“Pakistanis know how to make money, but it seems, they do not know how to spend money!” once remarked a famous Japanese economist who was serving in the Japan Productivity Center for Socio-Economic Development (JPC-SED) sometime back – JPC-SED is one of the three institutions that played pivotal role in transforming Japan into a socio-economic power-house. The statement looks pretty simple but it has deep implications for the socio-economic uplift of our country..
buy a thing or experience a service, we in fact support several supply-chains (also referred to as value-chains). For instance buying a toffee may seem a pretty simple business; but it is not that simple from socio-economic point of view. A toffee is prepared using sugar, milk, oil and chocolate etc. Sometimes it contains nuts too. So when we purchase a toffee, we indirectly inject money in to various value-chains including that in dairy, sugar, oil and chemical industries etc., hence stimulating economic activity.
We know that money transactions of any sort involve financial institutions and sometimes different levels of intermediaries too. Retail stores employ cashiers and accountants who promptly clear payables and get cleared receivables from the dealers and wholesalers via bank transactions etc. Due to this and because of other reasons, the concept of micro-financing is rising but it will take a lot of time to incorporate structural changes to absolve micro-financial institutions from political interferences. So coming back to the topic – a small purchase has deep economic implications..
Now, on the other hand, let us visit a small market in Karachi where a Saith (business big shot) carries out business transactions, on daily basis, involving million of Pak rupees. He earns a fortune everyday which is almost equal to life time earning of an average rural household in the country. He has 3 or 4 mobile (cellular) phones which are engaged almost all the time. He is busy like hell whenever you see him on work. But he commutes to his office daily on an old Vespa motor bike and he lives in a small flat and his children go to a public school.. What a shame. The guy can stimulate so many supply chains but he has no orientation to live a life according to his earnings. He thinks his community folks will say that he has changed after becoming rich or he wants to lead a simple life
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believing that’s what Islam requires him to do. Compare this guy with a businessman of a developed country who takes lunch at 4 or 5 star hotels and every evening goes to club to play golf or swim. His children go to good schools. He supports so many supply-chains.
The Saith is otherwise a wise man; he never dishonors his commitments or defaults from what he agrees to do as he has a
long-term business focus. He also knows how to maintain his customers and how to deal with the suppliers. He tries his best to skim his employees, evade taxes and feels no guilt in bribing Government officials. He says he is forced to do all these things as he has no other option, and since Islam says you won’t be held accountable if you have been coerced to do what is forbidden. This argument somehow cannot be denied simply.
There is another collective wisdom which our people need to learn. In China, they sell retail items sometimes at or even slightly below the cost price. Why do they do that? The answer is not difficult. In economics Treatments causing effect on a Hair Drug For Weed is an urban legend. there is a phenomenon called ‘economies of scale’ according to which a business concern has to produce a minimum level of products in order to break-even i.e., hit a no profit – no loss situation. Production beyond break-even point increases profitability due to reduction in costs provided you are not overproducing i.e., no negative gap in demand-supply and your products are rightly priced. Apart from this it is said that inventory is a liability, get rid of it as early as possible. It costs to maintain inventory – you need to maintain it; store it; handle it and ensure security measures too. So Chinese do the right thing when they sell their products around cost. Collectively they earn profit as they know the dynamics of supply chain – generating economic activity through different industries involved in
making of a final product…
There is a guy in Lahore who pays house rent to his landlord the same day his organization releases salary to his bank account. Quite interestingly his organization releases salaries in the last week of the month. One day his land lord asked him why he is always in so much hurry to clear his dues. The guy said “There are many reasons why I do that, number one; I relieve a liability off my chest which unnecessarily occupies my imagination hence leaving ample room for creative ideas to indulge my mind, next; I know you do not keep the money with yourself when I pay it to you, as onward you pay salary to your servant, clear your utility bills and I know your milkman wants his dues to be cleared exactly on the first day of every month. So there is a reason why I pay you early.” We do not think like that anymore. We only want it when we are at the receiving end, but we do not do it when we have to pay!
Another very important aspect of socio-economic development is to leave a small gap between salaries at different levels of the organization; particularly the gap between the salaries of frontline employees should not be abnormally lower than what top managers are compensated with. Practically it seems next to impossible, particularly in Pakistani context, to realize this idea but unfortunately that’s the only way to go. Even a top manager in a small business concern on average has ten times the salary of a frontline worker who struggles to get out of the minimum salary rut. Organizations have top, middle, frontline managements and different layers of operational and menial staff. There is always a notable gap between different levels which gives rise to class system in the society. This is the reason why even our middle class is divided in to three segments i.e., upper-middle, middle-middle & lower-middle. Lower-middle taking most of the load.
The easiest way to get rid of the above problem is to introduce gain sharing schemes in organizations i.e., making all the employees partners in business. The fruits of productivity should be shared in a judicial manner. It is not how much wealth the organization accumulates over a period of time; rather it is important how it distributes its wealth among different stakeholders. This is the reason why famous management guru Peter F. Drucker emphasized that “Productivity must go up, otherwise it becomes difficult to pay salaries.”
Responsible organizations, now even in Pakistan, also include value-added statements apart from other standard financial statements, in annual reports, to convey to general public how much wealth the organization has accumulated and how it was distributed among stakeholders in the shape of dividends, salaries, government taxes, interest, rent and depreciation (yes even machines are sometimes taken as stakeholders J). The concept of ‘sustainability’ (According to UN, ‘sustainable development’ is development that meets the needs of the present generation without compromising the ability of future generations to meet their own needs) is also taking root along with Corporate Social Responsibility – (CSR) i.e., business giving back to the society, which is a very good trend from socio-economic point of view. There are organizations that show the expenditure on employee training and social welfare through extended value-added statements.
Just imagine a person who enjoys all the amenities at home but when he steps out of home he feels in-secured; leaves no chance to reflect upon the un-maintained public utilities, shows disgust for the people with dusty hair and rugged clothes roaming all around. The person blames government for the dismal state, whereas he himself is responsible, because he evades taxes, does not believe in sharing wealth with others and has no idea what sustainable development means.
It is said that in Pakistan the tax-to-gross-domestic-product (GDP) ratio (tax revenues as a percentage of GDP) is around 10 percent i.e., the government collects only around 10 percent of the value country’s agriculture, manufacturing, service and commodity sectors generate in a specified period of time (usually called fiscal year). There are flaws with this number as tax authorities do not take into account what people spend on philanthropic work and for that matter in the shape of ‘Zakat’ (Alms) which is automatically deducted from individual bank accounts. It would be unjust to label Pakistanis as tax thieves. First the authorities have to put their house in order. According to recent reports, there are a good about 2.3 million rich people who do not pay even a penny in the form
of tax. Indirect taxes are hard to evade but generally are considered a curse on the society. Federal Board of Revenue (FBR) has recently issued notices to 0.7 million out of these 2.3 million people to register themselves by getting a National Tax Number (NTN) – and you think only fine artists dream!
There is another very important thing that needs to be highlighted here. This year, the government has to set aside around Pak. Rupees 300 billion for the loss making public enterprises in the coming budget. This reminds of the Japanese Dai-Ichi Securities Company which was at the verge of close down, due to some sort of financial irregularities, fifteen years back, and on every TV channel there used to be a debate regarding the fate of the employees who would lose their jobs after the demise of their ‘Kaisha’ (Organization). Loosing job in Japan is like losing livelihood due to high cost of living.
Some of the people wanted the Government to save Dai-Ichi from falling down through a fiscal stimulus. When someone asked a Japanese economist during a TV talk show as to why the government does not save Dai-Ichi, he replied “Well the government can save Dai-Ichi, but then we cannot become a good nation!” It sounds so true for Pakistan. We would not emerge as a good nation if we kept on feeding the white elephants – the public enterprises that serve only one purpose i.e., becoming kitties for powerful elite.
Developed countries have their own problems – aging societies, exceedingly high cost of living & need for complex economic maneuvering. They say “They are going somewhere, but where? They do not know!” This is the reason why it is said that slow economic growth is always good, because it is sustainable – This can certainly be taken as good news for Pakistan, provided we put in place the right sort of social & economic reforms. This surely calls for a paradigm shift in our thinking.
We in Pakistan are really bad at making savings we usually spend more than what we earn. Particularly, younger folks need to develop the tendency to make savings. In view of this Jinnah (Quaid-e-Azam) once said that “We Musalmans in general and young men in particular do not know the value of money. A paisa saved today is two paisa tomorrow, four paisa after that
and so on and so forth. Because of our addiction to living beyond means and borrowing money we lost our sovereignty over this Sub-continent.”
Last but not the least, there are many Pakistanis who earn a great deal of wealth in their life and after retirement they completely sever interest in any sort of worldly affairs. While ardently following religious teachings, they think they have become even better practicing Muslims and it was what was required of them, but they forget that they have a bigger responsibility to undertake – to make best of the wealth Allah has bestowed upon them. They should not dump their fortune in bank vaults or just purchase real estate property and leave it like that. Mobility of funds provides more opportunities to mitigate losses and accumulate more money.
These wealthy individuals should invest in business in order to generate employment opportunities for the younger lot. They can develop and offer better products and services. This way they can return back the sentiment and also save themselves from any surprises on the Day of Judgment.