GOVERNMENTS intervene in economic policy (like tariff protection and subsidies) for accelerating the process of economic growth. The main objective behind such policy deviations is to promote a lagging sector/region or integrate some deprived sections of society with the main stream economic development.
However, such incentives give rise to rent of various types and people compete with each other for covertly availing themselves of benefits not meant for them. In developed economies, rent-seeking remains within the ambit of law whereas in less developed countries, it takes the shape of bribery and corruption.
Pakistan has a long history of rent seeking culture under which any initiative put in place with the best of motives for the uplift of masses is largely hijacked by the privileged people.
In 1970s, the State Bank of Pakistan started a number of schemes for the uplift of people of small means in agriculture, industry and business. Under these schemes, billions of rupees disbursed were, in fact, utilised by influentials in connivance with the lenders. Even today, rent-seeking in different forms flourishes amidst claims of public service and welfare.
Generally, it is considered that rent-seeking culture helps a segment of the elite to twist the existing laws to serve their interest, but now is being emulated by some section of the people of small means. The scheme of Green Van/Pickup of the Punjab government is meant for unemployed youth who can get a van or pick up worth about Rs700,000 from designated banks, reportedly, just by paying Rs100,000 to the bank. The remaining amount is provided by the bank as loan and the mark-up is to be paid by the government.
Pakistan has a long history of rent-seeking culture under which any initiative put in place with the best of motives for the uplift of masses is largely hijacked by the privileged people
Monthly installment of this van is Rs9,000 whereas this vehicle can be rented out for Rs1000 daily. The average daily earnings – in case of self use — is above Rs2,000. In short, this is very useful scheme for minimising unemployment among youth with little education. Surprisingly, these vehicles — distinct from their green colour — are also available in weekly auto market shows for sale.
Although ownership of these vans lies with the financing banks, yet these are sold/ purchased against another set of ownership papers prepared on a stamp paper along with some other undertakings
Here are some other manifestations of rent-seeking culture. The government is frequently called rent-seeker for not passing the full impact of reduced oil prices.
However, the fuel prices declined from Rs110/litre to Rs62/litre, but this huge reduction of Rs48/litre had no corresponding downward effect on prices of commodities of common use like meat, milk and vegetable oil.
Currently, despite low prices of cotton and yarn, the prices of new arrivals of cotton fabrics are higher than last year. Educational institutions, doctors and lawyers have also increased their fees/charges in these days of historically low inflation as claimed by the SBP.
Spending of billions of rupees on mega infrastructure projects, boldly ignoring health and education, is also attributed to the huge rent-seeking opportunities shrouded in such expenditure. These days, names of investors of 10-year $500m Eurobond launched by Pakistan in 2015 are not known as the parliamentary committee held in-camera sessions on the issue.
Apparently, bidders of these bonds would be overseas individuals and institutions, and disclosing their names would add to Pakistan’s credit ranking in the international financial markets.
It is feared that this initiative may have also fallen prey to the mighty rent seekers because these bonds carry highly attractive coupon rate of 8.25pc per annum — a yield unthinkable by global investors these days on both sides of the Atlantic.
There could be a number of reasons for this. Firstly, people do not have any sense of ownership about the government or its institutions. This results in development projects aiming at public welfare seldom benefitting the masses. Respect or fear of law among general public is at its lowest ebb; accountability-free defiance of law is a common practice in our daily life.
Refusal of traders to pay tax, seventh extension in the date of filing of income tax return for the last fiscal year and lacklustre response to the currently announced tax amnesty scheme shows how rent-seeking is flourishing through open defiance — a mounting problem for the state, with no solution in sight.
The writer is president of the Institute of Banking and Business Learning
Published in Dawn, Business & Finance weekly, March 21st, 2016
