Economics of Political Projects

The ideas which are not measured, in an economic sense, do not count politically.

Sasti Roti Scheme: Overall economic gains reduced at the cost of producers

It is commonly argued that the politicians use short term measures to gain political mileage at the cost of long term impacts. The politicians, on the other hand, inherently face a short term ‘business cycle’, and therefore they dedicate resources in projects that can yield visible results in a relatively short span of time. This is not entirely their fault, as the parliamentary democracy is inherently short-sighted and thus there is usually a stand-off between popular politics and bitter economic realities. As the nation draws nearer to elections, and all parties grill themselves in search of new mantra of development, it may be useful to suggest some parameters that serve the interests of democracy without failing economic realities.

My basic argument is: the ideas which are not measured, in an economic sense, do not count politically. This is contrary to what politicians and intelligentsia generally believe. I will argue that in the light of certain economic parameters, both short-term and long-term interests can be watched for. And we can create a marriage of convenience between economic wisdom and popular democracy.

A primary parameter is the social costs and benefits of a project or its welfare gains.

Take, for instance, the issue of minimum wage laws. The federal and some provincial governments have recently announced raising of minimum wage. Let’s put this to a theoretical test subject to empirical examination. It seems that the minimum wage is good politics as it seems to bring a political advantage while also ensuring social protection. But does minimum wage law, when implemented strictly, bring welfare of the targeted beneficiaries? In countries where this law is really enforced, rigid labor structures have impeded competitiveness as the employers resort to avoid hiring if the costs are too high. The Global Competitiveness Reports provide sufficient evidence for this.

The labor wage is a reflection of the marginal advantage that every labor would bring to the firm. This economic reality, when acknowledged, is also good politics. If we enforce the minimum wage laws in true sense, we are likely to observe an increase in the unemployment. Thus enforcing an apparently good legislation would have negative consequences for the politicians. Also, in countries, where the administrative structures are weak, announcement of a law and then presiding over its contempt and indifference will surely dissuade more voters than to persuade new ones.

The other popular measure that governments usually resort to is price control. Price control is not only an economic non-sense, but they are also a bad political idea, as they impede welfare rather than creating it. Consider.

Price control does not distinguish the consumers on the basis of their income levels- they are untargeted subsidies. Rich or poor, you pay the same Rs. 2 for buying a ‘sasti roti’ (cheap bread) from the registered tandoors. There is no way to guarantee that only the poor, or in fact, mostly the poor, would take advantage of price control. Often, the poor resides in rural areas, as in the case of Pakistan, who do not enjoy an equivalent access to the market. Thus the urban consumers, who are more vocal, tend to take more benefit of price control because of greater access.

Besides welfare, the other important parameter for politicians should be ensuring choice and freedom. Any government scheme enhancing choices for the people will not only be a viable economic idea but will also reap social and political dividends. Consider, for example, the Education Vouchers Scheme by the Government of the Punjab. Through this scheme, launched in 2006 under a very dynamic civil servant, Dr. Allah Bakhsh Malik, and intelligently scaled by the present government, we have created world’s largest population of students, more than 100,000 now, being financed through vouchers. In this scheme, the tax payers’ money follows the parents who choose a private school for their children. This way, the government fulfills its moral, and now constitutional, obligation to educate the children, without undermining personal choice and without resorting to expensive public schools. This shows that if sound economic wisdom is followed, welfare gains can be realized in a short span of time, and thus democratic politics can yield better future.

I suggest that every major regulatory and legislative proposal should be examined for social costs and benefits and the impact on personal choice by an independent panel of economists whose report should be presented in the standing committees as well as on the floor of the house. These reports will not be binding however they should come out with specific numbers on social costs and benefits of a new proposal. Backed with media, this analysis will create necessary political pressure on the politicians.

Political projects which disregard economic concept of social welfare and take away personal choice ruin tax payers’ money and ultimately, ruin their patrons. The ideas which are not measured, do not count.  One hopes that as the governments enter into their last year in the office, and as all political parties scribble their manifestos, someone would pay heed to this basic economic truism.

About Ali Salman

Ali Salman is a founding member of Economic Freedom Network Pakistan. He works as a principal consultant at Development Pool, a socio-economic consultancy firm based out of Islamabad. He can be contacted at ali.salman@developmentpool.org.
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