Let’s cut to the chase. Our economy is broken. Numerous cycles of boom and bust have proven this again and again. They say the definition of insanity is doing the same thing over and over and expecting different results. By this measure, we Pakistanis are certifiably insane. In this piece, I suggest that the fundamental problem of our economic woes is not issues of governance or a focus on the wrong sectors, but rather the cultural and systemic practice of “rent-seeking.”
What do I mean by rent-seeking?
Through the course of several years working as an entrepreneur in Pakistan, I have found that, when possible, we as a nation will prefer to find the shortest cut to making money. I often tell a personal anecdote to people when I’m trying to put this point across a few years back, I was meeting an investor to discuss fundraising for a project. While the pitch went brilliantly, when it came to investing, we were told, “I love what you guys are doing and have no doubt that you’ll succeed. But honestly, if I just buy a few plots in DHA and take the year off, when I return my investment would have doubled, zero risk.”
This is emblematic of the attitude that pervades Pakistani commerce. For all intents and purposes, there are basically four chosen “profitable” business activities in Pakistan today. One, buy land and wait for it to appreciate. Two, earn from the government; get a cushy government job or otherwise make big bucks through tenders or sales to the government. Three, find a good international brand, become the sole distributor, and invest a few billion in stock; hire two or three people to manage storage and sales (or better yet, go online and save on the overheads of a brick-and-mortar set-up) and enjoy the profits. Four, and this one is my favourite, the old pump and dump: invest an unreasonable amount of money to disrupt the market; offer crazy discounts to lure customers and unsustainable high wages to poach talent; jack up the stock price under the guise of active users and gross revenue, and keep getting investments at higher valuations. Repeat steps one through three until you can offload all stocks in the stock exchange or to a bigger fish abroad before the ticking time bomb explodes.
In today’s world, it is virtually impossible for a nation to survive if all it does is engage in rent-seeking activities.
Rent-seeking is so entrenched in our culture that we do not even see it anymore. Those with access to capital get richer by the day, while 99 per cent of our ever-growing population remains largely unemployed, unskilled, uneducated, and at a breaking point. In today’s world, however, it is virtually impossible for a nation to survive if all it does is engage in rent-seeking activities. Let me be clear, I am not against rent-seeking or people who engage in such activities. I might do the same if I had access to that sort of capital (economic, social, or political). That said, relying solely upon or even predominantly on rent-seeking activities inhibits growth and leads to intellectual and economic stagnation.
To progress, we must discourage rent-seeking economic activities and implement policies that encourage the flow of capital towards value creation, mechanization, and human capital utilization. Governments cannot be held responsible for direct employment; their job is to provide policies and structures that help the private sector grow. Instead, we must look to our incredibly young population. Human capital must be the backbone of our economic revival. Trickledown economics have failed — let’s talk trickle up. Incentivizing capitalists isn’t going to cut it. Instead, we must look towards empowering those on minimum or middling wages; build up our skilled workers across all fields (vocational and technological).
Honestly, there is no secret sauce to fixing an economy; people might disagree on the fine print, but the process is undeniably simple. The real challenge is the resolve required to execute. This is what I am interested in. This is what we need to talk about. I write this today in the hope to get this conversation started.
The writer is an entrepreneur and the founder/CEO of the Johnny&Jugnu chain of restaurants.