The Coward Capital

Capital is inherently craven and it’s cowardice is evident from the fact that it is only drawn to places where there is the clarity of law, where the society and the rulers rest on a body of law, where there is accountability on behalf of the government.

Capital in this globalised world…will go to where it is going to be safe, it will flee from corruption, bad policies, societies and nations that remain rooted in a past system of corruption and flawed policies. The government would have to concentrate on the rule of law, on the elimination of corruption, on human rights, on democratic systems and processes which allow governments to reflect the will of their people.

We are extremely unfortunate due to our inability to ensure rule of law. Our economy remains under stress; despite our being more open and vibrant when compared to other countries in the region. The rule of law means actual enforcement of law. The stagnation in the economy is due to our failure to establish rule of law.

It is the right and consistent policies coupled with the economic jurisprudence that evolves over a period of time which creates the right environment for markets to work through trade and commerce. There are many barriers to trade that impede establishment of a competitive market. First factor is the absence of effective Dispute Settlement Mechanism within our country, as well as in the region. This may be due to minimal volume of intra trade within the regional states or it could also be the absence of such a mechanism in place that did not facilitate trade.

The delay caused in disposal of commercial cases has an impact on our economy and needs to be prioritised. Besides disputes between the banks and private sector amounting to hundreds of billions of rupees; the Federal Board of Revenue (FBR) and Competition Commission of Pakistan (CCP) are awaiting court decisions to recover revenues/penalties worth around over Rs150 billion. Many of these cases are pending in the courts for years.

Anticompetitive policies pursued by the state, are evident from various flaws pointed by the CCP in its policy note and various instances of corrupt practices in contract of awards pointed out time and again by the credible watchdog on corruption the Transparency International. The decisions taken on whims instead of rules have eroded the confidence of the investors. The undue concessions awarded to foreign investors from time to time has denied the level playing field to genuine investors.

Markets do not foster growth on their own. Market is only an instrument, just the way currency is -the more robust the economic jurisprudence and the economic policies are; the better, the results of enforcement that we undertake and higher, the chances of enhancing economic efficiency and consumer welfare. We have failed to develop a transparent business culture because we look the other way when rules and laws are broken by those in power or who have influence in the society. The delay in justice further strengthens the law breakers. When a case relating to money fraud is decided in decades there is a possibility that both the fraudster and the victims would not be alive to bear the consequences or fruits of that decision.

There are barriers to entry in our tariff structure where we find instances of higher duties on imports of raw materials. There is price fixing by the government in consultation with trade associations. All these measures not only deny level playing field to prospective entrepreneurs but also impede the efficiency of production and services. Enhancing economic efficiency means ‘larger welfare and output with lowest cost’ – bringing out higher value. The four fundamental pillars in this regard are institutions, infrastructure, macroeconomic environment, health and education. Each of these pillars would perform ideally when there is rule of law.

The abuse of law is not restricted to Pakistan only but the entire South Asia has dealt with rule of law softly. The other nations of the region are now reducing the law-breaking policies, while we continue with them. The trade between the South Asian states (home to 1.6 billion people accounts for 25 percent of world’s population) is only 4 percent of combined GDP – and in this 4 percent, India, the largest democracy in the world, has a share of 82 percent. Pakistan, the next country with the largest population, is very poor. The trade performance of South Asian countries since the last 3 decades has been poor when compared to the other regions in the world, which is in line with lax application of laws in these countries.

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