The Charter of Economy is a bad idea for Pakistan

The idea of a Charter of Economy (CoE) is in vogue. Business leaders, chambers of commerce, disparate politicians and ex-central bankers are advocating the adoption of an agreement on economic policies that cuts across political party lines. The parlous state of the Pakistani economy prompts this desire for consensus on measures to turn it around. The CoE proponents propose a set of policies that lay down the rules of economic governance. Many of the prescriptions appear to be obvious for addressing the present crisis, but have hitherto been avoided, or have only been implemented unenthusiastically.

Few politicians want to be seen as solely responsible for instituting policies where the burden is borne by segments of the society that are their key constituency. For example, traders are an important support base of the Pakistan Muslim League Nawaz (PMLN), and the present government has reversed its budgeted plans to institute a minimal fixed tax on the sector, despite retail comprising almost 20 percent of the economy and at present contributing virtually nothing to the national exchequer. Similarly, almost all political parties are reluctant to tax the agriculture sector as that would be unpopular with the rural constituency. Austerity measures, such as cutting back subsidies or raising prices of commodities, erode the political capital of whichever political party in power implements them. Consequently, the political will is often lacking since these measures are disruptive and/or adversely impact large sections of society.

However, scarcity is, and has always been, the central problem in economics, and this is resolved by making choices between competing claims on scarce resources. Who exercises the choice, by what process, and according to what values and criteria are the crucial issues that require widespread public participation in the discourse and the debate. While political ideals such as fair pay, fair taxes, and greater equality are claimed by virtually all political parties and shouted from the rooftops when seeking votes, they can have different shades and be arrived at via very different routes. The success and sustainability of the alternatives associated with fairness and effective distribution of resources is inevitably driven by political considerations. Politics and economics are intricately and irretrievably interwoven. Politics affects the economy and vice versa.

Therefore, economic policy has to be evaluated not only in terms of the economic implications of policy initiatives but also their political feasibility. That in turn is dependent on the public being sensitized to the spectrum of choices available to them. Chosen policies should try and have the buy-in of preferably a majority of the people even if an absolute majority is not always possible. A policy devised by experts that fails to win broad public support is likely to provoke a backlash, and quite likely to be reversed. It therefore makes more sense to consider the political realities the government faces and to structure policy with those realities in mind.

Development must not be driven by one-handed economists who fail to present the many alternatives that the people have a right to weigh up in exercising their choice.

Javed Hassan

 

Policymaking under the garb of cross-party concord, which does not engage a broad cross-section of the public on issues that have a direct bearing on their well-being should be, and is likely to be, viewed with suspicion.  More cynically, consensus on economic issues between a small group of politicians, policymakers and academics, may be presented as vital for turning around the economy and improving general welfare, but in reality, unduly favour special-interest groups. These include, inter alia, wealthy individuals, powerful industries, big banks and corporations, and trade lobbies, who via experts and the bureaucracy can influence the policy choices being presented and the possible outcomes.

The signing of a charter of economy by rival political parties would imply elections are contested on the basis of a universal economic agenda that fails to offer the different visions that distinguish political parties from each other on economic policy. Instead, the focus will be more on personality, ethnicity and issues other than how scarce resources are allocated. It also removes the need for economic policies to evolve with changing realities and economic cycles. With unanimity on the economy, the political parties would not be compelled to debate economic issues that directly have a bearing on the long-term welfare of the voting public. The lack of competition of ideas and their exposition through the cut and thrust of political discourse will not only deny the public vital understanding on economic issues, but is also likely to result in sub-optimal allocation of resources.

While policymakers, especially when in power, like to promote the idea of a shared sense of ownership of unpopular decisions since it lowers the political cost, few ideas are more pernicious for a healthy democracy than one where scrutiny on economic matters is eschewed. Development must not be driven by one-handed economists who fail to present the many alternatives that the people have a right to weigh up in exercising their choice.

- Javed Hassan is an investment banker who has worked in London, Hong Kong, and Karachi. He tweets as @javedhassan. The views expressed in this article are author’s own and do not necessarily reflect the editorial policy of Arab News.