“...the intervention of the government has done to the economy what 58-2(B) did to democracy.”

One of the main propositions of conventional economic wisdom is that the least intervening governments are the best in delivering outcomes. This idea, proposed by Adam Smith in his ground-breaking work, ‘The Nature and Causes of Wealth of Nation’ in 1776, became the sole reason for the industrial revolution, innovation, growth, and democracy in Britain. He proposed, ‘in competition individual ambition serves the common good’.

Everyone today discusses and praises the importance of the government to take the American financial sector out from the wretches of the financial crisis of 2008. There is another side to the coin—according to Sowell, the politicians changed the rules of mortgage securities as they want more people to have homes. This created an artificial incentive bubble in real estate. The American Federal reserve boosts that boom by lowering interest rates. Now, with less security approvals, easy mortgaging, and lower interests the housing bubble ballooned and eventually burst in 2008. Had the rules not been amended and the market left on its own, everybody would have lived happily ever after. So, it was actually the government that installed the crises in the first place. Government intervention, meddling with market forces creates more harm than good.

In our scenario, traditionally as a whole, we look towards the government to produce employment. What do we have as a result: nationalisation, nepotism, inefficient division of labour, and non-performing State-Owned Enterprises (SOEs). The SOEs alone cost the national exchequer up to Rs1.3 trillion in their total debt and liabilities in the year 2018. Why would people have an incentive in such a system to develop skills when the jobs are given on the basis of political favouritism? They have all the incentives to invest resources to gain political favours, not skills. And, why would an enterprise innovate in absence of competition, or when the state is present to subsidise their losses, or when the consumer does not have the power to run them out of the league?

Have you ever imagined that despite the fact that less than 2 percent of our population pays taxes, still somehow we have managed to get an although struggling but thriving economy? Because economies do not work on taxes. Rather, they work on markets. We have a huge functional informal market economy, free from government regulation. They manage their business affairs in isolation without subsidies, and they face power shortages and other odds. When the government deregulated education, both formal and informal institutions emerged to fill the supply-demand gap. Soon, privately-provided education crowded out the students from the public institutes. And, now most top ranking universities in Pakistan are privately owned. The telecommunication and banking sectors are other shining examples.

We all grew up thinking that the government has a job to fix market failures, hoarders, and market manipulators. Whereas, free enterprise is the solution to most of the problems that we are facing. The issues such as capital flight, lack of foreign direct investment and an exploitative structure exist where there is more regulation, less transparency and information availability. Many times, in reality, the government strengthens extractive structures, sometimes in the name of subsidies, other times by passing regulation that grants undue favours to a few and eliminates potential market competition by creating extractive monopolies. This happens partly because the lobbies successfully manipulate governments to pass legislation that favours them, and partly because of the general misconception that strong, centralised planning can breed economic efficiency.

Ever think of a business that creates a negative cost on their consumers? Think about the business model of YouTube, one of the biggest content creation sites. YouTube does not charge anything from the viewership. Instead, it creates a negative cost on the viewers. The more negative cost they create on the viewers the more money they make. It has become a pocket university for the students. Today, the earning of many Pakistani YouTubers is many times greater than doctors, engineers, or bureaucrats. No government intervention can create such a wonderfully innovative idea, but they can definitely ban it whenever it suits them.

All the wonderful things that we see around us like the diversity in technology, the journey from the CDC 6600 (the first supercomputer) to the hybrid cutting edge smartphones, from the invention of useful drugs to their cheap availability and high-quality assurance, the vital importance of market and capitalism cannot be ignored. Amid the COVID-19 crises, suddenly the people’s confidence in the market competition and capitalism is eroded. But, the real saviour of the day is actually the free market system. The Internet is a great example of a modern free-market enterprise which is located in the cloud. It has helped businesses to reshape their business models, campaigners to disperse useful information, and prevented many failures. Without the existence of this market, people would be much worse off in pandemic days. If future pandemics, environmental issues, poverty, and human rights issues are to be addressed appropriately then the answer lies more in market mechanisms than the government’s policy.

Talent flows where competition is promoted and services are paid according to efficiency. Need evidence? Here it is: Pakistan became the fourth largest growing freelancing market, according to the Global Gig Economy Index. Zero regulations here! And, Pakistan is to reap the benefits of the fourth industrial revolution. Free markets uphold the principle of transparency, accountability, information availability, employment opportunities, and the formation of extractive institutions are not incentivised there. Whereas, the intervention of the government has done to the economy what 58-2(B) did to democracy. Thus, we now know where to look and what to seek.