WEB DESK: Pakistan is the sixth largest country in the world having a population of 200 million with 60 percent under the age of 25. In the comity of nations our per capita income ranks around 150. In the human development index our rank is 147th.
If we were a fully developed country our ranks would have been in the top Ten. Clearly in the race of nations we have a long way to go. In a highly competitive global marketplace only nations with the fittest governance systems emerge as the winners.
In an earlier article, “The gravy trains of Pakistan,” carried by Business Recorder on September 1, I had argued that our economic and human development backwardness lies in the erosion and corruption of the national governance institutions. These institutions both in the public and the private sector have deteriorated to such an extent that the decision making process in general and the public financial management system in particular have become highly dysfunctional. This is leading to massive hemorrhaging of state resources at the hands of the very guardians of the governance system.
The Panama leaks revelations along with high profile cases involving theft of public funds by politicians and bureaucrats in connivance with rent-seekers have jolted the public. Attempts to smuggle large sums of foreign currency through land, sea and air routes, the mobilisation of highly placed individuals springing to the aid of and providing protection to culprits indicates the emergence of massive systemic corruption mafia that has captured the state’s governance system.
For a country steeped in poverty and unemployment, inclusive rapid economic growth is the panacea for poverty alleviation and prosperity. In a market economy both government institutions as well as private institutions have to perform optimally to deliver the results but systemic corruption is becoming the biggest hurdle in the way of national progress. The vicious circle of criminality, looting the people and betrayal of people’s mandate embedded in the corrupt governance system condemns the country to a bleak future in a globalise world of intense competition.
Systemic corruption is defined by researchers as the entrenchment of corruption in many components of the government machinery that are supposed to prevent corruption, ie, budgeting (including revenue generation and public spending), auditing, inspection, monitoring, evaluation, and enforcement becoming corrupt themselves. The World Bank estimates that a trillion dollars of corruption funds are laundered every year.
The Asian Development Bank estimates that around 20% of GDP of developing countries is being looted through corrupt systems. The World Bank also estimates that for every dollar of leakage due to corruption the negative impact on the economy is more than 1.7 times. The impact is heaviest on leakages in provision of public services for education and health, expensive and defective infrastructure along with costly and poor provision of basic services such as power and water. The fallout is evident to Pakistanis everywhere in Pakistan.
The Nobel Prize winning Chicago economist George Akerlof in his seminal paper, “The market for Lemons” developed the idea that in a market system that cannot discriminate between good quality and bad quality, the bad quality will always drive out the good quality and this process ultimately leads to market failure.
This insight is applicable to the governance systems of Pakistan in a two-step process. In the first step, when the public cannot discriminate between good or corrupt public governance system, the corrupt system will drive out the good system. In the second step the corrupt government system infects the governance of the private sector leading to “bad quality” driving out the “top quality” private sector from the market place. It is evident that the continuation of this trend in Pakistan will ultimately lead to the collapse of Pakistan’s market economy and force its exit from the highly competitive global markets.
The 2015-16 global competitiveness index (GCI) lists the quality ranking of Pakistani public institutions from amongst 140 countries at 127. National property rights are ranked at 117, irregular payments and bribes to public officials at 116, transparency in government decision making is at 125, business costs of crime is at 130. Reliability of police services is at 126, electricity and telephony infrastructure is at 132, infant mortality is at 134, primary education enrolment is 134, higher education and training is at 124, competition in markets is at 120, trade tariffs (protectionism) is at 137. The people of Pakistan in their everyday lives can relate to these rankings and endorse that these truly reflect the bankruptcy of good governance in the state institutions of Pakistan.
In the Ease of Doing Business index of the World Bank, Pakistan ranks 138 out of 189 countries. In ease of paying taxes the rank is 171, ease of exporting is at 161, getting electricity is at 157, enforcing contracts is at 151, registering property is at 137. These are private sector activities at the receiving end of the public governance system and it does not take a genius to figure out that the private sector is operating in an environment that is not designed for fostering efficiency and competitiveness but has been designed for promoting the gravy trains of corruption in Pakistan. The business community has been voicing these concerns for years.
The overall GCI global ranking of quality of private institutions places Pakistani private sector at 97, corporate ethics ranks at 98, corporate accountability is at 96, auditing and reporting standards are at 117, efficacy of corporate boards is at 117, labour employee relations are at 131, efficient use of talent by private sector institutions is at 132, reliance of private sector on professional management is at 122. Willingness to delegate is at 115, usage of modern information and computer technology is at 127, exports as a percentage of GDP is at 137.
These rankings indicate an alarming state of private sector institutions and governance. It shows an inward looking private sector unfit for global competition and instead focused on interacting with a corrupt and extractive public governance system. Hence the predominance of non professional corporate boards, non-professional management, lack of modern management systems and lack of reliance on talent. It seems we are intent on promoting “robber barons” rather than “top” quality private sector that can be the engine for growth in Pakistan.
The rot at the top in the public governance institutions is rapidly spreading to the private institutions and any hopes of achieving a globally competitive economy is a pipe dream until the rot at the top is eliminated. When corruption has become systemic, organised politics resembles organised crime.
It has its own parallel system of appointments and promotions, of rewards and punishments, of planning and implementation, awarding contracts and enforcement. This parallel system of corruption, bribery and extortion is illegal in most countries but in Pakistan as revealed by the Chief Justice of Pakistan the law is inadequate to deal with it. Expecting reforms from the corrupted is foolhardy. Public censure, disclosure and pressure may be a partial hindrance in the path of the corrupt. Therefore, they and their partners must be exposed. The money gained from corruption must be tracked. The collusive corrupt behaviour must be broken up. Society has to gear up to fight it.
Political reformists, interested parliamentarians, civil society activists like the bar councils, the business community and their chambers of commerce along with judiciary and media, should get together to roll back the menace of systemic corruption head on. International arrangements such as the STAR (Stolen Asset Recovery) initiative of the UN and the World Bank should be employed to help Pakistan nail a few major ring leaders involved in systemic corruption. Acting together is crucial to sending a message of zero tolerance of corruption and together we must find a way out before it is too late. Certainly the corrupt are trying to split and confuse society by invoking the threat to democracy narrative. In fact corruption has become the biggest threat to democracy. Only when wages of mega corruption are disrupted will Pakistan emerge as an economic and democratic power house that it should be.
(The writer is a former Finance Minister)
Source: Business Recorder