Daily Times

Ever wondered why, despite the best of plans, infrastructure projects and chants about having all the resources in the world, our economic woes continue? There has to be something that is missing and that needs to be fixed. Around us, China, South East Asia and East Asia have moved to the first and second worlds within decades. Why could we not?
Well, the pass the blame route will naturally be to blame corruption. However, corruption in Pakistan as a percentage of the GDP will not be very different from many of our Asian neighbours. Where we are a country deficient in many natural and commodity resources, so is Japan. China imports most of her commodity needs. For most booming economies, resource constrains do not paralyse economic growth much. So, what is the silver bullet to economic prosperity and why have we been missing it?
Irrespective of what the chatterers will make you believe, there is only one contributor to a society’s economic progress and that is productivity. Societies and nations that realise the economic opportunity in line with their skillset (or lack thereof) and try pursuing it, end up becoming prosperous. The economy is a classic case of the snowball effect. You start with what you have and soon you have more, and so you venture into the next realm. Rather than changing what one has, one needs to focus on how to best use what one has right now and this is where our economic planners have failed us one after the other. Instead of focusing on the business school buzzwords of ‘value creation’, ‘highly skilled workforce’ and all, the economic planners in this country need to focus on a single-point agenda: how to make the country more productive.
And what will make the country more productive? Well, there is only one indicator that should matter for economic planning in Pakistan: workforce participation rate. Workforce participation rate is the percentage of the working-age population that is either working or is seeking work actively. In developed economies as well as the fast-developing economies of Asia, the labour participation rate is around 80 percent for men and 50 percent for women. In Pakistan, it is 63 percent for men and 21 percent for women. By one estimate, Pakistan’s GDP would have been $ 35 billion more had it had 16 percent more men and 24 percent more women of working age in its workforce. This would bring the per capita income up by over $ 220. More importantly, the increase in wealth would go into the lower income classes, thus creating a consumption boom in the economy.
Workforce participation rate is a function of incentives and needs. If an individual has either a need desperate enough that to fulfil it he or she is willing to take up the work available, he/she will enter the workforce. At the same time, if the jobs around offer incentives (remuneration) lucrative enough for an individual to let go the leisure (or status quo) of doing nothing, again he/she will jump into the workforce. On the need’s side, the biggest hurdle is the family safety net. Since most live in the joint family system, even among the poorest of families we see many people in the family doing nothing while one or two work to earn a meagre living, which ensures the entire family’s basic sustenance. This joint family safety net is one big hurdle in our economic growth and the tradeoff has never been considered by policymakers.
We are an underdeveloped economy and so we cannot expect to have large lucrative incentives offered to people entering the workforce. But more efficient allocation of capital can ensure more economic opportunities and thus higher wages, leading to more incentives for people to join the workforce. Unfortunately, a very large chunk of capital in Pakistan moves to non-productive sectors like real estate. Capital stays there in the form of non-productive, dead investment for years. This capital in real estate, through asset price inflation, also leads to inflationary pressure on the economy. Pakistan needs a policy that discourages dead investments in real estate and encourages capital to be deployed to more productive sectors of the economy.
There are things that the government can do in this regard. To discourage dead investments, it can tax non-productive assets like non-rent producing real estate and non-productive agricultural land. It can also start the process of creative land reform, distributing/leasing vacant government land to farmers to make it more productive. Above all, the government needs to focus its policy from value-added, privileged economic sectors to the growth of low-skilled economic sectors like agriculture, low-skilled manufacturing and services to encourage a higher workforce participation rate. It is time to reorient economic policy. We are not yet ready to be Silicon Valley but we sure can start utilising the labour force and resources we have in the most efficient manner. This is the route to more equal, robust and rapid economic growth for Pakistan.

The author can be reached on twitter at @aalimalik