Transcript Productivity, Markets & Communities

Productivity, Markets & Communities
A New Development Approach
Planning Commission
1
Outline
1.
2.
3.
4.
5.
6.
7.
8.
Statement of the New Framework
Current Development Model
Why does the Model Fail?
What Constrains our Growth?
New Development Approach
Old vs. New Development Regime
Springboards for the New Development Approach
Summary to Take-away
2
Unintended Consequence of our
Policies
the stifling of internal markets, cities and
communities, which play a critical role in
fostering productivity, innovation and
entrepreneurship and ultimately promote
growth, prosperity and development.
3
In the New Framework
Open market environment
that rewards innovation and entrepreneurship
Reorienting the role of government to protect public
interests and rights, provide public goods, enforce laws,
punish exploitative practices, and operate with
transparency and accountability.
Current Development Model
5
Current Development Model
[Harrod-Domar Model]
Higher
Savings
Increased
Output
Increased
Investment
Large
Capital
Stock
Our plans have followed the H-D approach, where economic growth 6is a
function of savings
Why does the H-D model fail?
• Markets are not well-developed so savings are not
channeled into most productive uses
• Take-off fails due to poor quality of investments
• Reliance on foreign resources as savings are low
• Economies can get trapped in a vicious circle
• Model does not incorporate endogenous growth
Low capital formation  low productivity  low income  low savings
What Constrains Our Growth?
8
Economic Growth 1972 - 2010
10.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
A Story of Boom – Bust Cycles
2008
2005
2002
1999
1996
1993
1990
1987
1984
1981
1978
1975
0.0
1972
Real GDP Growth Rates
9.0
9
Investment Pattern 1973 - 2010
25
20
15
Total Investment % of
GDP
10
5
Declining Investment with Quality Issues
2009
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
1979
1977
1975
1973
0
10
The International Evidence
11
Comparative Competitiveness Position
Countries
Global Competitiveness Business cost of
(rank/125)
crime and violence
Pakistan
101
119
India
49
50
Indonesia
54
62
Thailand
36
61
Malaysia
24
95
China
29
43
Lower rank value is better
Source: Global Competitiveness Report 2009-10
12
Overall Infrastructure Quality
Country
Score
Indonesia
India
China
Pakistan
Thailand
Korea
Taiwan
Malaysia
Hongkong
2.5
3.3
3.4
3.4
5.0
5.1
5.4
5.7
6.4
Source: Global Competitiveness Report 2006-07
Scorecard: 1= underdeveloped, 7=as extensive and efficient as the world’s best
13
Quality of Transport Infrastructure
Countries
Pakistan
India
Indonesia
Thailand
Malaysia
China
Quality of
Quality of road Air transport
Railroad
infrastructure infrastructure
infrastructure
51
65
76
20
89
65
60
94
68
52
35
26
19
24
27
27
50
80
Low rank value is better
The Global Competitiveness Report 2009–2010
14
Financial Market Sophistication
Countries
Pakistan
India
Indonesia
Thailand
Malaysia
China
Financial market
sophistication
79
32
56
33
31
78
Ease of access to
credit
53
34
21
35
13
89
Low rank value is better
The Global Competitiveness Report 2009–2010
15
Technology Readiness
Countries
Pakistan
India
Indonesia
Thailand
Malaysia
China
Firm level
technology
absorption
99
30
65
61
37
47
FDI and technology
transfer
96
19
49
50
8
77
Low rank value is better
The Global Competitiveness Report 2009–2010
16
Domestic Competition
Countries
Pakistan
India
Indonesia
Thailand
Malaysia
China
Intensity of local
competition
87
12
47
41
42
13
Effectiveness of
antimonopoly policy
78
25
30
53
47
50
Low rank value is better
The Global Competitiveness Report 2009–2010
17
The failure of Governance
Indicators
World Ranking out of 102
Countries
Judicial Independence
77/102
Property Rights
71/102
Favoritism in decisions of
government officials
52/102
Irregular payments in tax
collection
77/102
Corruption
77/102
Low rank value is better
The Global Competitiveness Report 2009–2010
18
Factors that Constrain our Growth
• Market Failure: Lack of competitive and innovative markets
• Governance Failure:
o Judicial (contract enforcement)
o Distortive taxes and subsidies
o Lack of proper financial supervision
o Protecting special interests
o Inadequate infrastructure
o Lack of proper regulation; allowing anti-competitive practices
• Not enough growth software -- Lack human capital, good business
practices and management systems, highly skilled technical people
and managers, innovation, information, etc.
New Development Approach
20
New Process of Economic Growth
Economic Growth
Productivity
Investment
Implement
Market
Reforms
Planned
Geography
(Cities as Growth
Engines)
Pubic Sector
Investment
(old model)
Promote
Competitive
Internal
Markets
Promote
Innovation
Promote
Entrepreneurship
Focusing
on
Technical
Skills (old
model)
21
Old vs. New Development Regime
22
Old Regime
New Regime
Focus on hardware of growth
Focus on software of growth
Although the gap between us and
our competitors has narrowed
considerably, current approach
focuses on building physical
infrastructure.
Need to learn from global
experience, generate sustained
productivity and efficiency by
emphasizing quality of investment
in physical and human capital.
We continue to fare poorly against
our competitors on the software
aspects/inputs critical to growth.
Measure productivity and
performance in both the public and
private sectors.
Hardware vs. Software
23
Old Regime
New Regime
Dominant role of public
investment
Well functioning Markets as
engines of growth
Public Sector Development Program
has long been viewed as a driver of
economic growth. Policy makers
have emphasized policies that
crowd-out private investment.
Government should not be involved
in markets, except to regulate
misbehavior, reduce transaction
costs and promote competition.
Public Sector Investment vs. Markets
24
Old Regime
New Regime
Competitiveness is exogenous
Competitiveness is endogenous
Our past and present growth
strategies view global indicators
that measure competitiveness and
cost of doing business as “beyond
our control”.
By minimizing government
intervention and making productivity
endogenous we will be able to look
beyond factor accumulation to
accelerate growth and improve riskadjusted returns. To this end, we need
to identify reforms needed to develop
competitive, innovative and efficient
markets.
Endogenous vs. Exogenous Forces of Competition
25
Old Regime
New Regime
Distorting role of incentives
Incentives for entrepreneurship
and innovation and R&D
Govt. policy favors specific sectors
or sub-sectors through protection
and subsidies. It also emphasizes
the importance of commodity
producing sectors and continues to
support non-competitive industries.
The enabling environment for
investment should maximize gains
from new ideas and open up
opportunities for entrepreneurs. A
new approach focusing on innovation
and entrepreneurship will make
growth more inclusive.
Government Incentives vs. Entrepreneurship
26
Old Regime
New Regime
Cities as suburban clusters
Cities and regional clusters as
locomotives of growth
Current development strategy
views cities mainly as suburban
clusters with an appended
industrial park.
Rezoning cities so that they become
dense centers of diverse and creative
activity to facilitate economic activity in
several areas but especially in retail,
distribution, transport, leisure and
entertainment. Construction will increase
quickly in cities with new zoning laws
that enable repressed but productive
activities. More construction will create
jobs for the poor and become an essential
method for inclusive growth.
New Role for Cities
27
Old Regime
New Regime
Building infrastructure using
existing governance process
Improved governance and better
public service delivery
Increasingly, public service
delivery has become costly and
lacks in quality partly because
governance has been found
wanting in many areas.
Efficient public service delivery with
coordination between various govt.
institutions and service-providers is
much needed
Asking for consumer feedback will
provide an on-going mechanism for
assessing the impact of reforms.
Quality vs. Quantity of Service Delivery
28
Springboards for
New Development Approach
29
The New Development Approach
Productivity-led Growth
Human Capital
• Education
• Knowledge
• Global Experiences
• Focus on Women
• Youth
• Skills
• Opportunities
• Entrepreneurship
• Innovation
• Idea Generation
• Academia- Industry Nexus
• Management Practices
Physical Capital
• Markets
• Competitive Markets
• Domestic Commerce
• Creative Cities
• Dense Clustering
• Connectivity
• Inclusive Zoning
Social Capital
• Governance &
Institutions
• Deregulation
• Law and security
• Contract enforcement
• Public Goods
• Accessibility
• Service delivery
• Community
Empowerment
• Community Centers
• Access to educational and
business networks
Productivity as Driver of Growth
Ideas
Entrepreneu
rship
Innovation
Issues
•
•
•
•
•
•
The misuse of incentives
Rent-seeking rather than risk-taking
Blind eye to collusion and anticompetitive practices.
Policies favor big business, not
entrepreneurs
Current education system not
harnessing quality of skills
No adaptability to changing scenarios
(new risks and opportunities).
Productivity
Reforms
•
•
•
•
•
•
•
•
Limit government’s role in markets
Focus on better capacity utilization
and organization
Move towards competitive markets
Protect property rights and enforce
contracts, swiftly
Encourage innovation and foster
enterprise development
Triple Helix system of Innovation
Embedding entrepreneurship in
education
Stop ‘sector-picking’
Moving from a fiscally constrained framework
to a productivity-led framework
1. Binding on Fiscal Deficit [Aid - Projects model will
not work]
2. Depressed GDP growth in medium term
3. What will be the new sources of Growth?
4. Could raising productivity of human capital help?
Simulation: Raising Average Productivity of Labour by
3 % in Major Crops, Large Scale Manufacturing and
Wholesale & Retail Trade
IMF Medium Term Macroeconomic Framework 2011 - 15
2010-11
2011-12
2012-13
2013-14
2014-15
Average
GDP growth %
2.8
4.0
5.0
5.5
6.0
4.7
[As % of GDP]
Fixed Investment
National Savings
Foreign Savings
19.7
16.6
3.1
21.3
17.6
3.7
22.6
18.7
3.9
23.8
19.7
4.1
25.1
20.9
4.2
22.5
18.7
3.8
Productivity - led Growth Framework 2011-15
2010-11
2011-12
2012-13
2013-14
2014-15
Average
GDP growth %
2.8
6.0
7.5
8.4
10
6.9
[As % of GDP]
Fixed Investment
National Savings
Foreign Savings
19.7
16.6
3.1
20.4
16.6
3.8
21.8
17.6
4.2
22.7
18.4
4.3
24.0
19.3
4.7
21.7
17.7
4.0
Developing Internal Markets
30 % Share in GDP
20% Share in employment
Warehousing
Transport
Issues
Wholesale & Retail
Reforms
• Outmoded zoning and building regulations –
result: small, cramped, box-like stores
• Allow city centre development and areas for
mixed use
• Privatize govt. owned land in prime locations
• No zoning for warehousing – result:
warehousing in old dilapidated houses
• Reform zoning laws to allow private
warehousing activities to flourish
• Regulated and inefficient transport sector our rail handles only 4% of domestic cargo
• Focus on improving transport efficiency
• Legal issues and regulatory environment
• Need secure, transparent property rights,
intellectual property (especially, brand name)
protection
• High tariffs on imports and export subsidies
protect domestic producers and discourage
innovation
• Promote openness and competition; bring
international quality goods to consumers and
promote innovation
Firms listed on Karachi Stock Exchange?
Software
(1)
Retail (3)
Construction (4)
Sugar Mills (37)
Total: 750 Listed Firms
Creative Cities for Inclusive Development
Large & ready
markets



Generate social
mobility
Invest in cultural
services
Creative cities – [Richard Florida / Jane Jacobs]
Focus on the software side (Talent  Technology  Tolerance)
Creative Cities enhance individual productivity
Problems with our Cities
Reforms for Cities
• Downtown/city centre
development discouraged
• City zoning remains unfriendly.
Where will the poor go?
• Commercialization fee hinders
entrepreneurs
• Lack of sports and recreation
facilities for the low income group
• Cantonments within city limits
hinders commercial activity
• Development of city centers for
dense mixed use
• Focus of policy, research and
thinking on the role of cities as
engines of growth
• Strengthened decentralization
• Promote Vertical expansion of cities
• Allow places for new ideas and
innovation- coffee shops, libraries
etc.




8 cities with over one million population
5 Metro centers are running in Pakistan with an
average investment of Rs 2.3 billion each
Allowing two such centers in 8 largest cities would
bring $428 million of Foreign Direct Investment
Also employing 4800 people from local community
Youth & Community Development
Youth Mentoring
ISSUES
Community
Infrastructure
Linking Youth with
Community
REFORMS
Lack of awareness and motivation
Increased role of private sector
Lack of productivity and vision
Accepting new ideas and creating inclusive markets
Relationship of trust
Organizing mass action and increasing trust
Flexibility & adaptability
Modernize cities for increased opportunity and space
Ethical code of conduct
Effective communication, and information sharing
Diverse interest and needs
Promote youth entrepreneurship
Cultural diversity
Supervision and consensus through local members
Collective action
Improving social networking through connectivity
and outsourcing
Acceptability of used to doing things
Providing space for poor and changing zoning laws
Historical mistrustful relationship
Prioritizing ethical & cultural values
Women participation
Increasing productivity through inclusion of women
Summary to Take-away
Productivity-led
Growth
Incentives for innovation – rules not deals
Reforming Markets
Removing obstacles – barriers to entry/exit
Reconfiguring
Cities
Increase resource mobility – inclusive zoning
Youth &
Community
Empower communities – quality of life
Thank You
www.pc.gov.pk