From what one can see, amongst the main economic issues confronting this government are inflation and competitiveness. Also, no rocket science is required to decipher that both are also closely inter-linked. Given that this government inherited empty coffers and a rather troubled economy (in general), one can understand some of their unpleasant decisions in the first 8 months of office to plug a large fiscal gap. Utility tariffs were raised and the coverage plus the tariff of the general sales tax was enhanced, which naturally resulted in unleashing a new wave of inflation that is now hurting both our national competitiveness and our basic worker who is finding it increasingly difficult to survive in his current take-home salary. As most other economic dilemmas currently facing the government this one also presents a catch 22 situation: The government has no surplus resources to subsidize the low wage workers and burdening the employers with higher wage bills will further erode competitiveness! So what does the government do? The solutions are neither simple nor brief, still from a governance perspective they can be bracketed in two broad categories. One, the economic managers will need to maintain clarity and focus that the main issue they need to address is that of achieving sustainable competitiveness and not that of the minimum wage, and Two, while doing so they cannot simply ape the western models (recently of Spain, Greece and Portugal) because on a comparative basis the human misery factor here in Pakistan is far more sensitive. This sensitivity relates to the direct marginal effect of every extra dollar on the basic necessity basket of a low-end worker’s family.

On point ‘One’, due to an already squeezed fiscal space the underlying challenge for the government is to successfully tackle the competitiveness issue despite its present financial constraint. Meaning, its sheer ability to shore up national competitiveness at nil or a very low direct cost to the national exchequer by primarily using policy tools that involve either no or minimal monetary facilitation to the employers or the employees. When we seek competitiveness what it truly means is that Pakistan should fare well in the race for becoming an attractive destination, both for domestic and foreign investment. Countries strive very hard to compete fiercely on this benchmark. Only recently we saw India celebrate with a lot of fanfare when it overtook China on the Index of the preferred global investment destinations (based on figures from June 2012 to June 2013). China, not one to take this lightly, quickly took some corrective measures of its own. In response, the new Chinese leadership recently announced some very bold initiatives on renewed structural economic reforms at home. These basically imply freeing up the Chinese economy for investment. The new reforms in essence mean that nearly 60% of the total types and volume of enterprise investment in China will no longer require any authorization from the central Chinese authorities. Basically, it means aiming for micro-level reforms that minimizes the contact between entrepreneurs and the regulator in order to curtail corruption, by-pass un-necessary red tape, and to allow the investor with enhanced financial and operational liberalization. Our government will also have think on undertaking similar policy measures and that too quickly.

Point ‘Two’ on the other hand, ‘ascertaining minimum wage’, is far trickier and requires some deft handling. Also, the fact that it is now a provincial subject makes it even more complicated. Populist or a poorly thought through wage policy at a provincial level invariably runs the danger of setting-off an unhealthy and counter productive point-scoring rivalry between provinces in setting unrealistic wage levels, which in turn can end up undermining the entire national base of competitiveness and productivity. The central government needs to be careful on this count as it has to play the role of a facilitator that helps find the fine balance where both elements, competitiveness and workers’ welfare, not only thrive side by side but also complement each other. So the question one may ask here is that what then should be the way to help those struggling at the bottom of the economic ladder?

If we could figure out a way to do it, the most effective solution would be to increase the skills of those low-wage workers. Many studies have shown that financial return of education is now high by historical standards. Overhauling the education system so that more students graduate from high school and college is thus crucial to a more egalitarian prosperity. But upgrading the skills of the labor force is a project that takes decades and is not a quick fix. And we know that educational changes are easier said than done. As a result, if the government wants to look for more immediate ways to help workers with limited skills then it has to ensure that it does not shift the entire burden on to the group or companies that hire low-wage workers, but instead shares that responsibility. From strictly a management perspective what one ought to remember is that there is no good business reason that this group or companies stand obliged to those in need. Further, there is that argument that this group is already doing more than its share. After all, it is providing jobs to the unskilled - Asking it to singularly do even more while shirking self-responsibility, as a state, would just not seem right. But putting fairness aside, there is in fact a stronger reason. Burdening businesses that hire unskilled workers would alter their behavior in ways that would hurt those we are trying to help. To avoid or minimize such a burden, businesses would then have an incentive to hire fewer of the low-skilled workers. And of course, some of this burden would be passed on to the customers in the form of higher prices and in essence stoking the very ill itself - ‘inflation’. The story does not end here, as the customers who are being asked for higher prices, in turn, would have an incentive to spend more of their income elsewhere. Overtime, these businesses would shrink, reducing the job opportunities for the un-skilled.

Low-end manufacturing isn’t the stuff of dreams, but almost all emerging economies at some point in their economic cycle have used it as a stepping stone to growth and development. Industrialization is a proven step towards economic growth. Post 2008 financial crisis and the resultant global recession the developed world is learning the hard way that letting manufacturing slip was a mistake it should have avoided during the course from 80s to 90s and it will be sad if we also instead of learning from their mistakes blindly adopt the same very route where the industriousness of the west collapsed.

At a time when countries like Spain, Portugal and the US are revamping labor laws on an incentive based mechanism both for the employer and the employee we here instead seem to be moving in the opposite direction – Once again, allowing direct access and meddling of the regulator? With the 2014-15 Budget fast approaching the concerned governments will do well by conducting their own studies at this stage to determine the correct balance on these trade-offs in the fiscal year to follow, i.e. between minimum wage, productivity and competitiveness. A balance that on one hand supplements the income of the low-wage workers, but on the other hand safeguards national competitiveness by ensuring broad participation of all stakeholders including the state.

The writer is an entrepreneur and economic analyst.

Email:kamal.monnoo@gmail.com