Renaissance for Reforms - Introducing a new book

Here is the Introduction by the authors:

The recipe for growth is well-known. Most economists would agree that lower taxes and less regulation can encourage entrepreneurship and job creation. Yet, many governments are unwilling to introduce such reforms. An important reason is concern over a voter backlash. Jean-Claude Juncker, a likely candidate for the EU-presidency after two decades as Luxemburg’s Prime Minister, famously lamented “We all know what to do, we just don’t know how to get re-elected after we’ve done it.” Based on an analysis of 109 governments in developed countries, we would suggest that Juncker’s view is mistakenly gloomy. Although market-oriented reforms may initially meet fierce resistance, governments that introduce them are more often than not rewarded by voters.

In our new book “Renaissance for Reforms” we look at the pace and direction of reforms in 29 OECD governments between the mid-1990s and the end of 2012. We base our analysis on the Heritage and Wall Street Journal Index of Economic Freedom, which annually ranks nations according to parameters such as freedom from corruption, freedom for investments and respect for property rights.  We ask two simple questions: How did the level of economic freedom in these countries actually change according to the Index of Economic Freedom? And were the governments that reformed more often re-elected or not?  

After controlling for the levels of unemployment during the year of election and the year of possible re-election, we examine if these factors are related. In contrast to Juncker’s views, we find that the government that increased economic freedom most were also most likely to become re-elected. Perhaps even more surprising is that this trend is driven by governments on the left. 

Center-right governments that were re-elected increased economic freedom only marginally more on average compared to center-right parties that lost re-election. Governing parties on the left, which lost their bid for re-election, constitute the least reform-oriented group. Left governments that won however increased economic freedom at a 60 percent higher pace than the average center-right governments. 

For example, during Tony Blair’s first term from 1997 to 2001 the economic freedom score in the UK increased by 1.2 points. True to Tony Blair’s reputation as a champion of New Labour’s moderate policies, the economic freedom score of the country increased by 1.6 points during his second term. Based on this track-record, Labour managed to win a third election, during which Blair handed over power to his more left-leaning rival Gordon Brown. As the leadership changed, so did the direction of reform. Between 2005 and 2010 the United Kingdom’s economic freedom fell by 2.7 points. The next election was won by the conservatives. 

A commonly held view is that parties on the right introduce market reforms in order to boost growth, whilst those on the left mainly reduce economic freedom and aim to spread the wealth through welfare systems. In fact, countries that have successfully increased their levels of competitiveness have seen both sides of politics pulling in the same direction. Bob Hawke, former leader of the Australian Labor Party led his party to four consecutive victories in 1983, 1984, 1987 and 1990 based on wide ranking economic liberalizations. Paul Keating, the reformist treasurer under Hawke, took over party leadership and won a fifth victory in 1993, in an election initially thought to be unwinnable for Labor. Since then both conservative and left governments in Australia have continued on the path of market reform. The end result is more than two decades of consecutive growth. 

Similarly, Canada was in very bad shape when Paul Martin, minister of finance in the newly elected left-liberal government, took office in 1993. The government made the difficult choice of market reforms, focusing on reduced spending through action such as abolishing transport subsidies for farmers as well as market liberalizations and lower taxation. Many interest groups objected to the changes. And yet, the Canadian Liberal party won a second term in 1997. The party campaigned on the promise to continue to cut the federal deficit, thereby creating a budget surplus which would allow tax cuts as well as repayment of Canada’s national debt. After another term of reformist policies, the liberals managed to win the elections again in 2000. In 2003 Paul Martin took over the reins and won yet another re-election. Conservative governments have since built upon the same policies, transforming Canada into North America’s new free market role model. 

Why is it that governments on the left in particular can be rewarded by introducing market reforms? One explanation might be that this attracts centrist or even right-wing voters to the left. Another is that leftist government can couple market reforms with social features. A research survey by the OECD observes that when markets are opened up, competition often leads to higher employment. This tends to increase income equality, since those who would otherwise not work, or work only part-time, will raise their income. The same reforms can also help those with high productivity to raise their income compared to others, which instead will lead to higher income inequality. Hence, market liberalizations can lead to lower or higher equality, depending on which of these two factors come to dominate. There are good reasons to combine market oriented reforms with policies that strengthen the less well-off in society, such as strengthening publicly funded school programs. 

Today many governments are wary of reforms. Change is seen as unwanted in the short term, and politically difficult to implement. This can explain why some governments in particularly Southern Europe are stuck on a path to failure. A common view is that “Juncker’s curse” will doom governments that are bold enough to change the status quo by cutting government handouts or liberalizing the economy. Our analysis of recent history shows that this impression is mistaken. Change is anything but easy to introduce, but can prove popular in the long term by boosting growth and employment.  Of course, policies must always be adjusted to the particular needs of each individual country.  

Pakistan has historically relied much on trade and enterprise for its prosperity. Currently however ranks as the 126^th freest nation on the Index of Economic Freedom. The countries score is both below that of the world average and the regional average. In some areas, such as fiscal policy and government spending, Pakistan already has good conditions for a well-functioning market economy. Also business and monetary policies score high. The hinders to development are mainly found in corruption and lack of protection for private property. By strengthening market economic institutions greater wealth and job opportunities can be created for the broad public, whilst funds are generated for social programs. Such institutional changes will take time and political will to introduce. But once in place, they can influence long term competitiveness and prosperity. 

Nima Sanandaji, PhD at the Royal Institute of Technology and policy analyst.

Stefan Fölster, Professor of economics at the Royal Institute of Technology, and director of the Reform Institute.

The authors have written the new book ”Renaissance for Reforms” which is co-published by Timbro and the Institute of Economic Affairs.

Note: This was originally posted in March 2014.

Note, please!

Note please!

By sheer mistake, last night I deleted a number of posts from the blog: http://NotesFromPakistan.blogspot.com

That's why many a link may not work; I am in the process of posting them again.

A new category emerges: Very Bad Taliban

Today's tweet:

Despite shifts in security policy, there are Good Taliban, and Bad Taliban; friend Raza says, a new category has emerged, Very Bad Taliban

 http://twitter.com/khalilkf

Alcohol, drugs and call girls in the Parliament Lodges in Islamabad - What's the issue?

The talk of alcohol, drugs and call girls in the parliament lodges, Islamabad, is not new; Jamshed Dasti only repeated it.

http://www.thenews.com.pk/article-139500-Dasti-claims-to-recover-bag-full-of-liquor-bottles-from-parliament-lodges- 

Everybody knows the moral standing of these parliamentarians, these law-makers, who are the worst law-breakers also.

But the hullabaloo is just misplaced. No one seems to addressing the issue: that, there are ordinary citizens who are subjected to such laws from which the parliamentarians and Ashrafiya are practically immune.

So the question is: Rule of law for everyone, or only for the ordinary citizens?

Asad Umar's poor economics - a friend's blog

Here is one post from Shahid Mehmood's blog: http://shershahsuree.blogspot.com

I was recently forwarded Asad Umar’s two part article on the subject of privatization (which appeared in the NEWS) of public sector enterprises (PSE’s). It is a continuation of the debate that has been generated in lieu of the government’s decision to privatize a specific percentage of these bleeders. Aside from a few positive suggestions over the methodology and how the intended sale should be carried out, the article was a reflection of the author’s poor understanding of factors that affect the economy and its working, especially in the context of Pakistan. In short, Asad Umar showed a poor grasp of basic economics.

Let’s start with his question that why are profit making enterprises like OGDCL being sold? But before raising this question, he should have asked himself why are they making profits in the first place? The simple answer is that these are government supported monopolies that face little competition. Couple this with the fact of high demand for its products which ensures that these entities will earn profit despite having the common bureaucratic setup. Anybody who has had the chance of going to offices of these ‘profit earning’ organizations would surely have witnessed the same level of corruption, inefficiency and mismanagement that is the hallmark of state run institutions in Pakistan. This is the same bureaucratic setup and functioning that Asad Umar derided in the first part of his article.  

Read more: 

Sale of PSEs, and Asad Umar's economics 

http://shershahsuree.blogspot.com/2014/02/sale-of-pses-and-asad-umars-economics.html

My new Urdu book, “پاکستانی کشاکش” published, released

My new Urdu book, “پاکستانی کشاکش” (Pakistani Armageddon) published, and released today by the Alternate Solutions Institute.

Copied below is the Media Release:

New Urdu Book, “پاکستانی کشاکش” Published

Lahore, February 22, 2014: Alternate Solutions Institute today released Dr. Khalil Ahmad’s latest Urdu book, Pakistani Kashakash: Tehlee-O-Taadeel aur Aagay Barhnay ka Raasta (Pakistani Armageddon: Analysis, Resolution and the Way Forward).

پاکستانی کشاکش: تحلیل و تعدیل اور آگے بڑھنے کا راستہ

The book attempts an analysis of the present predicament of the Pakistani state and society with reference to their response to the barbaric threat to the life and liberty of ordinary citizens. The analysis also focuses on the dubious role of politicians and political parties in allowing the criminal entities to encroach upon the constitutional rights of the citizens.

The book concludes that both the state and the political parties have failed to protect the citizens’ right to life, property and liberty ensured in the constitution of the country. After a clear-cut analysis, the book proposes a way forward exhorting concerned and enlightened sections of society to found a new political party with a one-point agenda, i.e. the protection of life and property and rights of the citizens at any cost and without any discrimination. The proposed new party needs to be organized on moral and constitutional grounds leaving behind all the unwanted paraphernalia of ideologies and ideological meanderings.

The author, Dr. Khalil Ahmad expressed hope that if the proposed political party focuses on this one-point agenda and works in line with moral and constitutional dictates, it may bring both the Pakistani state and society out of the present suicidal crisis.

Dr. Khalil’s other published books include: پاکستان میں ریاستی اشرافیہ کا عروج (The Rise of State Aristocracy in Pakistan); سیاسی پارٹیاں یا سیاسی بندوبست: پاکستانی سیاست کے پیچ و خم کا فلسفیانہ محاکمہ (Political Parties or Political Arrangements: A Philosophical Critique of the Intricacies of Pakistani Politics); Charter of Liberty (میثاقِ آزادی).

Book: پاکستانی کشاکش: تحلیل و تعدیل اور آگے بڑھنے کا راستہ 

Author: Dr. Khalil Ahmad

Pages: 40

Price: Rs.65

The book can be purchased from the following:

Lahore:

Suchet Kitab Ghar, F-11, Sharaf Mansion, Queens Road, Ganga Ram Chowk, Lahore

Phone: 042-3630 82 65 Email: suchet2001@yahoo.com

Islamabad:

Saeed Book Bank

Al-Rehman Centre, F-7 Markaz,
Jinnah Super, Islamabad, Pakistan

Phone: 92-51-2651656, 57, 58 (3 Lines) Fax: 92-51-2651660
Email: sales@saeedbookbank.com

For more information, contact the Institute at: info@asinstitute.org

A State that took over society

You can bring the rich to the level of the poor overnight but it takes a lifetime to lift the poor to the level of the rich.  [Irish proverb]

During the 1970s, Pakistan went in for wholesale nationalization of its private enterprises, taking even educational institutions into the state’s hands. This was a move laden with far-reaching and unforeseeable consequences. Some are still being unveiled today. It changed not only the economic and political, but also the social, intellectual and moral landscape of the country for generations to come.

The story began in 1968, with a political movement basing itself purely on totalitarian economic agenda. Its slogans were reminiscent of an ancient collective tribal life where everything belonged to everyone. Two of these were: ‘socialism is our economy’ and ‘all power to the people’. The movement was built on the myth of 22 wealthy families: it was argued that the sole cause of poverty of the people of Pakistan was the concentration of wealth in the hands of a few big industrialists. This myth was exploited fully to gain the political benefit.

Thus, under the Nationalization Order of 1972, a number of industries such as iron and steel, basic metals, heavy engineering, heavy electrical, assembling and manufacturing of motor vehicles and tractors, heavy and basic chemicals, petrochemicals, cement, public utilities, power generation, transmission and distribution, and gas and oil refineries were nationalized. The Order ostracized the private sector from economic areas of ‘crucial importance’. In 1972 all private educational institutions, including schools, were shifted to the public sector. The second Order in 1974 led to the nationalization of banks, life insurance, shipping and marketing of petroleum products. In 1976, 2,815 cotton ginning, rice husking and flour milling units were taken over. It ‘created an administrative nightmare and widespread resentment,’ as an analyst said.

More important were the revolutionary changes in the wake of nationalization. The damage was more than economic: mutual trust and regard for personal freedom and property disappeared. It was just like a powerful windstorm uprooting everything coming in its way. There was simultaneous nationalization of social and moral values of Pakistani society. Thus, out of the dust of this storm emerged a new ethic that ultimately proved inimical to basic principles of human civilization. In time, these values pervaded the thinking and practices of people at all levels of society.

The foremost value was: ‘all wealth is evil’. Some of the other values let us sense the gravity of the crisis: that wealth can only be earned by evil means; or, it is created only through evil means; that one who has wealth has got it through evil means; that the wealth one has, was stolen from someone else; that wealth is not a private property; that it is to be owned only collectively; and last but not least, that earning it in any manner is perfectly justified.

These values reflect only the tip of the iceberg. The crisis was so deep and pervasive that it engulfed and destroyed all profit-incentive, work-incentive, work ethics and business ethics. The very concept of property rights and justice was dismantled, resulting in an unprecedented jungle-like anarchy where everything belonged to everyone, and ultimately came to belong to none but the mightiest.

Naturally, the nationalized entities were mercilessly plundered, over-employed and finally collapsed. This gave rise to a kleptocratic institution of government and a kleptocratic society as well. One of Pakistan’s greatest entrepreneurs, G.M. Adamjee, pondered, "In a society neck-deep in corruption, I more often than not find myself a misfit. There is no place for a veteran businessman."

Under the circumstance, the state acquired the role of an instrument of making and redistributing money, and it was the influential elite that used it most, made money and redistributed money the most. This elitist system benefited only a few--and those who were networked. All politics of the elitist state found an exclusive focus ready to be exploited for amassing wealth, and cultivated a general consensus that the state must provide for all of the citizens according to their wishes, no matter what their social and economic status is. This induced an unrelenting scramble for power and money.

Poverty was now to be considered a disadvantage for individuals, caused by the larger earnings of the rich. It meant that the poor were poor because the rich were rich. This was a situation of mistaken targeting: it was not the rich industrialists or capitalists who were responsible for the poverty or low standard of living for people at large as was understood generally. The people who were at the helm of the affairs--regardless of whether they were industrialists or landlords, bureaucrats or politicians or others--grabbed political power and resources, and exploited the rest.

All this prevented Pakistan from moving towards and forward on the path to development and prosperity for all.

When the economy had reached a state where it was in a shambles, the winds changed direction. It was during the 1990s that Pakistan started treading on the path to de-nationalization, privatization, and then moved ahead with de-regulation and liberalization with a hope to redress the damage done till date. But of course, it will take time for confidence and mutual trust to be restored among the people, and between the people and the state. Moreover, the damage done to the social and moral fabric of society will take a much longer time to heal. The society of Pakistan is still in a state of valuelessness and lawlessness!

[This article appeared in Mint on March 7, 2008]