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A nationally-owned charter of economy

We have been talking about developing a Charter of Economy (CoE) for a long time now but so far we have miserably failed to walk the talk. Last Wednesday, a demand for such a charter was raised once again, this time from the platform of the Federation of Pakistan Chamber of Commerce and Industries. Not that we don’t have one already. At least since mid-1980s we have been practising an unacknowledged Charter of Economy fabricated out of the Washington Consensus and being implemented under the watchful eyes of the International Monetary Fund. According to its proponents, this Charter ensured integration of its practitioner into the global economy, lifting at the same time its impoverished millions out of poverty through its so-called ‘trickle-down’ effect.

However, whether or not one strictly adhered to the accompanying conditionalities while implementing this unacknowledged Charter of Economy, successive annual budgets presented by successive governments, no matter of what kind and of which political hue – civilian or military, technocratic or political – ended up making a failing state out of the country and enhancing at the same time its dependence on dole.

A s a first step towards retrieving the state from its failing status and developing a Charter of Economy aimed at transforming Pakistan into a social welfare state, all the political parties represented in the 2008-2013 Parliament, unanimously passed the 18th Constitutional amendment and finalized an equitable formula for distribution of national resources between the federating units and the federal government on the one hand and on the other, among the federating units under the 7th National Finance Commission (NFC) Award.

But highly influential and exceptionally strong non-political forces from outside Parliament given to viewing the unity of the federation and its security with a lot of pre-conceived and misplaced misgivings have since been campaigning to do away with the reforms on the unfounded grounds that the 18th amendment would eventually lead to fragmentation of Pakistan and that the 7th NFC Award was adversely affecting the country’s defense preparedness.

Of course, if we want to sustain Pakistan as a security state with essentially unitary characteristics then we would need to frame a Charter of Economy that would help in achieving the objective. The Washington Consensus-inspired Charter of Economy would certainly not do the job, instead it has already reduced the country into a failing state. And in case we wish the country to develop as a social welfare state or what the Prime Minister calls Riyasat-i-Madina, then we would need a Charter of Economy that would place the country firmly on the road to achieving this goal. The choice, however, should be left to Parliament with non-democratic elements and political parties thriving on anarchic populism being kept out of the process.

In case Parliament opted for a social welfare state, the Charter of Economy would need to be built around a development strategy that would, in matters of policy and resource allocation, give precedence to economic development and social welfare over security imperatives.

In this regard some of the measures suggested by Pakistan Awami Workers Party in their policy paper appear to be just the right ingredients around through which a publicly acknowledged and nationally owned Charter of Economy could be developed:

All grass root developmental work should be passed on to elected local bodies with the provinces sharing the better part of their resources with these bodies. The distribution of resources between the provinces and the grass-root elected bodies should be done through the provincial finance commissions (PFCs). And a process should be launched as well to reduce the burden of the federation limiting it to just four portfolios: Finance, Foreign, Defence and Communication, with the rest going to provinces.

To support the population in this difficult time, the upcoming budget must include both new direct taxes on wealth, assets and higher incomes, as well as measures for subsidizing essential food.

Government must immediately negotiate with creditors for restructuring of, and substantial relief from, its debt obligations.

Ensure that all economic, political and foreign policy decision making is predicated primarily on the basis of their contribution to sustainable and equitable economic development and the socioeconomic needs of the majority of citizens rather than military centric strategic considerations.

Citizens-led accountability for military and civilian elites and prevent the capture of public land, natural resources, economic resources or the state’s law enforcement apparatus for rent seeking and corruption.

Legal reforms need to be introduced to ensure that the fundamental basis of mineral, water and other natural resources are recognized as the property of local communities.

Begin a consolidated national economic programme to build a domestic production base in labor intensive and green manufacturing.

This must include the generation of agricultural surpluses through wide ranging land reforms, enable more efficient and equitable farming and strengthen extension services, marketing and infrastructure.

Make ecologically sustainable processing of minerals into a priority sector, laying the foundation for growth in the manufacturing sector, as well as a long term shift away from fossil fuels more generally.

Tighten financial regulations to enable financial inclusion and savings and ensure lending for productive enterprise in manufacturing.

Re-evaluate WTO rules to reinstate tariff and non-tariff trade barriers to protect targeted domestic industries and prevent dumping.

Pursue a strategy of regional economic integration in South Asia to enable domestic industries to make use of nearby markets.

Invest in research, science and technology to prepare Pakistan’s economy for the information age and the Fourth Industrial revolution.

Create a progressive, sustainable system of public finance; create a system of progressive taxation that targets tax avoidance and evasion by the elite, particularly in real estate, large agribusiness, military businesses and banking and finance, among others.

Conduct an audit of all tax exemptions, waivers and holidays granted through SROs to understand where revenue losses are occurring and eliminate them as necessary, while giving authority for future SROs to parliament.

Audit and rationalize defense expenditure to reduce unnecessary expenses and imports; tightening combat expenditure and eliminating the non-combat ones – maintaining equitable balance between the teeth and the tail.

A comprehensive public sector reform plan for all civilian and military state institutions with a view to overhauling their neo-colonial character and reorganizing them to make them democratically accountable and transparent.

Generate productive capital currently lying in land. A land value tax levied on the market value of unbuilt urban land, to generate revenue, limit speculation, undermine individual land accumulation, encourage construction and incentivize productive land use.

Create a documented urban land registry to ensure speculation and eliminate tax avoidance by landowners.

Decentralize land development and planning and take it out of the hands of unaccountable civilian and military bureaucrats, political elites and real estate barons.

Dis-incentivize the phenomenon of absentee landlordism and urban land hoarding and transfer of capital from unproductive large landholdings into financial savings.

Protect and document traditional seed knowledge and ending the monopoly of seed Corporations. Support the development of public and not for profit seed banks. Undertake public investment in processing, storage, transport and marketing particularly for key agricultural industries with high growth potential like milk and dairy, rice, cotton, wheat and edible oils. Support the development of important elements of the supply chain in key agricultural industries to benefit small producers. Reduce reliance on expensive fertilizers, pesticides and excessive water usage.

Improve the knowledge, skills and working conditions of labour. Increase spending on education to 5% of GDP and health to 4% of GDP and restructure education and health systems to make them functional and accountable, with affirmative action for students from poorer and under-developed regions.

Overhaul education curricula according to the needs of the information age and fourth industrial revolution, and undertake an adult education program to create a productive workforce with 21st century skills.

Recognition of the right to organize and form unions in all sectors of the economy, including in the informal sector.

Increase budgetary allocations for labor protection and empower inspectors to monitor and enforce labor regulations and improve working conditions.

Increase the minimum wage to Rs. 30,000 and encourage through policy, a shift from precarious work to formal contracts with social security.

Regulate banking and finance to play a developmental economic role. Create and strengthen a national investment bank that promotes savings and funnels agricultural and service sector surpluses into manufacturing. Invest in and strengthen institutions for the regulation of banking and finance. Make banks engage in lending for productive, labor intensive manufacturing. Reduce banking ‘spread’ between savings and lending rates and make affordable lending for basic needs possible.

Generate sustainable energy for pro people development. Revisit energy privatization policy and wasteful IPP contracts to minimize losses from fixed capacity payments subsidies to private producers. Reduce reliance on thermal energy through increased public and private investment in generation through renewable sources like hydropower, wind and solar.

Create a national plan to build public sector transmission and distribution capacity and eliminate losses from public infrastructure.

Create and strengthen a uniform regulatory framework for energy which reduces distortions between the gas and electricity sectors.

M Ziauddin, "A nationally-owned charter of economy," Business Recorder. 2021-01-13.
Keywords: Economics , Economic growth , Economic zones , Monetary fund , Foreign policy , Economic program , Pakistan , WTO , PFCs

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