The crisis of finance capital would have been much worse than what is being currently witnessed but for the crutches provided by workers’ remittances which accounted for $29 billion in 2022.

The cyclic crises have become more frequent and generally occur every two to three years as in the case of Pakistan, instead of once in a decade universally observed not very long ago.

Remittances somewhat tend to check the freefall of the rupee and its depreciating purchasing power against the dollar that fuel cost-push inflation by pushing up prices of imported foodstuff and industrial raw materials and inputs. The import bill remains much in excess of export earnings and is substantially financed by remittances.

Remittances also serve as a tool for poverty alleviation. The recipient households, spread over the entire country, use the money in mainly meeting essentials of life such as providing better education for their children and health facilities for the family. They buy home appliances and invest in plots and housing/flats.

Prompt payments of instalments sent by overseas Pakistanis who have booked flats are helping construction work stay afloat while local buyers are finding it hard to observe the payments schedule

Prompt payments of instalments sent by overseas Pakistanis who have booked flats, are helping him to keep his construction work afloat, says a builder while local buyers are not observing payments schedule.

Remittances play an important role in Pakistan’s economy, contributing close to nine per cent of the GDP. But analysts point that the inflows of precious dollars are not channelised towards investment in industry-oriented growth as in the case of countries such as India, Singapore and certain Latin American states.

The increased, diversified industrial production from fresh investment geared to cater to the changing demands of export markets is likely to increase foreign sales.

But given the experience of perpetual export-import gap and current state of the global market in the near- to medium-term, priority should go to exporting our trade surplus after meeting needs of the people at affordable prices.

Deindustrialisation has remained a problem most of the time since the East Pakistan market was lost in 1971. One major reason for this is the focus on production of low-value-added goods that find a ready market for low-income groups in developed countries where public policy is to keep workers' wages low.

Unable to produce globally competitive quality goods and cater to ever-changing export markets, continuous rupee devaluation is seen as the only solution.

And instead of trying to divert money from speculative trading, (for example, in capital or real estate markets) into productive industrial activities, public policies are doing the opposite. The outcome is stagflation.

The inflows of precious dollars are not channelised towards investment in industry-oriented growth as in the case of countries such as India

High inflation has emerged as a common feature in case of growth as well as economic slowdown.

While it is not rare to see loss of profits from reduced output and sales being more than compensated by soaring prices worldwide.

As the labour (a factor production that creates surplus value) market is in a crisis, it also affects the productivity of capital, quantum of value-addition and wealth creation. The organic growth of industries and companies is retarded. It is forgotten that workers are both producers and consumers. Prosperous consumers translate into more demand for goods and services.

According to the Pakistan Institute of Labour Education and Research, an estimated 80 per cent of unskilled workers do not receive the minimum wage of Rs25,000 per month, awarded 10 months ago.

Another study suggests that minimum wage when announced, should have been fixed at Rs47,500 owing to high inflation rate and essential for workers to live a decent life. No less than 67 countries have minimum wages higher than Pakistan.

Those denied minimum wages include contract labour in the organized sector, workers engaged in small/mini enterprises operating in the informal sector, women slogging in farms to feed the nation and gender disparity in incomes.

And 90pc of labour force outside agriculture is employed in formal or informal microenterprises. Productivity remains low because of demotivated and unskilled labour.

Intellectual capital or human capital –a term coined by corporate finance-- is the intangible economic value of workers’ experience, skills, health, intelligence, training etc that increases productivity.

In a production-deficit economy with low capital accumulation, it is human capital, according to a World Bank study, that accounts for 61pc of Pakistan’s per capita wealth.

And if Pakistan’s low Human Capital Index ranking could be brought to the average of South Asian level, the study estimates that GDP per capita would rise by 144pc, eight times more than business as usual.

Over the past 40 years, much of the spending that businesses and governments in developed economies have undertaken, are ‘intangible’ to build the future productive capacity. This is highlighted in the book ‘Capitalism without Capital: The Rise of the Intangible Economy.’

The investment has gone into knowledge-related activities and products such as software-related products, research and development, design, market research, training and new business processes.

The book authored by Jonathan Haskel and Stian Westlake projects the marked shift from a tangible-intensive economy towards an intangible-intensive economy.

Earlier investments were mostly made by businesses in tangible physical assets such as machinery, buildings and in case of governments in infrastructure.

Despite the lack of technological progress but due to the technological advances made so far, CEO of SI Golbal Noman Ahmed notes: “people in all walks of life are becoming millionaires in Pakistan. And what is even more impressive is that this wealth is being generated from some of the poorest parts of the country.”

Published in Dawn, The Business and Finance Weekly, May 1st, 2023