Informality and the private sector

[Mehwish Pervez]

Informality and the private sector

by UMAIR JAVED

STANDING true to their pre-election commitments, the PML-N government has chalked up a list of 30-odd state-owned enterprises (SOEs) that will see gradual government divestment from both management and ownership.

The logic given, and one echoed by many economists and policy analysts in the country, is that SOEs in their current, fiscally inefficient shape place an unaffordable burden on the economy, and are serving as nothing more than a crass source of political patronage.

Overstaffing, mismanagement, and outright negligence at every level cost the government in the shape of a bloated wage bill, and regular, expensive bailouts. There are two complementary strands of thinking informing this policy trajectory — the first is the need for the government to be fiscally efficient, rational in its expenditure, and potent in its ability to generate tax revenue (something that would be possible to extract from profitable private sector entities).

The second strand is an ideological commitment to market principles, a belief in private sector-led economic growth, and a need to reduce channels of political patronage.

A linear, and perhaps caricatured, reading of the agenda would go something like this — the government divests from these entities, encourages private sector investment, draws greater tax revenue, and the benefits of economic growth will rain down on everyone.

Perhaps the most telling thing about this policy framework is the absolute absence of labour welfare anywhere in the discussion.

At most, labour and issues of employment are dealt with as an afterthought with two usual refrains “private sector growth will offset unemployment generated by privatisation”, and “a growing economy is in everyone’s favour”. Such statements, apart from being the utterings of a (only slightly) guilty conscience, are ahistorical and show a lack of understanding of the current state of labour in Pakistan’s private sector.

Leaving agriculture aside, around 37pc of all labour is employed in small-scale manufacturing, transport, retail, wholesale and related services. Tertiary services such as banking, insurance and telecom employ a very small fraction of the labour force, and large-scale manufacturing accounts for only 18pc of employment.

By some estimates, nearly 70pc of all labour in urban areas is employed within the informal sector — implying that there is no job security, no benefits and no minimum wage enforcement.

Verbally contracted informal labour working in warehouses, construction, and unregulated factories of various kinds is exposed to a variety of hazards, often resulting in permanent injuries, or as we saw in the case of the Karachi and Lahore factory fires, death.

To make matters worse, employees are regulated by a variety of ‘unofficial’ ways, like caste hierarchies, parasitical jobbers, debt-bondage, shaming and moral sanctions, and distributing work obligations within the labourer’s family.

Credible research on the economy in India showed that informalisation of the labour market grew in tandem with overall private-sector growth in the economy.

According to an estimate developed by Barbara Harris-White, as the Indian economy grew by an average of 5pc over three decades (’70s-’90s), and the population at 2.2pc, formal, organised labour in the “corporate private sector” grew at 0.1pc. A small portion of labour absorption was taking place in the form of state employment, while the vast majority found work as informal labour.

The interesting parallel for Pakistan here is that since the ’80s, the country has witnessed stagnation, and gradual fragmentation in manufacturing.

Informal subcontracting, operating in small, cramped ‘units’, has become common, while the bulk of economic growth is explained by a dynamic, but severely unregulated services sector — which now contributes more than 50pc to the GDP.

It is a commonly accepted fact that in a country of 180 million, where the median worker is poor and largely unskilled, service-sector oriented growth cannot be seen as a panacea for the issue of under and unemployment.

Worryingly, a report in this very newspaper pointed out that the government’s new turning-a-blind-eye investment scheme is predicted to result in traders and small businessmen taking out money from under their mattresses and expanding their largely informal labour-employing, and often illegal enterprises, or investing in unproductive, speculative sectors like real estate.

The popular thinking on privatisation also misses the point on exactly why state employment is such a coveted political good.

Due to a whole host of factors, some pointed out above, the average labourer would prefer engaging in collective action for state employment over slaving it out in hazardous, repugnant conditions in what passes for the private sector in Pakistan.

Similarly, politicians accruing short-term benefits see the obvious returns of providing patronage in this manner. State employment guarantees minimum wage enforcement, post-retirement benefits, and the ability to engage in bargaining, whereas there is nothing remotely close to this in the ever-expanding sphere of the informal economy.

Compounding the problem, attempts — mostly half-hearted and impotent — to regulate labour conditions by the state have failed repeatedly on account of compromised intentions, and private rent-seeking practices amongst state functionaries.

A recent speech by the patron-in-chief of the PPP, on the party’s foundation day, was an important and much-needed reminder for bringing the labour question back into the debate on privatisation and private-sector growth.

If the state is serious about the issue of employment — and Nawaz Sharif has recently said it was ‘heartbreaking to see unemployment’ — it needs to develop a coherent, empirically sound agenda of national development.

This agenda should not just talk in abstract terms of ‘fiscal efficiency’ and ‘rationalisation of expenditures’, but in the real terms of equitable growth, and dignified employment.

Similarly, policy analysts and champions of the free market — many of whom have lived a state-subsidised existence for most of their lives — should see the dissonance in the state doling out favours to businessmen, and goodies and presents for career-bureaucrats and military officers, but being asked to cut back on employing working class individuals.

The writer is a PhD candidate at the London School of Economics.

umairjaved87@gmail.com

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