Sunday, 15 November 2015

Design v. Implementation

At many conferences there is a refrain that “Research and inquiry is not necessary, we know it all. We need to act and not think.” Alternatively, “we know it all! The only problem is that no one will implement what we are suggesting.”

I found this very disturbing.

So I asked a few of these loud implementers "what is it that you want to implement?"

They point to some donor report. This raises a number of issues that need to be understood and discussed.

Do we assume that

   All donor recommendations are excellent and can be fully implemented off the shelf?
   All donor consultants who completed those reports are of the best quality?
   All donor consultants know all local conditions?
   All solutions can be borrowed there is no local innovation possible?
   There is no need for a domestic review, critique or discussion of this excellent work?

Let us count some donor successes for these people
   Social Action Program which the Bank itself would like to forget
   The foreign currency debacle that the both the Bank and Fund would like to leave behind
   The civil service reform program that sent people to Harvard at great expense with no end in mind
   The National School of Public policy that merely changed nomenclature at great expense
   The Access to Justice that spend millions on the Project Implementation Unit
I could go on but let us leave it at that.

The proponents of ‘no think, follow the donor” approach would say, the fault was not in the design but in the implementation. Convenient!

Even if I accept that let me ask should we not then do a study to apportion blame on where the fault lies in the design or the implementation.

After all a failed policy could be due to poor design or poor implementation or both! Only research could determine what weight should be placed on design or implementation or policy failure.

So no matter where we go there is a need for study and research. To leave all thinking to the donor and all implementation to the locals is a poor approach to policy can in no way lead to good policy. After all, cookbooks alone do not make Michelin chefs.

No matter that in this rush to act, we created the FCD problem, created a half chewed local government scheme, protected car monopolies, created hotelling monopolies, built up housing scheme scams and so on and so forth. This simplistic approach has led us to crisis after crisis.

Donors argue that “prescriptions are easy” and that “they know it all!” Why then do their parent countries not agree that prescriptions are easy. They have an enormous infrastructure for generating policy research and discussion. Unlike us, they have deep teams for developing policy thinking. Whatever policy initiative is taken is well researched frequently debated. Political parties, even in opposition maintain think-tanks for the development of policy initiatives to be used when they come to power.

Why is it that the policy in the industrial countries has been following academic thinking and not activism? Keynesianism prevailed for a long time and when it lost the academic debate to the market based system, policy changed. It seems that research leads policy and that policymakers do not seem to rush into the most easily available prescription.

Why should prescription and implementation be separated? A good analysis will take into account the prescriptive and implementation aspects of the particular situation. All analysts worth their merit will examine the practical aspects of their prescriptions. To separate the two is, at the minimum, naive.

Given our current state of understanding of socio-politico-economic processes, we should be more humble and inquiring and not claim “prescriptions are easy.” On the contrary, the hypothesis can be advanced that the reason that change is so slow may be because of our cavalier attitude towards prescriptions and the prescription-making process.

Yet, simplistic schemes are bandied about by our esteemed columnists: fix the deficit, get the macro right, increase development expenditures, get education right! Yes these are all truisms that no one can disagree with. But the issue is doing any of these will require a lot of thinking research, planning, and maneuvering. And all these activities will require a large number of very competent people involved in basically research, implementation and evaluation at various levels. Even implementation has to be based on continuous evaluation and revision which in itself is research.

What should be done? There are no shortcuts.

   First, we must build up thinking and debate into policy.
   Second, we must build teams in institutions. Most institutions remain one-man affairs with no coherence or depth to the team. These heads remain totally insular and are not subject to any form of peer review. Why is there no policy debate in Pakistan and why are their no teams in various institutions that will define and debate policy in their sectors?
   Finally, our thinking community must write more well-researched and informed critique of policy rather than blame it all on Musharaf, Shaukat, NS or BB. What happened in the FCD crisis? Who was responsible and why? How did the IPP’s happen? Why was such a strange pro-monopoly policy on cars and hotels developed? Why are our urban development laws so archaic? What is wrong with the archaic cooperative law that it continues to plague us in the current housing scams and in the past coop society frauds?

These and many other such issues need considerable research.

Thursday, 29 October 2015

Should we have a Planning Commission?

Kh Asif with his caustic remark “if here had been a Planning commission then, Taj Mahal would not be built!’ I am glad that started a debate on this important issue and many people have written good articles on this subject.
But first, let us tell Kh Asif that he is exactly right. Taj Mahal, an aging emperor’s whim should not have been built. Planning Commission was built to keep such whims in check. Recall Ayub Khan never interfered in Planning.   
Go back to first principles. Democracy and our modern form of government believes in checks and balances in government. This means a) due diligence—research and evidence collection—for presentation to a decision-making forum and b) clear lines of responsibility between ministries to jealously look after their roles. If one ministry accumulates all power and decision-making then we go back to the days of an arbitrary Shah Jehan. Remember the world fought divine right of kings for centuries to develop democracy.
The cabinet is a decision-making body with the PM as chair. PM cannot and should not be making arbitrary decisions. Even then the cabinet has to take decisions within the law. Legal changes have to go the parliament. This is worth repeating for the media soundbite has become “PM has arbitrary wuthority.” Democracy is a system not a vote!
As Mosharaf Zaidi appropriately summarized in his column recently that Planning forums play an important decision-making role in keeping with the design of democracy.
Sadly it has now become routine for ministers to think that they have the divine right to do development, especially development projects. Ministers must be told that their job is policy-making and participating in decision forums. That is where they set direction. Actually implementing, running and sighting development projects is a technical subject for expert due diligence.
Our ministers still have a feudal mindset where they associate the job with arrogance, power and control of resources. They don’t like any check on them. Faisal Bari had a very good column on how our minsters feel that regulation is a hurdle in their path to control markets. While in government I saw ministers chafe at regulatory bodies and do all they could to gain control of them.
Perhaps there should be some ministerial training on their role in a democratic system. Experience shows clear lines of demarcation. Ministries merely monitor and collect information to report to forums like parliament and cabinet. Once in a while changes in policy through careful research and evidence collection are made to appropriate forums for decisions.
Regulatory bodies watch markets and see that the law is implemented. They follow laws enacted and policies approved by high level forums. Minsters and ministries have no role here.
Project implementation and public service delivery that follows from legislation and policy development is done in separate agencies beyond political control. This ensures impartiality in government service. Ministers should not have a role in this.  
Ali Salman also raises the issue of planning and comes to the correct conclusion that our planning ministry must develop systems for the 21st century.  
There is a clear need to extend this debate and indeed try to learn from it. I have written many times we need to review our architecture of governance if we want good decision-making.  
But what of Planning?
My take: There are 3 main objectives of economic policy—growth, external and internal balance and inflation management. The current practice of all 3 being managed by 1 ministry may be the biggest folly of our poor governance.
Much literature exists to suggest that each government ministry should be a custodian of one goal.  Hence central bank independence!
For the last 50 years our Planning process has been broken with egocentric FMs also wanting the Planning title and the all ministers wanting an unbridled control of their development budget. The result is our lackluster unstable and declining long run growth. Obviously we need a different route.
MOF has its hands full managing a budget. Besides when the budget runs into trouble as it does every 2 months, MOF instruments (often called mini-budgets, in reality austerity) all impact growth negatively. Some agency must be sitting at a decision-making forum contesting this approach to budget management. 
IMF suggests we should develop an independent central bank that manages inflation and an MOF that manages the budget and through it the internal and external balance. But does ‘growth and development’ not need an independent champion? Like the SBP it too should be independent, staffed by competent professionals and not managed by politicians. 
Call it what you will, we need some place where growth, development and jobs are kept under review and policy initiatives for these objectives are presented to decision-making forums. If not then growth and development is a forgotten by-product of inflation and budget management.
We are a developing country. Our topmost priority needs to be economic growth and development. We must have an agency thinking of growth and development.
Aid agencies also lobby against the PC.  When I was in the PC, their refrain was we want our PC1’s approved without scrutiny. Yet they want better governance?!
They have a “Country Partnership Strategy” that is often at variance with PC plan documents. They run their own advocacy programs, fund research that affects key policy like ‘trade with India”, set up their own NGOs and activities again independent of any government dialog. This is a parallel invisible government in our midst.  
EAD is a MOF is hungry for money is blissfully unaware of this parallel government and its impact on the economy. Donors freely retail whim and use expensive contractors and consultants as they like. Projects such as TARP, SAP, Capacity building, Access to justice and several others unsuccessful by their own evaluations, leave a loan to be repaid by our children.
In my view, EAD is obsolete. Donors should be reporting to a planning forum. They should not be able to set our policy agendas through advocacy and NGO funding unilaterally.
We need some agency to keep our development efforts coordinated and under review. And that was the PC. But now much battered and broken can it do the job?

Let the debate go on. 

Wednesday, 21 October 2015

The New Auto Policy

Tim Cook CEO of Apple said on Monday this week “It would seem like there will be massive change in that (car) industry, massive change.”
Most of the world is reflecting on this statement because of the importance of Apple as the world’s largest company as well as the technology leader. This statement has large ramifications for us too and we would all do well to think upon it.
We are told that our policymakers are considering a new auto policy. Newspapers report that it is likely to be business as usual, rewarding our automakers with the large protection that they have received now for more than 40 years.
For 40 long years we have struggled to create an auto industry giving our local assemblers a market where imports are made prohibitively expensive forcing consumers to buy what they produce. We all know about not only the kinds of cars we get but how they are sometimes bought at the infamous premium of the ‘on’ where you pay full cash in advance for delivery months later. In some years the earnings off the ‘on’ money have been huge for some car companies.
Our ‘auto policy’ has been full of strange outmoded ideas, which are seldom challenged.
First, the car industry is central to development. As a matter of belief some of our policymakers say that without a car industry no country developed.  This belief stems from an era when the car industry was at the cutting edge of technology and global bcar adoption was taking place. Humans were beginning a romance with ‘just in time’ transport. Much as changed since then including the romance with the car.
Second, technology can be adopted through policy and subsidy. For this ‘indigenization policy’ was put in place to try to manufacture all auto parts locally. It was envisaged that over time all auto parts would be manufactured locally and as it grows it too will be offered protection of operating behind high tariff barriers. A cottage industry for manufacturing these parts has developed and is now strongly resistant to lowering tariff barriers.
Third, given the imperative of developing a car industry, we cut deals with some car companies that allowed them to manufacture only for our domestic market, and not for export.
Poor Pakistani citizens are forced now to drive cars that have seen no technological improvement in many years. They buy cars with no warranties often being told by showrooms that tires and brakes will need to be changed soon as they may not be up to standard. Most cars are not equipped to international safety standards.
It is well known how scared our car assemblers are of old cars. They argue for the stoppage of all used car imports. Indeed they know that the cars sold locally are not as good as some of 10-year-old models sold in the rest of the world. 
There is no end in sight to this protection policy despite the assemblers’ high profits.
Meanwhile as Tim Cook said the car industry is no at a cusp of change.  Nothing in this world remains static and the car industry is in a state of flux now. 
The internal combustion engine—the one we are patronizing by our protection policy—is dying. Hybrids have been here for decades and are sill not allowed into Pakistan except at exorbitant costs. Electric cars are in and gaining ground. Estimates show that the share of hybrids and electric vehicles is now about 3% in the US and growing at about 22% per annum.
Meanwhile car technology is redefining driving, the use of the vehicle as well as the need for roads, bypasses, flyovers and signal free corridors. 
Tesla a revolutionary 12-year-old car company has developed a best-seller luxury car with outstanding safety standards and frontier technology to challenge known brands like Porsche, Mercedes, BMW etc. The car runs on Batteries and is charged through an electric connection. It has no internal combustion engine yet it outpaces the Porsche and handles as well as a BMW. It has redefined cars.
Last week Tesla did a software update on its cars just like you and I update our mobile phones and computers. The update has allowed the Tesla to incorporate several self-driving features. The car will now automatically brake when it sees an obstacle in front. It can drive in lane by itself sensing cars and lines. It can park itself.
Self-driving features are now being introduced in many cars while we have all watched in wonderment as the Google Car goes about like toy in tiny town without even a steering wheel.
Apple is rumored to be making a car in its project Titan that is expected to revolutionize the car industry. 
With this change happening does it make sense to make the car of the 20th century? Are we trying to indigenize a moving target in a cottage industry? Brakes, batteries, seats, steering wheels, engine parts are all being rethought out on a regular basis. Rethinking is being done through research at every level. Can cottage industries keep pace with this research or change?
The auto policy must take into account the change that the global auto industry is going though. An industry that can prey upon local consumers without any pressure to keep abreast of technological changes that are happening is not going to be an asset going forward. The bill for its backwardness is being paid in a myriad indirect ways and will grow over time. 
At a minimum the import and export barriers on this industry must be removed. The assemblers must face import competition. Moreover, their cars must be exportable. If this is done they will be forced to keep up and over time invest in research and design.

Our policy makers need to understand that technology is no more than research. Those who invest in research have technology. Those who copy never stay abreast.    

Sunday, 16 August 2015

Non-Filer Blues

Policy making in Pakistan is an amateur parlor game—everybody plays policy on TV, in drawing rooms and wherever they like and all without reading, investigating or learning about how the rest of the world makes policy. And let me hasten to add this is not just the current PMLN government—all governments in our history have done this.
Some powerful person in their tremendously busy VIP schedules picks up stray ideas. Bureaucrats beholden for their careers to the powerful people, rush to implement these suggestions. No time to think, investigate, understand—after all development must not wait for thought, debate and investigation.
None of them even think that some of these ideas may be self-serving and perhaps a further investigation may be required. 
Nowhere is this more apparent than in tax policy.  All of us live with new and crazier proposals every few weeks. Arbitrary taxes on energy, Internet, school fees, cars, houses, consumption, mobile phones, bank transactions, airplane tickets—the list just keeps growing. Yet the SROs, subsidies to outmoded industries that have not been modernized in decades continue financed by these arbitrary taxes. Similarly the untaxed perks and plots to the henchmen of power grow at taxpayer expense too. 
No one questions this strange system and the people docilely pay these taxes that are now becoming almost as onerous as the Ancien Regime in France.
If you notice every now and again the government forms a tax reform committee comprising mostly of industrialists—and often the same industrialists. Yes the same ones who benefit from subsidies and SROs. The committee meets like a parlor game. There is no study, no expert advice, only princes playing policy. 
Let us not forget the donors who have for over 30 years provided huge amounts of money to their consultants who come with policy advice that is hastily implemented.  Can we please ask them to explain these crazy taxes? Do the advanced countries have such arbitrary taxes every week?
The pet peeve of the donor and the SRO lobby is the nonfiler! And they have connived from ther plush Islamabad houses a plan to make nonfilers suffer.  Oh yes, high theory is used here. Give them an incentive to file by penalizing everything that nonfilers do.  Here are some results:
Well I met Daud Rashida who has for 30 years worked in the Middle East working 14 hours a day, dutifully sending money to his family that he sees once a year while trying to save up for a nest egg for retirement. He remains a Pakistani since no one will allow him to stay in the Middle East.  The new penalties for nonfilers are biting him hard. He is rushing about trying to address this situation from oversaes. Of course it will be settled but at a price. What will the government collect? Nothing. A bribe will fix the problem. Maybe the bank will keep some of the amount withheld. But Daud will surely suffer!
Meet Jani khala of Yalan. Her husband died 25 years ago leaving her with some savings in Behbud that she is living off.  She has a house in Gulberg that her hardworking and hard saving husband left her and that greedy eyes are all looking at enviously. Outwardly khala appears very rich and yes her house is valuable. But she skimps and saves to live on her limited bahbood income that inflation has viciously eaten away. Her children who are in the US send her some money occasionally that she puts in her bank saving up for her medical expenses. Once a year they send her a ticket and she goes to see them.
Now she has gone into a deep depression. The bank is taking money for her transactions. She does not understand why? She is a traditional woman with limited knowledge.  Vultures are circling around her. Some with proposals for bribing FBR, selling/exchanging her property, managing her money! But then she should get no sympathy she is a non-filer. But Behbud is non taxable. She has no taxable income.
Farid Hayat a student with no background but great ambitions has a scholarship, works 2 jobs to pay for college and a future. Unfortunately he puts his money in a bank and needs internet and has to pay college fees. He had saved money to buy a car but now is in deep trouble. He is not a nonfiler. He has been trying to file the best he can because he is too poor to afford an accountant. But the Bank and the car dealer treat him as a nonfiler. He has been wasting time trying to prove he is a filer but of course being powerless he will have to pay a fee.  So his plans must change.  Should he drop out of school?
Elina Aslam an enterprising young woman saved up in her night nursing job to buy a car and start a car rental company.  Hard work and frugal life style led to enough savings to allow her to add another car to her rental business.  She never really made enough to warrant a serious tax return. But now she cant buy a new car since there are all kinds on non-filer penalties she has to face. Furthermore, now putting money in a bank has become expensive, Elina is keeping her cash at home and lives in dread of robbers.
She is thinking of selling her business at a loss and reverting to night nursing.
These are just some stories of how poorly conceived policy disrupts lives. Nobel prizes have been won on understanding how tax policy must be neutral not disrupting lives. Yet our policy dilettantes know better. 
Much experience shows how simple tax policies with a clean, competent tax administration can multiply revenues but of course our dilettante advisors and their henchmen—donor consultants—know better. Their suggestions on taxing the chicken coop, the lavatory and kitchen will surely create much despair.   

(Names used here are all fictitious for obvious reasons. They are derived from famous economists—see if you can guess)