Productivity, Markets & Communities A New Development Approach

1. Productivity, Markets & CommunitiesA New Development Approach Planning Commission

2. Outline • 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

3. 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.

4. In the New Framework Open market environment that rewards innovation and entrepreneurship Reorienting the role of government to protect public interests and rights, providepublic goods, enforcelaws, punishexploitative practices, and operatewithtransparency and accountability.

5. Current Development Model

6. Current Development Model[Harrod-Domar Model] Our plans have followed the H-D approach, where economic growth is a function of savings

7. 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

8. What Constrains Our Growth?

9. Economic Growth 1972 - 2010 A Story of Boom – Bust Cycles

10. Investment Pattern 1973 - 2010 Total Investment % of GDP Declining Investment with Quality Issues

11. The International Evidence

12. Comparative Competitiveness Position Lower rank value is betterSource: Global Competitiveness Report 2009-10

13. Overall Infrastructure Quality Source: Global Competitiveness Report 2006-07 Scorecard: 1= underdeveloped, 7=as extensive and efficient as the world’s best

14. Quality of Transport Infrastructure Low rank value is better The Global Competitiveness Report 2009–2010

15. Financial Market Sophistication Low rank value is better The Global Competitiveness Report 2009–2010

16. Technology Readiness Low rank value is betterThe Global Competitiveness Report 2009–2010

17. Domestic Competition Low rank value is betterThe Global Competitiveness Report 2009–2010

18. The failure of Governance Low rank value is betterThe Global Competitiveness Report 2009–2010

19. Factors that Constrain our Growth • Market Failure: Lack of competitive and innovative markets • Governance Failure: • Judicial (contract enforcement) • Distortive taxes and subsidies • Lack of proper financial supervision • Protecting special interests • Inadequate infrastructure • 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.

20. New Development Approach

21. New Process of Economic Growth

22. Old vs. New Development Regime

23. Hardware vs. Software

24. Public Sector Investment vs. Markets

25. Endogenous vs. Exogenous Forces of Competition

26. Government Incentives vs. Entrepreneurship

27. New Role for Cities

28. Quality vs. Quantity of Service Delivery

29. Springboards forNew Development Approach

32. Productivity as Driver of Growth Issues 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’ Reforms • The misuse of incentives • Rent-seeking rather than risk-taking • Blind eye to collusion and anti-competitive practices. • Policies favor big business, not entrepreneurs • Current education system not harnessing quality of skills • No adaptability to changing scenarios (new risks and opportunities).

33. Moving from a fiscally constrained framework to a productivity-led framework • Binding on Fiscal Deficit [Aid - Projects model will not work] • 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

35. Developing Internal Markets 30 % Share in GDP 20% Share in employment Transport Warehousing Wholesale & Retail

36. Firms listed on Karachi Stock Exchange?

37. Creative Cities for Inclusive Development • Creative cities – [Richard Florida / Jane Jacobs] • Focus on the software side (Talent  Technology  Tolerance) • Creative Cities enhance individual productivity

38. Making Cities Pro-business • 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

39. Youth & Community Development

40. Summary to Take-away

41. Thank You www.pc.gov.pk