Why Pakistan Need Innovation and Entrepreneurship?


Muzamil Mohib
Today’s dynamic global economy is driven by innovation and entrepreneurship. Both high-growth, disruptive entrepreneurship and small-scale, opportunity entrepreneurship is vital to national development global competitiveness. Turkey, Brazil, and China are recent examples of countries that have consciously emphasized entrepreneurship and innovation as core elements of their growth and development strategies. This new economic order is an opportunity for Pakistan to realize its potential in the 21st century by enhancing competition, nurturing entrepreneurial talent, and building a high- trust, low-transactions-cost society Markets are the part of the economy in which forces of demand and
supply, and the resulting prices, determine the allocation of goods. The internal operations of government, the military, and large companies lie outside markets. Within those domains, resources are allocated by an administrative mechanism the Public Sector Development Program not by a market mechanism. For markets to serve the interests of the public, they must be accountable to consumer demand and subject to competitive pressure, from new firms entering the market. Ensuring that competition occurs in markets must be an urgent government priority because markets that function effectively can meet Pakistan’s critical need for economic opportunity and vital goods and services, such
as reliable energy, accessible financial products, and affordable housing. Currently, markets in Pakistan are not adequately competitive and are not providing economic opportunity and vital goods and services efficiently. The primary reason for this is that entrenched business practices and government policies have stifled competition and innovation in relevant industries notably banking, cement and construction, and power generation and transmission. With the notable exception of mobile communications. nearly every market in Pakistan is structured to disadvantage entrepreneurs and discourage innovation. Obstacles to competition act like a brake on progress throughout a society until that brake is released, it should come as no surprise that outside aid causes increased friction rather
than forward movement. The Pakistani government needs to shift its role in the development process from hands-on engagement to a facilitator of private action. In response to inflows of donor funds sustained over decades, the very functions of government in Pakistan have evolved toward direct engagement in development and away from the essential magisterial functions of government,  including maintenance of law and order, enforcement of property rights, and application of judicial procedures. This “big push” approach to development worked for a time (nearly 40 years), but it is not working today. Consequently, the quality of governance in the country notably, professional standards in the civil service has declined. Rent-seeking and corruption have been reinforced. Business leaders have become conditioned to an environment in which the short-term gains from seeking advantage from the government are systematically greater than longer-term gains from the identification and exploitation of genuine economic opportunity The most severely negative consequence for the economy of rent-seeking behavior is that it undermines the incumbent firm’s incentives to innovate and the willingness of investors to take risks. The banking industry in Pakistan offers a prime illustration of this phenomenon. Pakistan is the world’s least banked nation. Depending on the measures used, only between 4 percent and 15 percent of the population of Pakistan has access to financial services. At the same time, the Pakistani banking industry is among the region’s most stable and profitable as a result of spreads that are 2-3 times those sustainable in the U.S. and other advanced industrialized countries.7 Financial service innovation is possible, of course. Leading banking firms are undoubtedly capable of
developing the new products that could lead to greater financial inclusion and overcome historical neglect of agricultural credit, small- and medium-enterprise (SME) financing, and housing finance in specific., The solution to the chronic problems of policy neglect and bank complacency…must be sought outside the banking industry. Competitive Cities as Drivers of Growth Competition is not only vital on the national level, it is also vital to the functioning of cities. Pakistan’s cities, like its markets, have not yet had the opportunity to develop in an organic manner. In Pakistan, as elsewhere in the world, cities are key drivers of growth. Innovative entrepreneurs live in cities, and development policy must meet
innovative entrepreneurs where they live. This is not to say that rural entrepreneurs are not innovative or not vitally important to a New Development Approach for Pakistan. They are, most emphatically, as Pakistan remains a substantially agrarian society. However, experience over decades shows that rural entrepreneurship thrives where there are urban markets for rural output, and innovation thrives where populations are sizable and diverse. Cities are what will dominate Pakistan’s development. The most effective way to induce rural entrepreneurship and innovation is to improve conditions for entrepreneurship and innovation in markets generally, and in cities. For the success of cities, investment
is needed in “relational assets” and local collective goods. These include transportation, affordable housing, and other public infrastructure. But they also include building links between universities and science-based industries and strengthening relationships between firms and suppliers, including small businesses. Indeed, the entire range of creative capabilities in the arts, education, and the broad range of service industries must be tapped, thus paving the way for vibrant cities across Pakistan. ENCOURAGING ENTREPRENEURSHIP Economic growth is impossible without, and to a significant extent
synonymous with, the creation and growth of business. Businesses are created and grow when they provide needed services and introduce innovations into the marketplace. Philip Eberswalde, Elmira Bareli, and Sara Shroff Creating a Place for the Future Successful firms return revenue into the economy through wages, procurement, capital investments, returns to investors, and the payment of taxes. When the state (and, potentially, foundations funded via philanthropic giving) provides the infrastructure required for business creation and growth to be an ongoing process, a virtuous cycle ensues