Local govt solutions for economic growth

Pakistan is one of the fastest urbanising countries of the region

The Punjab government has promulgated yet another local government law. Elections will be held under the new law. However, the law ignores one crucial aspect: local governments can be used as vehicles of economic growth. The idea of local governance solutions for economic growth sounds farfetched. It perhaps is, but the idea merits exploration.

The big game of interest rates, monetary and fiscal policies often tend to overlook the causal relationship of governance with economic growth. Bad and opaque governance, maladministration amongst others, are inimical to economic growth. Economies don’t grow in isolation through macro-economic jugglery by economic wizards. Economic growth happens in tandem with good governance.

I will give an example here. There are 10 indicators for calculating rankings on the ease of doing business index. Three of these indicators are directly related to governance at the local level; dealing with construction permits, registering property and enforcing contracts. The key interface between a firm and the government exists at the local level.

Unfortunately, local governments have a tainted history in Pakistan. They have either been used as alternative political constituencies for military dictators or vehicles of political patronage extended by political parties to their ranks. The institution of local governments has never been used as an instrument for good governance and thus by extension, economic growth.

Growth literature and research evidence point out that cities are now considered as engines of economic growth. Pakistan is one of the fastest urbanising countries in the region. However, this real estate-centric urban growth devoid of planning is creating more problems than solutions. The urbanisation trend is not being effectively used for leveraging economic growth. The primary reason is that urban centres or local governments of urban centres lack decision-making authority. Decision making rests with either the federal government or the provincial governments. The ability to create incentives for attracting investments is also concentrated at federal or provincial levels.

In the absence of a strong local government, the investors who want to invest in any manufacturing enterprise have to deal with multiple levels of government. This layered and hence by its very nature cumbersome process creates a disincentive for investing in projects.

Real estate is considered the only safe investment in Pakistan. One reason for this is because the process chain of real estate investment is at the local level. However, if an investor wants to set up a manufacturing concern, he or she has to deal with provincial and or federal bureaucracy, which is clearly out of his or her comfort zone and depth.

There are many examples from around the world where a positive competition between cities and regions to attract investment in their own geography has resulted in an inflow of investment and development of innovation economies. The empowered local governments were able to create incentive structures for attracting technological firms which in turn churned the local economies into developing local value chains and services industries. All economic growth and development were local. Local growth fed the national economies. Scandinavian countries and China can be cited as examples. The Shenzhen miracle was a local government initiative.

It can be argued that Pakistan has many examples where big businesses have invested in far-off areas as Engro has in Ghotki. I have been to Ghotki many times and all I see is a poor small town containing an island of plenty. The reason is that the location of the Engro fertiliser plant was determined by the federal and provincial governments. Local government, if there was one at that time, was not part of this discussion and hence the decision. The company owes nothing to Ghotki town or its people.

Pakistan needs to reconfigure its economic growth strategy and link it with strong and empowered local governments delivering good governance. Economic growth will be the unintended positive consequence.

Published in The Express Tribune, October 24^th, 2019.

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