Workers’ efficiency is dependent on the work ethics prevalent in a country. This is the reason that much lower-paid Bangladeshi garment workers with a better work culture are more efficient than higher-paid Pakistani workers in the same field.
Entrepreneurs should realize that electricity and gas shortages would be a regular feature for another year or two. They would have to bear with a suppressed market like their global competitors. They also have to bear incompetent state machinery that lacks the capability to regulate the economy. The state machinery in Bangladesh is even worse, as various global ratings prove. Pakistani businessmen are also paying perception discount on their products to the foreign buyers but so did the entrepreneurs in Sri Lanka during 10 years of civil war. Those that have faced negatives are still in business although the bureaucracy remains both corrupt and incompetent. Still, the prudent entrepreneurs maintain their manufacturing capabilities as corruption and government incompetence has always been there.
The way people work, accumulate and innovate determines the level of wealth and poverty of a nation. Government incentives are important, but they fail in countries where a proper work culture is absent. This is the reason that even when the incentives are poor, economies are robust in countries where there is a culture of hard work, innovation and accumulation. In poor economies despite best incentives, people work little, save little and stick with old technologies. Adam Smith’s recipe for growth based on good incentive cannot deliver results if the national culture is not pro growth. Smith has also said that a free market economy to incentivize people is barbarous without proper regulation.
A hard-work culture is created through proper regulations. For example, if everyone gets a ticket for a traffic violation the culture for short cuts is discouraged. By bringing to book all tax evaders, whether a parliamentarian or a poor vendor, the taxpaying culture is promoted. Transparent and nondiscretionary rules would expose any unlawful act of bureaucracy and almost eliminate bribe. If all non-custom goods are confiscated and destroyed there would be no smuggling in the country. It is not surprising that the government incentives for economic activities are much higher in poor economies but prosperity is seen in economies like the United States or Germany where the incentives are low but work culture very rich.
Businessmen in Pakistan often complain of high tax rates in Pakistan, but if we look at the Scandinavian countries wage income is taxed at 50-67 percent. Every economic activity is subject to rules, regulations and restriction. Yet workers productivity in these economies is one of the highest in the world and improving steadily. Government spending in these economies is also very high because high tax revenues. Conventional wisdom says that the tax rates and government spending should be lower.
It has been observed that when workers emigrate from poor country to a developed economy, he rapidly adapts to the economic disciplines of the host economy. This is because the rules of a developed economy mandate a minimum wage per hour. If the immigrant worker does not match the productivity associated with that job he will not get employed. This behavior of foreign workers was depicted in the early twentieth century, when the Polish workers in the textile industry of England were four times more productive than workers using the same machines in Poland.
This implies that migrants accustomed to the work culture and ethics of developed economies could be used as a source of improving productivities in the manufacturing sectors of their poor home economy. However these workers are reluctant to come back to their home country because they have more opportunities if they stay back in a developed country like the United States.
This also solves the puzzle as to why entrepreneurship in Pakistan is low. The reason is that the initial earning of most of the entrepreneurs in Pakistan is lower than what they would get as employees. The entrepreneurship is higher in developed economies because by adhering to the rules they provide higher economic opportunities than poor nations do.
The mantra of establishing accelerators, incubators, camps and events to facilitate start ups has not paid much dividend in economies that lack a proper working culture. This is because conferences, presentations and symposiums cannot provide the startups with contacts, customers, software or culture that they need to move up. The lectures of presenters, government officials or NGOs are rich in presenting ideas on tax policy, financing cost saving but they are poor in facilitating them on these fronts. The entrepreneurs in poor countries with poor work culture are always busy in firefighting to save their enterprise and have little time for startups.
Work ethics can be incorporated in any culture without basically changing societal norms. France and the United States are developed economies. The Americans give more value to business, where people of France give more weight to quality of life. But both countries have incorporated the business culture successfully, as they have realized that business value improves quality of life or that quality of life will be increased when business is given preference.
Cultures differ between nations and also within the different regions of a nation, and even from one city to another. Sialkot is part of Pakistan but the entrepreneurial spirit in the small city matches that of a developed economy. It accounts for only 10 percent of our exports, but the number of exporters is much higher and Sialkotis facilitate each other from the same city.
Efficiencies in the manufacturing sectors of Pakistan increased either due to government subsidies or the protection they enjoyed against imported products; now they will have to improve efficiencies as the resource-starved government will not bail them out. Besides, upgrading technology, they will have to improve the work culture in the country in the same way as the entrepreneurs of Sialkot have done.
The manufacturers still demand protection against imports and subsidies in power and exports. It is true that many manufacturing units have closed down due to their inability to remain competitive locally as well as globally. However, it is also a reality that there are manufacturing units in almost all sectors that are still posting double digit growth. They have flourished in the same economic scenario in which many have perished, or are on the verge of collapse. Those that are in the driving seat even today are run by professionals and those that are going down are operated by the owners and their immediate family.
Professionals keep an eye on both the local and the global economy and the impact it would have on their trade. They plan in advance and are prepared for the windfall or the depression that is likely to manifest in six months to a year.
A section of Pakistan’s manufacturing sector has proved its resilience by surviving four years of high inflation, high bank markup, visa restrictions and liberal imports by continuing to improve their efficiencies and cut costs to stay competitive.
For instance, most of the spinning sector is under severe stress but there are mills operated on diesel-run power engines when there were acute power and gas shortages in the country. They achieved this by improving their energy efficiencies. The process efficiencies and worker productivity was simultaneously increased that enabled them to remain competitive both locally as well as globally. Before the energy crisis all spinners in Pakistan were making money and Pakistan yarn was the cheapest and best quality yarn in its category. It is still top in quality, but it expensive for most of the spinners that did not invest in increasing efficiency when they were making money. Now almost 30 percent of the mills are closed; Pakistan yarn exports have come down by 20 percent as the operating, efficient mills have increased their exports at a lower margin due to a depression in global yarn uptake.
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