Efficiency and inefficiency of Market system

By Dr. Zafar Altaf

The fiat that market systems are superior is being advocated by not only senior ministers but by all those that are in touch with the international agencies. It is almost a fetish with them. Looking for ways and means to overcome the stagnation in the economy they are willing to try and do any thing. Policies born of frustration do not normally perform well. The substantive aspect is important and each country has its own peculiar substantive aspect.

Today I want to attack the issue from a different angle. I would like to study the non-pricing efficiencies that form the basis for the market system and the market enterprise? Pakistan is so poor at concepts and their implications that one wonders at the lack of literature that is unavailable. The gap between understanding and implementation continues to widen. Anecdotes and verbal statements are obviously the way of placating the public. The role of electronic media and the propaganda of what is correct economics is linked with the way public interest is viewed and projected. The issues assume importance as the economy is a recurring factor and it is no body's handmaiden for them to do as they please.

The weakness of the intellectual process is more important in the life of a country than any other factor. And those that ride rough shod over the economic structure will have to pay. There thinking is not central to the corpus of microeconomic theory. They are not even in the shadows of the thinking process.

On the conceptual side then let us look at three ingredients of the non-pricing efficiencies. These are 'dynamic efficiency', 'technological efficiency' and 'x-efficiency' Dynamic efficiency is concerned with the ability of the economic systems to generate and sustain economic growth by developing new technologies. These new technologies are supposed to lower cost functions, improve product quality, or create new and marketable products.

Now let us examine how our economy has faired in this respect. The agriculture commodities are primary ones and after receiving them what has the industrial sector done for them and by them? Is there a single new product? The answer is no. Has the cost function been reduced either through productivity or through lower cost functions? The answer is again no. Has any product quality been improved? The answer is no. Have the MNCs that came in done any better. Ostensibly their product is an improved version (in the food sector at least, though there is a question mark on the various food stuffs that are imported from abroad especially beef). Have new and marketable products been developed by them? No. They have given us the routine stuff from their own country. The trading profits have been siphoned off. The dynamism efficiency is not visible anywhere.

Regarding technological efficiency (or best practice) one has to go back to the growth in the economy. Has it led to any increase in productivity or are we gaining ground because of the continuous devaluation of our currency. Has technology enhanced or are we going to live with vasco's vision without ever realising it. Let us not fool ourselves about best technological practices. Even where we have extensive capital intensity (best technology) we have used it for our purposes instead of bolstering the economy. Have we linked it with any kind of welfare? Apparently not. Siphoning off resources taken from the public exchequer what belonged to the people. Why has textile spinners made lesser counts? Why has the knitwear talk off doing well? Why cannot they just get on with it? Wherever they are using statements of this kind they are trying to curry some favour with the powers that be. Has Pakistan been able to create any new technology? In fact the best practice technology that they have is what they can cheat from the other countries. And the cost of that 'Naqal' technology (Copy cat) to the consumer is five times or six times. Neither has the output cost been reduced nor has the quality of the product improved. Even the 'thara' (platform) technology was superior to the current Foisted technologies in as much as they were cheaper and affordable. Affordability has been lost sight off in the best practice technologies. Neither the cost has come down nor the quality has improved. Yes assets have been palmed off to others.

The third was the x-efficiency factor that Leibenstein so eloquently indicated. The cost of the product is improved by the ability of the enterprise management to lower costs and raise productivity for any given technology by organisational improvements, increased worker motivation, and better management practices. If we can keep the hand of the entrepreneur rather industrialist from taking corporate money we would have done well. Nothing of this kind happens. Leibenstein may not have been born for any of the kind that we produce.

So where are we with non-pricing efficiencies? I am not so well informed. Maybe you are. The evidence suggests that we are a far cry from the efficiencies of the marketing system. How will they come about? Who and what will do it? Are the economy and the market resilient enough to do it? Will grater competition do it? Will the players learn the rudiments of the suggestions and the three kinds of efficiencies that enable an economy to be buoyant?

The current debate on the economy and all that hogwash about the lost decade is meaningless. The effort has to do with more circumspect analyses that those down by the current vested groups both maintaining a bias and wish you bad vs. wish you well attitude.

If Pakistan has to get into some kind of welfare economies not of the kind dictated by others but one that is done on its own volition and if there was some venture capital available maybe your own goods and products could be developed. At the moment as tings suggest there is not going to be much of self-propulsion. The capital goods industry of the west will sell and we will merely be followers. Efficiency requirements are not there because the economy is stooged for those that are powerful. Principles and concepts change as per charter of exemptions.

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