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.