To­wards a free econ­omy

Enterprise - - Snapshot -

In sim­ple terms, a free econ­omy can be de­fined as an ar­ray of ex­changes that take place in so­ci­ety. Each ex­change is a vol­un­tary agree­ment be­tween two par­ties who trade in the form of goods and ser­vices. Ac­cord­ing to eco­nomic ex­perts, since in re­al­ity gov­ern­ment in­ter­ven­tions in the form of taxes, price con­trols and re­stric­tions can­not be re­moved, there­fore free mar­ket is a term used to de­scribe a po­lit­i­cal or ide­o­log­i­cal view­point on pol­icy and is not a field within eco­nom­ics.

A coun­try’s ca­pac­ity to de­rive ben­e­fits from a free econ­omy pri­mar­ily de­pends on its size and level of de­vel­op­ment. The pace of trade lib­er­al­iza­tion in Pak­istan has been quite ir­reg­u­lar com­pared with other de­vel­op­ing coun­tries. To de­velop a strong econ­omy, it was con­sid­ered pru­dent to em­pha­size on more im­por­tant sub­sti­tu­tion poli­cies. Gov­ern­ment im­posed re­stric­tions and bans on im­port of in­dus­trial prod­ucts, de­vices like quota, li­cenc­ing etc., and bans were used to pro­tect do­mes­tic pro­duc­ers. The new era of trade lib­er­al­iza­tion started in 1989.

There are three in­ter­re­lated as­pects hin­der­ing trade lib­er­al­iza­tion i.e. the coun­try’s de­pen­dence on tar­iff as a source of rev­enue, in­ci­dence of il­le­gal trade and de­pen­dence on im­port of in­ter­me­di­ate goods. Gov­ern­ment took num­ber of steps to­wards freer econ­omy, and grad­u­ally in­tro­duced com­pre­hen­sive macroe­co­nomic and struc­tural re­forms in the coun­try e.g. shift­ing from fixed ex­change rate to a pol­icy of flex­i­ble ex­change rate, pri­va­ti­za­tion, re­moval of sub­si­dies, tar­iff re­duc­tion, etc. Since 1999, Pak­istan em­barked on an ex­port-led growth strat­egy which is be­ing man­aged through suc­ces­sive trade regimes.

Cur­rently, Pak­istan be­ing a re­source con­strained econ­omy needs to ad­dress the preva­lent pro­duc­tiv­ity gaps in the public and pri­vate sec­tor. The most cru­cial prob­lem for the econ­omy is the abysmally low labour pro­duc­tiv­ity. The low pro­duc­tiv­ity lev­els in electricity, gas, water and ser­vices sec­tors in gen­eral, are also a sig­nif­i­cant con­cern. Dis­mal per­for­mance in trans­port, stor­age and com­mu­ni­ca­tion also de­mand room for im­prove­ment in con­nec­tiv­ity and do­mes­tic com­merce. This low labour pro­duc­tiv­ity, cou­pled with cap­i­tal con­straints, re­sults in lower To­tal Fac­tor Pro­duc­tiv­ity (TFP).

To im­prove pro­duc­tiv­ity, small indige­nous in­no­va­tions should be bench­marked and scaled up in or­der to achieve wide­spread ben­e­fits with lower costs. Com­pet­i­tive mar­kets are the start­ing point to­wards sus­tained eco­nomic growth. Free and flex­i­ble mar­kets should al­low busi­nesses, which have run the course, to exit and be re­placed by more ef­fi­cient firms. In­stead of pro­vid­ing fis­cal in­cen­tives based on sec­tor-spe­cific bi­ases, mar­kets should be al­lowed to de­ter­mine op­ti­mal al­lo­ca­tion of re­sources. In­cen­tives should be for­mu­lated to cul­ti­vate in­no­va­tion and en­trepreneur­ship in the public and pri­vate sec­tor as well as in ru­ral and ur­ban ar­eas. The pri­vate sec­tor can only op­er­ate freely once the gov­ern­ment ex­its from the mar­ket and re­ori­ents its role as a fa­cil­i­ta­tor. There is an im­me­di­ate need to ad­dress miss­ing and in­com­plete mar­kets.

Any view of parochial pro­tec­tion­ism can only re­sult in harm­ing the coun­try through self-im­posed iso­la­tion from the in­ter­na­tional trad­ing com­mu­nity. By em­ploy­ing free econ­omy mea­sures, Pak­istan could suc­cess­fully move to­wards form­ing a re­gional build­ing-block of greater mul­ti­lat­eral in­te­gra­tion in trade

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