Australia taught me a significant amount of what I know about successful economic deregulation. Australia was a highly regulated economy after World War II. Protectionist measures such as high tariffs and import controls were well established. The financial sector was highly regulated. The government exercised price controls through agricultural boards.
This environment inhibited competition, created inefficiencies and limited productivity potential. A similar story holds back the potential of Pakistan’s economy to this day.
Australia’s extraordinary journey towards economic deregulation began in the mid-1970s. Since then, it has been an influential and transformative process – one that has been well pursued by successive Australian governments over the decades. The authorities have endogenously conceived and implemented a regulatory review – providing economic thinking rather than relying on the outside. A path that Pakistan constantly seems to lose.
Some key deregulation measures included floating the Australian dollar, deregulation of financial markets, removal of controls on foreign capital flows, decentralization of industrial relations, promotion of a competition policy, expansion of the tax base, and corporatization of state-owned enterprises. These reforms aimed to increase economic freedom, reach new international markets, shape competitive behavior and improve the flexibility of the economy. The very history that Pakistan has to create on its own.
Important areas of deregulation also included increasing global trade by lowering trade barriers and tariffs, and liberalizing sectors such as telecommunications dominated by government entities by removing restrictions on new entrants. Government authorities engaged private sector business development service providers for legal services and training for job seekers. Australia moved away from centralized wage fixing in enterprise bargaining. All are worthwhile lessons for Pakistan’s decision makers.
The authorities were responding to reports by the Australia-based Industry Commission on the benefits and risks associated with the corporatisation and privatization of public services. The recommendations included administrative reform of public services and structural reform of a sector as a whole. The result included the introduction of competition in the electricity generation and retail areas and the privatization of publicly owned generation, transmission and distribution assets. This is a valuable insight into Pakistan’s ailing power sector. The process of deregulation took off in the energy sector in the early 1990s. Australia made a push to develop a national electricity market. The establishment of an energy market has been pending in Pakistan for centuries.
Australia’s National Competition Policy (NCP) framework has removed regulatory barriers to competition, giving stronger incentives to suppliers to operate efficiently, be competitive on price and pursue innovation. An important component of the BCP was the Legislation Review Programme. This reform assessed whether regulatory restrictions on competition were in the public interest. It covered a large area of the economy including professional licensing, agricultural markets, insurance and transportation, among others.
The competitiveness framework is a less understood area and a missing link in reforming Pakistan’s economy. As a result, most businesses are anxious to operate outside our borders, protected by generous government concessions, exemptions and subsidies, and barriers to competition.
It is claimed that deregulation has mainly benefited 26 million Australians. Competition has improved services, created long-term price stability and increased consumer choice. Labor has much higher wages and citizens have experienced an increase in wealth and living standards. Importantly, decades of economic growth have been fueled by private investment, not debt-financed fiscal finance. Tragically, many of us are still unable to internalize this story about Pakistan. The idea that foreign-funded projects, area-specific investments and an outsourced thought process can help us out of our mire is probably over-optimism. These actions are likely to help only in the periphery.
The current regulatory regime in Pakistan is a relic of a bygone era, designed to control and manage rather than facilitate and enable. We are still uncomfortable with market signals and rely on controls in many markets. It is time to recognize that undertaking economic reforms and liberalizing price controls and quotas creates a flexible and resilient economy. By prioritizing deregulatory policies, Pakistan can unlock productivity gains and begin its journey to compete in the global economy.
Australia conducted several studies to calculate the costs of compliance with the prevailing regulations. These studies also considered the course of regulation. They then put new guidelines in place to help reduce the flow. With little supporting evidence, most policymakers in Pakistan cannot relate to the heavy compliance costs that stifle entrepreneurship, create redundant paperwork, delay decisions, and reduce the efficiency of the economy. The flow of new regulations and establishment of bodies has continued in Pakistan.
Australia’s success underlines the value to Pakistan in reducing unnecessary compliance costs, increasing productivity and driving economic growth. Disorganization is a potential driver of productivity growth. An increase in the growth of Gross Domestic Product (GDP) is possible by freeing up the economy, reducing efficiency costs and improving competition in some markets where it is currently limited. The biggest benefits of a deregulatory effort would come from prioritizing a reduction in compliance costs related to regulations that apply to large numbers of people and businesses, including about 5.2 million small and medium-sized businesses, and regulating their tax.
In 2016, I helped draft a Doing Business Reform Strategy within the government. The reform agenda focused on smart regulations, simplified procedures and competitive costs. This would lay the foundation for a much broader effort to deregulate the economy. A little over a decade on, some efforts have been made by the government through initiatives such as the Pakistan Regulatory Modernization Initiative, SMART, the Digital Economy Enhancement Project and the Punjab government’s zero start time policy to signal regulatory reforms; although unfortunately we are a long way from home.
The research points out that regulatory compliance costs in some sectors can be as much as 40% of Pakistan’s GDP. An unnecessary and outdated regulatory system weighs on Pakistan’s investment climate. The economy is stifled at the federal, provincial and municipal levels by a host of agencies. Regulatory support distorts markets and inhibits economic activity, while raising costs and harming the ease of doing business.
The efforts of the Regulatory Guillotine, an approach towards determining the legality, necessity, business friendliness and associated cost of regulation hang in the balance as the Asaan Karobar Act must move forward. The much discussed single window for business and investment, Pakistan Business Portal is not yet fully functional.
Reflecting on the technically correct noises raised over the past decade about regulatory reforms and seeing limited impact on the ground, one feels that a serious action-oriented effort to remove regulations that are no longer deemed necessary; reorganization and harmonization of regulations across jurisdictions; and the move towards technology or digitization to ease frictions should be the hallmark of the economy for years to come
Sometimes life can be satisfying. The hard hours of completing my PhD, my engagement with a research think tank and my work in industry in Australia gave me invaluable insider perspectives on reshaping a well-regulated market economy. One could always feel the sense of this transformation in the air.
The mindset of Pakistan’s policy makers to focus on visible results is understood. However, the simplification of rules and regulations indicates the state’s capacity for deeper reforms. It is time for Pakistan to realize the depth and breadth of work required to make such a transformation – one sincerely hopes that we can push the nation’s hard-working mindset to achieve a seriously disordered competitive economy. God bless Pakistan.
The writer is a former advisor to the Ministry of Finance. He tweets @KhaqanNajeeb and can be reached at: [email protected]
Disclaimer: The views expressed in this piece are the writer’s own and do not necessarily reflect the editorial policy of Geo.tv.
Originally published in The News
#Liberation #Pakistans #economy
Image Source : www.geo.tv