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System failure | By Idrees Khawaja, Pakistan, Pakistan Economy, Economy, Labor, Poor Labor, IMF, Growth rate, Failed System, Failed Policies, CSS, Current Affairs, 2015

System failure | By Idrees Khawaja

IMAGINE the man-hours and money saved if we were not to inaugurate power plants and conferences and, instead, were to get down to business straight away. Our ongoing research in growth diagnostics suggests that poor institutional quality, or poor governance, energy shortfall, the pathetic quality of labour, macroeconomic instability, difficult access to finance and reduced foreign inflows constrain economic growth in Pakistan.

The quality of labour is poor because we have failed to educate a sizable part of the population. Assuming education yields a better workforce, the absence of it shrinks the potential labour pool. Not allowing educated women to work shrinks the pool. Teaching in Urdu at most public schools, but using English for office work makes those who are not proficient in the use of the latter language less preferable in the white-collar market. The pool shrinks yet again.

Add to this the system of rote learning and the delays in revising the syllabi, and the die is cast. In fact, how many countries teach pupils in one language but expect them to use another when they enter the workplace? Very few, one would imagine, and hardly any in the developed world.

The motivation to perform is being scuttled.

Poor selection also contributes to the deteriorating quality of labour. The system of selection itself is poor — candidates called for job interviews at 9am are often enough interviewed at the end of the day for five minutes by a panel of 15, making the prospective employees sweat and forget.

At the other end, teachers are hired on the basis of their résumés but without their teaching ability being tested. The civil services, with their generalist orientation, post a geologist in the information ministry and an MBBS graduate in the petroleum ministry. The civil services system allows candidates to choose ‘high-scoring’ Punjabi and Pashto as elective subjects. Such candidates may be posted in the foreign affairs ministry.

Once hired, people know they can’t be fired, and will be promoted on the basis of seniority — ie their performance will not count. The motivation to perform is scuttled there and then. What else would such systems yield if not poor labour quality?

Immediately after the elections of 2008 and 2013, the state of the economy pushed the new governments towards the IMF. In a bid to win elections, those dispensations did not pass on the increase in the cost of fuel and electricity to consumers. Massive borrowing from the central bank facilitated such fiscal imprudence. The central bank lacks the independence to check such imprudence. Yet another system has failed us.

Banks lend mostly to government and the manufacturing sector. Pro-poor wholesale and retail are not among the beneficiaries. Why are banks shy of lending to potentially lucrative sectors? It takes the banks ages to recover dues from defaulters through the legal system. Little support from the judicial system to the banks is yet another system failure.

Historically, aid motivated by geopolitical factors has provided foreign funds. Exports proceeds have remained subdued thanks to concessions which economists term ‘rent- seeking’ — around 80pc of the tariff lines benefit from SROs. The concessions constrain competition and the incentive of exporters to stand on their own feet. The SRO is yet another poor institution.

Despite being energy deficient, our shopping hours consume more energy, geysers use more gas, houses use more heat, and we use cars rather than public buses. Despite facing the challenge of dwindling water resources, we insist on cultivating water-hungry crops like sugar cane. Systems continue to fail us.

The budget sets national expenditure priorities. The parliamentary session witnesses speeches on everything except the budget. Staffers’ assistance should facilitate parliamentarians in speaking on all technical issues but MPs do not have such staffers. Again the system fails us. Finding money for staffers calls for setting our priorities right — do we want parliamentary debates to be meaningful?

The poor cannot contest and win elections. This induces us not to tax agricultural income the way it should be — we cannot annoy electable landlords; again, the system fails us. Much is linked to the population census. But stakeholders are wary of new numbers that may disturb the status quo. Yet another poor system.

These examples are not exhaustive. To be productive, we need to review every system — from the way a file moves back and forth in an office to how expenditure priorities are determined. If we were to only correct our systems and refrain from investment for some years, even then we could see considerable development. What we need to ask is how to change systems; (also, whether it is possible to change them) and how long it may take.

Published in Dawn, March 12th, 2015

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