‘First, do no harm’ should be Pakistani government’s guiding principle
https://arab.news/8s4km
Prime Minister Imran Khan stated in 2019, during a ceremony to launch an online visa system for foreign tourists, that the process of growth and development seen in the 1960’s in Pakistan was reversed because of a socialist government in the 1970’s. The nationalization drive of that era and accompanying socialist rhetoric not only harmed the entrepreneurial spirit and willingness of the business community to take risks, but more perversely, deeply embedded a belief in society that it is the role of the government to solve all the people’s problems.
However, we see across the globe that prosperous economies are built on countries’ ability to ensure well-regulated free markets, sound money, and limiting the role of the government to only those areas where necessary, and in a manner such that it can do least harm. Unfortunately, the Pakistani state’s intervention is pervasive through the presence of state-owned enterprises, highly-regulated industries, administrative price control, high tariff on basic imports, and as often as not, to the injury of the public.
Business intermediaries are often perceived by the public as making unfair profits. For example, there is a popular myth that in the agriculture sector the middleman, also known as the aarthi, exploits both small farmers and city consumers to make exorbitant profits. It has been suggested that through government intervention this function should be curtailed if not eliminated so that both farmers and end consumers get a better deal.
With the help of the Punjab government’s Agriculture Marketing Information System (AMIS) that maintains data of indicative ex-farm costs of various crops and also indicative prices at the doorsteps of the wholesale market, and comparing these with the actual price data that the Pakistan Bureau of Statistics (PBS) maintains, it is possible to infer the margins that the middleman and farmer make. Based on this data, in the year 2020-21 it is estimated that farmers’ margins in key crops – wheat, onion, tomato and potato – ranged from 15 percent to 250 percent whereas the middleman’s margins ranged between 20 percent and 40 percent, which is further shared between the wholesaler and retailer. It is therefore easy to see that the bulk of the margin is kept by the farmers and not extracted by the middlemen to the extent that it is perceived.
In trying to impose restrictions on the functioning of middlemen, the government could end up doing more harm than good.
Javed Hasan
Stories of aarthi exploitation are myths developed around their vital function of purchasing crops from the farmers at ex-farm prices and then selling to the wholesalers and/or retailers. Recent global commodity price hikes also demonstrate that volatility is driven by events and supply chains across countries, and administrative measures by governments to control prices invariably prove to be futile.
Recently, the central bank has imposed restrictions on transactions of foreign exchange, in an effort to stabilize the Pakistani currency. This comes after having allowed the rupee to float freely in the open market, which has been one of the most progressive and successful economic reforms of the present government. Exchange companies are required to conduct biometric verification for all foreign currency sale transactions equaling USD500 and above and outward remittances and foreign currency transactions equaling USD10,000 and above will only be done against receipt of funds via cheque or banking channels.
While there can be some justification for such regulatory measures in terms of improving documentation of the sale of foreign currency, the intention should not be to limit the activity of exchange companies, or in any manner, reverse the free float mechanism. The profits made by the middlemen reflect the risk and initiative taken by them such as uncertainty of demand in the markets and daily price fluctuations. In trying to impose restrictions on the functioning of middlemen, the government could end up doing more harm than good.
Frequent state interventions have neither ensured the optimal allocation of resources nor placed the country on a growth trajectory that has greatly enhanced general wellbeing. The fixing of support prices for certain agriculture commodities have had the perverse effect of incentivizing suboptimal usage of land holdings and sluggish improvement in yields. The state has also intervened in restricting or banning social media platforms such as TikTok as well as others, which are not only sources of social connectivity and entertainment, but increasingly important sources of income, especially for the enterprising youth.
There must be a role for the government in setting up quality standards and providing laws and regulations, and ensuring that these are effectively enforced. However, these should not go beyond their specific purpose at hand, and must certainly not try to replace the role of entrepreneurs. More generally, state interventions should be measured, among other metrics, against the yardstick of how much they expand the freedoms of citizens in making their own choices, rather than restricting them. Pakistani policy makers would do well to make the Latin dictum, “primum non nocere” (first, do no harm) their guiding principle.
– Javed Hassan has worked in senior executive positions both in the profit and non-profit sector in Pakistan and internationally. He’s an investment banker by training.
Twitter: @javedhassan
