Pro-market or pro-business?

Byline: Mushtaq Khan and Salim Raza

Pakistan's economy appears to have stabilised. There is growing optimism about the country's economic outlook.

The government can rightly take credit for the improvement as it gears up to support the private sector drive the economy forward.

Against this backdrop, we make a distinction between policies that are pro-business and pro-market. Pro-market policies use market forces (i.e. the opportunity to make profits) to encourage new players into the economy while pro-business policies also focus on profits, but look exclusively at existing business groups.

At the risk of simplifying, we would characterise pro-business versus pro-market as:

Protective/supportive policies for existing business interests versus policies that create a level playing field to encourage new players and new businesses.

Pro-business delivers quick results as incentives to existing businesses bear fruit much sooner; for pro-market policies, results will take time.

As pro-business targets established businesses, it does not create opportunities for others; pro-market policies create new opportunities and have a greater spill-over.

Existing business interests have strong ties with the bureaucracy; new entrants do not.

Pro-market requires fresh policy thinking and effort to legislate and ensure that policies stay in place for a number of years.

Existing businesses have a latent wariness of the China-Pakistan Economic Corridor (CPEC) as they feel new players could undermine their position; on the other hand, CPEC will only gain traction if the government adopts pro-market policies.

The government's preference for pro-business policies is simple to understand: (1) it's easier to do (just call in the business leaders and support their efforts); (2) it appeals to people who have strong ties with the government machinery; (3) the government can claim quick results; (4) time-bound tax exemptions are easier than legislating new policies; and (5) the bureaucracy is always keen to maintain the status quo.

Pakistan needs its prominent businessmen, but it also needs them to be outward-looking and dynamic. This group must embrace change and put aside its focus on short-term profitability

The question is: will pro-business policies work or simply take us back to square one when the next balance-of-payments crisis hits?

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