Regulating the market

We need to to liberate regulatory bodies from government control and turn them into autonomous statutory bodies.

There is a lot of economic sense in investing the limited resources we mobilise through various means, including costly borrowing in public-sector projects aimed at expanding the much-needed physical infrastructure, like irrigation systems, power plants, roads, bridges, housing schemes, motorways and metro buses, etc. Such projects generate all kinds of jobs and most of these are highly labour intensive. Also, such projects do give a fillip to the manufacturing sector as demand for building material, such as cement, electrical fittings, plastic materials, etc., goes up. More jobs would mean more money in the hands of more people belonging to all classes: upper, middle and lower. More money in the hands of more people would mean steep escalation in the demand for all kinds of essential and non-essential consumer goods, necessitating expansion in production capacities of the goods in demand leading to significant growth in the real economy.

If one were to follow this economic path single-mindedly, totally ignoring the needs of the social infrastructure like health, education, potable water etc., one cannot rule out the possibility that the pace of economic growth will slow down considerably because an illiterate and physically unfit manpower, with only limited access to even clean drinking water would hardly be able to accomplish all that the front-loading of investment in accelerated expansion of physical infrastructure requires. It would need a great deal of balancing in the allocation of limited resources to physical and social infrastructure so as to make the two develop in a way that the opportunity cost is not too high. The notion of opportunity cost plays a crucial part in ensuring that scarce resources are used efficiently.

The compulsions for expanding power generation capacities are too obvious to require any discussion here. But Prime Minister Nawaz Sharif’s penchant for motorways, metro buses and other brick and mortar projects needs to be studied against the efficiency criteria for such investments. According to one of Pakistan’s most renowned economists, the late Dr Mahbubul Haq, approximately 40 per cent of money allocated to brick and mortar projects disappear without any trace. The implication was, either it was siphoned off or just slipped through inefficient fingers. This was actually the manifestation of believing in the magic of free market and its underpinnings, the so-called 3Ds — decontrol, disinvestment and deregulation

The result has been devastating. Today, the top 20 per cent of the population accounts for almost 52 per cent of property income, while the top one per cent of depositors account for 80 per cent of deposits. Banks extend 77 per cent of credit to the top one per cent of borrowers. There are an estimated one million shareholders of publicly quoted companies. Market capitalisation of $70 million is part of the wealth of these one million individuals. Meanwhile, the incidence of poverty in the country is estimated to have reached 37 per cent. And due to continued under-investment in the people, the rate of improvement of Pakistan’s Human Development Index is estimated to be slowing down considerably. The reason why this is so is the regulatory bodies constituted under the Constitution for intervening in the market to ensure equitable distribution of the fruits of development are not doing what they are supposed to be doing.

There are about 18 regulatory bodies in the country: the State Bank of Pakistan, the Securities and Exchange Commission of Pakistan, the Competition Commission of Pakistan, the Pakistan Electronic Media Regulatory Authority, the National Electric Power Regulatory Authority, the Oil and Gas Regulatory Authority, the Drug Regulatory Authority, the Civil Aviation Authority, the Pakistan Nuclear Regulatory Authority, the Pakistan Standards and Quality Control Authority, the Public Procurement Regulatory Authority, the Private Education Regulatory Authority, the Pakistan Medical and Dental Council, the Pakistan Engineering Council, the Pakistan Nursing Council, the Pakistan Tibb Council, the Pakistan Veterinary Medical Council and the Pakistan Environmental Protection Agency. But all these regulatory bodies function directly under the government and those who man these bodies are also hired and fired by the government, which makes a mockery of the very concept of market regulation. It is, therefore, necessary to liberate these bodies from government control and turn them into autonomous statutory bodies. Delegation of authority away from the government would prevent these bodies from becoming partisan entities and would also make them more accountable.

Published in The Express Tribune, March  25^th,  2015.

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