ways that can benefit all citizens. Fear grips investment and activity in an economy and in such an environment even if financial and entrepreneurial innovation is percolating, new inventions and initiatives cannot be launched.
To sum it up, what it all means is that when finding solutions to come out of our present economic difficulties, it is important to take into account the notion that this crisis is not due simply to the greed or dishonesty of the ruling executive, but also largely due to the fundamental structural shortcomings in our basic financial management of the Pak economy.
n The writer is an entrepreneur and economic analyst.