Causes of Industrial Backwardness of Pakistan

Industrialization means novelty and change. If those who hold power fear that change
may bring unpleasant consequences, they will systematically obstruct it, which rulers in
Pakistan proceeded to do from decades.

But slow and distorted industry development in Pakistan is the result of blocked
opportunities as well. Wouldn't Pakistan be much better off if it exported more of its
textiles to the rich industrial world? Wouldn't waiving Pakistan's quota under the Multi-
Fiber Agreement have been a very good and important step for the US government to
take in reciprocation of the Pakistani government's help as US-led forces attacked Al
Qaeda bases in Afghanistan? No doubt it would have been.

But other key reasons for the slow pace of industry development in Pakistan reflect the
standard dilemmas of poor governance. "Protect property rights and enforce contracts”.
But property rights and contracts are threatened at many levels. They are threatened by
roving bandits, by local notables, and, most of all, by government functionaries who use
their offices to extort extra income. Simply put, a weak state cannot enforce contracts and
property rights, while a state that is strong enough to enforce them must control its own
bureaucrats.

However, the most important reasons that Pakistan has done worse than Latin America or
Southeast Asia seem to be focused around education. There can be little hope for
sustained industry and economic development where the educational system is at least
one generation--and possibly three generations--behind other regions in terms of its
commitment to universal literacy, and where higher education largely ignores the skills
and subjects needed to enable people to master technology.

After all, blocked export opportunities, weak government institutions, and high levels of
corruption are worldwide problems. Even political and religious leaders hostile to change
and industrialization are not uncommon. But as we compare patterns of development
throughout the world, more and more evidence is piling up that universal literacy and a
large class of people with industrial-technical skills are key resources that determine
whether countries are able to break free from the grip of backwardness and poverty.

During the past four decades a large number of industrial units have been set up in
Pakistan. These units are producing consumer goods. Pakistan has not attained any
position in industrial countries of the world. There are different causes of thee
backwardness. Some of them are:

• Poor inheritage of industrial units

• Lack of basic minerals
• Low level of technical knowledge
• A policy matter of British ruler
• Shortage of foreign exchange
 • A limited class of organizers
• No consistent industrial policy
• Political instability in the country
• Smuggling of goods etc.

At the time of partition of the subcontinent Pakistan got only 34 units out of 928
registered units. These units were of small size and all were not in operation. Pakistan
started from scratch. Iron, coal and copper are basic minerals for industrial development.
These minerals are not available in Pakistan. Imported machinery and pig iron is very
expensive.

The level of technical knowledge is very low. Research centers are almost non existing.
There is no encouragement for any invention. We depend upon imported technology. The
British rulers developed the eastern region of India. The western region was for the
production of raw material and food. The region also served as nursery for the armed
forces, during the past years the landlords’ class mostly ruled over country.

In Pakistan an open business economy is not present; the formal army has owned and
operated a number of commercial enterprises for decades. This unusual sector of the
businesses in the country present many questions about how much influence is felt by the
army officers being in control.

Biased and rapidly changing industrial policies and distortions in the national economic
policies have been as some of the reasons for Pakistan’s industrial backwardness.
Uneven geographical distribution of industries and imbalanced regional industrialization
did not allow fiscal concessions and investment incentives to favour location of industrial
units in backward areas. Economic policy distortions including over-regulation, price
interventions affecting outputs and inputs, high tax rates and poor tax administration,
trade restrictions, poor credit accessibility and inadequate infrastructure in addition to
biased and rapidly changing government’s industrial policies have also been viewed as
some of the reasons for the industrial backwardness of country. Another important factor
for this backwardness in industrialization is that the private sector development in the
industrial and mineral sectors remained minimal till 1980s, besides the provinces suffered
from location, financial, technical, skilled manpower and infrastructure set backs.

Corruption is a serious hindrance to Industrialization. In various industries numerous

government departments visit them with various threats to extort small sums.

Industries remain largely owner-operated and resistant to developing professional

management. Partly this is because industry growth has traditionally depended on policy
favors rather than on professional management and strategy. However, there is also a
clear mistrust of professional managers given that the legal and judicial systems may not
prevent fraud, theft and outright misuse of industry information. An important reason for
slow growth as well as developing new industry was the lack of expertise and knowledge.
Lack of a research and innovation culture constrains Pakistan even in the policy makers.

There is also shortage of consultants and expertise for providing advice on key areas such
as assisting project feasibility, operating an industry, establishing brand names, and
marketing. Experts also charge high sums for their services which a new entrant might
not afford to pay. There is no data-base available in respect of potential fields/projects
from any governmental agency. Feasibilities available with SMEDA are outdated and
useless.

While various management schools have emerged, technical and skill-based professional
education remains in short supply. Interestingly, technical skills are not adequately
rewarded by the employers; nor are blue-collar jobs held in esteem by society.

Another important factor responsible for industrial backwardness of Pakistan is the

severe energy crisis being faced by the industries and this energy crisis is only going to
be aggravated in the future due to High demand and low supply factor and No feasible
long-term energy policy.

To begin with all pointed to the lack of rule of law a basic institution underpinning any
industry. No one seems to be sure of the framework of rules in which they are operating.
Rules such as property rights, zoning, and licenses are often changed for individuals on
the basis of their influence. In that sense one can never sure of the market environment
you are operating in. There is no faith in the legal system to enforce even the basics of
industry—property rights and contracts. Several examples can be specified. A few are
worth highlighting:
• It’s seen in most of the cases that the labor trained by one employer moves to
another employer. Contracts cannot be credibly written to protect employers as
well as employees and allow gains to be captured so that happy employees lead to
industry growth. Poor contracting arrangements also prevent payment mechanism
that benefits the employers such as stock options and bonuses.
• Suppliers do not meet commitments in terms of delivery schedule and at times
quality as well. But no quick legal remedy is available. On the other hand buyers
do not pay as per schedule or at times give checks that are not honored. Though
there is a law that entails punishment against bounced checks but the law has so
many loopholes that defaulter is rarely punished.

Small industries have little recourse to bank financing. They do not use other financial
instruments. The smaller industry men are of the opinion that banks lend only to big
borrowers for non-commercial and political reasons. This was true in the past before
banks were privatized, but the interest rate is very high to lend a small industry. There
should be separate banks to lend to small industries.

The "industrial backwardness of Pakistan" could only be said so by a ""forward

progressive, greedy capitalist" of the degenerated States.