Markets dominated by a few, large firms can often be prone to manipulation. Add to it political influence that those at the helm of affairs of such enterprises often enjoy, and conditions become ripe for rent seeking. Simply put, such organisations are able to collude with policy makers to create a lop-sided regulatory regime that favours a select few, at the expense of competitors and consumers.
But deconstructing such arrangements also comes with a host of challenges, highlights prominent economist Kaushik Basu. Speaking at a seminar on ‘Law, economics and the role of social norms’ at the Institute of Business Administration, Basu discussed the impact of anti-trust laws, such as the Sherman Act, corruption control and asymmetric punishments.
Focusing on the prevalence of corruption in developing economies, world, he said laws that limit malpractice not only alter alter industry dynamics, but have a much more far-reaching impact, economically and politically. As such, the payoff has to measured not only in monetary terms but also in terms of greater political success for the incumbent party
In essence, policymaking, accountability and public discourse on the performance of various industries in Pakistan can have strong implications on economic activities within sectors in which significant rent-seeking is likely, particularly if politically important stakeholders are involved.
In Basu’s view, political leadership in their struggle to root out corruption and rent-seeking may often incur political and economic losses for their political allies as well. This appears especially pertinent given Pakistan government’s stated desire to rein in corruption and curb rent-seeking activities within major industries. The accountability process and the lack of transparency in provision of government incentives to several industries has created significant challenges for stakeholders who stand accused of receiving private benefits at the cost of social welfare.
The domestic sugar industry is a pertinent example. Sugar exports surged in the run up to the previous general elections. There was a 216% increase in year-on-year growth in the dollar value of sugar exports in FY18. The quantity of sugar exports also increased by 378%. Subsequently, exports in dollar terms were down by 56% while gross tonnage exported fell by 53% in FY19.
The general election was held in July 2018. Sugar exports further declined in FY20 and have stopped completely since January 2020. Similarly, there was a surge of almost 1,800% in the dollar value of exports in FY13 relative to the value reported in the previous fiscal year. The quantity of sugar exports increased by more than 20 times. And they fell again in the following, year by 43% in dollar terms and 39% by quantity exported.
The recent revelations in the ‘Sugar Inquiry Report 2020’ exemplifies the role of rent-seekers as they took advantage of the export subsidies provided to them. This exposed the nexus of politicians, regulators and business owners belonging to various political affiliations, involving both allies and adversaries of the incumbent, as it revealed important details on how government incentives were provided to major political contributors.
The next step should involve greater scrutiny of government incentives across several different industries which are likely to be plagued by rent-seeking activities as well. Professor Basu’s viewpoint that political allies, like political adversaries, are also at the risk of losing from anti-corruption campaigns is likely to hold in the case where rent-seeking is not only rampant but also likely to be pervasive across political lines.
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