Published Date: Oct 16, 2015
Packaged-based economic mismanagement
After the launch of farmer’s package last month, the PML-N was just about ready to dole out a textile package. Only that, now it seems, according to a Business Recorder report published yesterday, that promised textile package has been shelved at the dictates of the IMF.
This is the second consecutive blow to PML-Ns wooing strategy. Recall that the farmer’s package already faces suspension by the Election Commission of Pakistan (ECP). And when the government appealed against ECPs suspension in Islamabad High Court, the IHC simply rejected the appeal.
These are good developments, and bad developments. Good because political campaign under the garb of economic relief has been stopped, well at least for now. Bad because it shows how weak is the parliamentary process when it comes to economic policymaking. One globe-trotting development sector economist says that these packages “seem to be a very Pakistani institution since in principle economists dislike special discriminatory deals for selected favoured industries.” So yesterday it was farmer’s package, today its textile package, tomorrow it will be rice package, and the day it may be another XYZ industry package.
The package-based economic management has several inter-related problems. For one it makes capitalism a one way street. Heads I win; tails you lose. Industries and business groups should understand what they should really press the government for is reforms to achieve efficiency, productivity, lower cost of doing business, to increase yields, and so on and so forth.
For a fiscally strained country, government support should be confined to the poorest in the economic ring. And even if the government had the fiscal resources to spare, these packages would be objectionable because they create market distortions. Governments should only provide subsidies when there is a clear market failure. This means that there can sometimes be a plausible case for subsidising fertiliser for the poorest of farmers. However, a package of measures supporting a whole industry can hardly be described as responding to market failure.
Dr Vaqar Ahmed, Deputy Executive Director at Sustainable Development Policy Institute (SDPI), puts it more simply when we asked why are the packages needed. “Well, we are entering the election cycle; we remain unable to bring down cost of doing business (more specifically costs related to energy, security, trade processes including transport, warehousing and customs related costs); and in the case of farmer’s package we now have a fair idea that we are unable to compete globally when it comes to wheat and cotton yields in China and India. So something had to be done to preserve market share of yarn. Still living in 1950s!”
In addition, this column would also argue that packages like these are an SRO of sorts. The SROs are in effect equivalent to SROs because they are over and above the fiscal budget/finance bill passed by the parliament, and are as such not discussed and debated at the parliament floor. Rival lawmakers and multilateral donors should take note of this.