There is much talk about making capitalism more ‘moral’, ‘fair’ or ‘responsible’. But restraining the power of value extraction requires a theory of value - an area once hotly discussed in economics, but no longer. This is because a century ago, the notion that labour creates value (central to the work of “classical” economists like David Ricardo and Karl Marx, and measured by objective factors like productivity) was replaced by the “neoclassical”, subjective notion that satisfaction and ‘preferences’ create value.

What is important here is not to defend any one theory, but to understand the implications of a lack of focus on production (value creation) - the underlying model that determines wages and creates employment.

Pakistan has now had a haul of nearly half a decade with a GDP growth rate of below 5 percent. During the year ended June 30, 2012, Pakistan grew less than 4 percent and now in the second half of this year the growth figures appear to be no better.

Compare this growth with the average growth of about 6.50 percent during 2002 to 2007, and the changes in the country’s fortunes (strictly in terms of growth and development) do not unfortunately make a good read. The decline is even sharper if we compare the present growth average to the peak of 7.50 percent during the five years mentioned above.

To make matters worse, rampant corruption, prevailing both at the centre and local levels, in recent years is stifling domestic and foreign investment like never before - Foreign Direct Investment (FDI) figures slipped to as low as around $300 million in 2012.

Even more alarming is the sort of moral decay that seems to have crept into the operational mindset and work environment, justifying graft as a cost of doing business and avoidance of ethical and legal obligations as an acceptable part of managing operations in Pakistan.

In essence, it is setting the country on a course where the path to achieve success is not being seen in striving for excellence, or gaining of competitive edge, or through entrepreneurship, but instead in taking shortcuts through graft, influence and rent-seeking.

Thus, giving rise to a general air of mediocrity and compromise that like termite runs the danger of quietly eating away at the main planks supporting our industry and in the process, simply delinking Pakistan from the global corporate arena, by making it an undesirable place to do business in, or to do business with!

While corruption and wrong prioritisation of resources by the government are factors surely to be blamed, a part of this slowdown is also attributed to the simple paralysis in decision-making from which this government never really recovered in its five years term about to end in March 2013.

The role of the government’s paralysis is corroborated by the sheer inaction on the energy front, which has resulted in a compounded slowdown in manufacturing. Manufacturing as we know carries a highly elastic behaviour vis-à-vis governmental decision-making.

While there is no real data available on growth, or the lack of it, in the SME (Small and Medium Size Enterprises) sector over the last five years, the data on the LSM (Large Scale Manufacturing) tells us that it has been growing well below the national GDP growth level, which means that in effect it has been shrinking in real terms.

Talk to most of the industrial stakeholders and one of the main reasons they attribute to this slow down is the serious situation relating to energy (electricity and natural gas) availability to the industry. One can have the best equipment and human resource at one’s disposal, but it is of no use unless the plant is operational.

Further, if domestic and foreign investment in manufacturing is to again take off in Pakistan, then not only the cost of doing business needs to be kept in check, but also it should be ensured that the benchmarked project implementation timeframes can practically be achieved by the potential investors. Time is money and the longer it takes to convert a contract into physical activity, the higher will be the cost.

Pakistan with its serious troubles pertaining to power and energy shortages, comparatively high price of power itself, not so attractive interest rates and prevailing red-zone law and order risks and costs, is becoming an increasingly uncompetitive-cum-unattractive destination for investment.

Given the high inflation in the country, implementation delays can often become the difference between the success and failure of a venture.

Little wonder, that we at home are witnessing a gradual drying up of domestic and foreign investment and instead a significant outflow of domestic resources into destinations like Bangladesh, Sri Lanka, Thailand, etc is taking place.

And needless to say, that in a country with high percentage of young population coupled with a high population growth rate, such a lack of adequate employment generation is like a ticking social time bomb.

The good news though is that Pakistan with the right policy measures and governance still stands a good chance of becoming a preferred global investment destination. The crucial (for us) change that has taken place over the last decade or so is that wages in other low-cost countries (our competitors) have soared; whereas, in Pakistan when benchmarked in US dollars, they still come out amongst the most attractive in the world.

According to International Labour Organisation, the pay for skilled and senior management in several emerging markets, such as China, Turkey, Brazil and even India to a large extent, now either matches, or in certain sectors exceeds the pay in America and Europe.

If we can combine this advantage with a sound human resource and skill development initiative, and with English virtually being our second language, our prospects of attracting foreign investment in manufacturing can be very bright.

Finally, in the quest to revive industry, it is important to remember that bad government can be one of the business’ biggest problems. While the industry players can have a long wish list, three reforms at the governmental level deserve urgent focus.

One and foremost is to start with fixing the most dysfunctional institutions first, since they have a habit of being right at the heart of things.

Two is for the government to learn from what is known as “best practices” (a lot of work on this has been done by IFC, management gurus of UK and South Africa).

And the third is to harness the power of information technology in its working.

On the private sector’s front, the expectations from the government need to be brought to a realistic level. Businesses often forget that the government always involves the clash of visions and interests.

In all this, the focus must remain to shift away from the outmoded economic structures and narrow interests of the past. A renewed emphasis is required on gradual modernisation, opening up and diversification of our industrial base. This revival of industrial investment and activity in the country will, in turn, lay the groundwork for inclusive growth, to create more jobs and opportunities.

The writer is an entrepreneur and economic analyst.  Email: kamal.monnoo@gmail.com