Business enchained

You don’t necessarily have to be a Hayekian to pay heed to the findings of the most recently-released data by the Economic Freedom of the World Report.
The report which was locally released by Policy Research Institute of Market Economy (Prime), an Islamabad-based think tank, in collaboration with the Fraser Institute and Friedrich Naumann Foundation for Freedom, points out that Pakistan ranks 103 out of 152 countries evaluated for economic freedom.
That in itself does not necessarily mean that Pakistan’s economic growth is capped only due to bad rankings in economic freedom. If that was so, then the emerging BRICS wouldn’t have been ranked at 82, 91, 85 and 101 respectively.
The Economic Freedom Index uses forty-two variables at a two-year lag to construct a summary index and to measure the degree of economic freedom in five broad areas: size of government, legal system and property rights, sound money, freedom to trade internationally, and regulation. Aside from Russia, all the other BRICS have their weakest points in the size of government or financial, business, or labour market regulations.
The weakest point for Pakistan, however, lies in the ‘Legal System and Property Rights’, where the country scored its lowest in the index.
Although Pakistan’s score in legal system and property has picked up to 4.2 in 2011 rankings from a score of 3.9 two years ago, the score is still far below the score of 4.93 Pakistan had in 1995. This, according to Najaf Khan, Prime’s Chairman, is associated with declining expenditure of government where it matters the most: enforcement of the law.
The sub-index of ‘Legal System and Property Rights’ comprises of many factors including judicial independence and military interference in rule of law and politics – areas where Pakistan’s position has improved in recent years. And the same is quite visible in their rating points.
The two areas that really demand the attention of authorities is the rising ‘business cost of crimes’ and the ‘unreliability of police’. During the last six years the scores for the former has dropped by 1.2 points to 3.5, whereas that for the latter has fallen by almost a point to 3.3.
This chimes in with the soon-to-be realised BR Research Economic Perception Survey (in the upcoming Fiscal Review 2013), where law and order issues were rated as the second biggest issue faced by businesses, after energy.
The sooner the authorities pay attention to these findings, the better.