In a transformational phase, it is well recognised that entrepreneurship, with foresight, digitalisation, innovation, and human talents, can build a better future for all. Efforts in this direction need to be supported by public policies and an appropriate mode of governance.

According to the central bank, the country’s major issues are low investments in physical and human capital, weak productivity, and stagnant exports.

The International Monetary Fund (IMF), talking with the authorities, will “aim to lay the foundation for better governance and stronger, more inclusive, and resilient economic growth that will benefit all Pakistanis,” says the Fund’s resident representative for Pakistan, Esther Perez Ruiz. Meanwhile, Finance Minister Mohammad Aurangzeb says, “we will continue to work tirelessly to ensure that Pakistan’s economy serves the needs of all our citizens.”

However, “political complexities and a high cost of living could weigh on policy,” said the Fund. Here, it may be worth noting that on the fourth day of unrest in Azad Jammu and Kashmir, on May 13, the government accepted the Awami Action Committee’s demands, confirmed power and food subsidies, and for relief, Prime Minister Shahbaz Sharif approved a grant of Rs23 billion. According to a Dawn editorial piece titled ’AJK protests, ’ lawmakers and ministers must make themselves available to constituents to resolve outstanding problems.

The cost of living crisis is leading workers to challenge the prevailing opinion of low salaries to cut business costs

Low wages and high inflation have triggered a cost-of-living crisis. Producing goods and services at competitive market rates substantially depends on the level of investment in developing workers’ skills and labour motivation to increase productivity.

Employers in Pakistan, grappling with the escalating cost of doing business, have resorted to slashing wages to contain expenses to remain competitive in the market. It is argued that wages should be determined so as not to raise output costs to a point where they start fuelling inflation. This also applies to the employment level defined by technocrats as ‘full employment’.

The country, however, continues to suffer from low productivity, low-value-added exports, and declining demand in developed countries where the economies are now focused on local manufacturing — cheaper Chinese exports to the US are being resisted by Washington.

‘The wage increases are not totally benevolent: you will have payback because when people are paid decently, they are fully engaged, and they do better work’

Contrary to the prevailing point of view, some argue that decent wages help increase labour productivity and improve goods and service supplies to meet domestic demand, as well as the need to boost exports. Hence, the fear of cost-push inflation in this case seems to be unfounded.

The views of shrinking labour union leaders in Pakistan coincide with emerging international labour compensation trends. The cost-of-living crisis has led to workers calling for ‘living wages’ to replace minimum wages.

Several global firms agree that decent wages are necessary for fair compensation of the labour embodied in a product and, no less significant, to ensure high productivity.

Companies are signing up to become living-wage employers, which commits them to pay salaries that correspond to rent, food, transportation and child care costs in the region where the workers live, The New York Times reported recently.

Among them is Michelin, a 134-year-old company that employs 132,000 workers at 131 factories in 26 countries. The company’s chief executive, Florent Menegaux, says, “The wage increases are not totally benevolent: you will have payback. Paying better would help improve productivity. When people are paid decently, they are fully engaged, and they do better work.

“What makes a good corporation versus a corporation in difficulty is the level of social cohesion it achieves. We are still delivering to the shareholders who are not worried at all.”

Proper wages are among the emerging best international business practices that Pakistani entrepreneurs need to study and adapt to the country’s specific conditions.

The International Labour Organisation estimates that Pakistan’s living wage should be Rs60,000 to Rs65,000 per month. Unfortunately, according to an analyst, only around 50 per cent of formal sector employers bother to adhere to the various regulations designed to improve employees’ working conditions.

“The role of the government is to provide policies while the private sector should ensure productivity in real terms,” Finance Minister Aurangzeb told an FY25 pre-budget conference organised by Business Recorder and the Federation of Pakistan Chambers of Commerce in Karachi.

He said the country’s exchange rate has to be brought down to facilitate businessmen and noted that industries cannot function at a 25-26pc interest rate.

It may be suggested that the government may also consider whether it would be feasible to provide tax incentives to encourage employers to pay living wages to their workers.

According to Dr Hafiz Pasha, the industry pays 68pc of the total tax revenue, which is more than the overall tax burden on the economy, and this needs to be reduced.

Published in Dawn, The Business and Finance Weekly, May 20th, 2024