Economic Freedom Promotes Upward Income Mobility

New study shows increased economic freedom leads to greater income mobility for workers and entrepreneurs

Islamabad, Pakistan—Economic freedom enhances income mobility while the poor in unfree nations have fewer opportunities to escape poverty and build prosperity, finds a new study released today by Policy Research Institute of Market Economy (PRIME) in conjunction with Canada’s Fraser Institute, an independent, non-partisan public policy think-tank.

“The main purpose of economic development should be to provide opportunities for upward social mobility of a vast majority of citizens. This can be achieved through inclusive economic policies and re-allocation of resources from rent seeking to efficiency seeking activities” said Ali Salman, Executive Director PRIME.

Many factors contribute to economic freedom but the most important for income mobility are rule of law and restrictive regulations. In uneconomically free nations, domineering government and crony elites use the rule of law, not to protect the freedom of all but entrench the privilege of their cliques while undermining the rights of everyone else.

Similarly, regulations are too often used to exclude people from work and opportunity, even in nations with a relatively robust rule of law. Government regulation may require workers to purchase occupational licenses or train to acquire credentials before they can work.

Pakistan ranked 139 in rule of law, ranked 140 in economic freedom and 123 in regulations; the country stood at 137 in terms of labor market regulations and 109 in business regulations.

“Government regulations impede the ability of workers to make themselves better off by slowing the upward mobility of workers,” said Vincent Geloso, an assistant professor of economics at George Mason University, senior fellow at the Fraser Institute and co-author of Economic Freedom Promotes Upward Income Mobility

The study shows that labor regulations across industries slow wage growth for low-income workers. And, particularly, inappropriate minimum wages and occupational licencing tends to hurt income growth among the poor more than among higher-income workers.

The same effect is also observed for would-be entrepreneurs who face barriers to entering certain industries because of regulatory costs and fees.

“If governments are genuine in their desire to help low-income workers climb the income ladder during the COVID recovery and beyond, they should take a second look at regulations and look for ways to increase economic freedom in their respective jurisdictions,” Geloso said.

The Fraser Institute produces the annual Economic Freedom of the World report in cooperation with the Economic Freedom Network, a group of independent research and educational institutes in nearly 100 countries and territories, including PRIME Institute in Pakistan. It’s the world’s premier measurement of economic freedom.

Click below to read full report:

MEDIA CONTACT:
Afzal Khan: afzal@primeinstitute.org or call at 03330588885

Petrol Crisis in Pakistan

Petrol prices in Pakistan fluctuate every month as the Oil Companies Advisory Committee recommends prices following international oil prices. Pakistan spent $13.93 billion dollars on imports classified under the petroleum group in FY 2019. Approximately 57% of petroleum oil is used for transport.

As per a statement by a spokesperson of Shell Pakistan, an abrupt increase in petroleum demand was one reason behind the depletion of their stocks. However, OGRA contends that there was no shortage of petrol in the country. As per the federal cabinet, OMCs pocketed windfall gains when oil prices were high but were reluctant to bear losses when prices went down.

To read more, download the PRIME note given below:

Justifying Employment Termination

This case study is part of the project being undertaken by Policy Research Institute of Market Economy (PRIME) with support from Atlas Network. The aim is ‘Making Pakistan a Trusted Business Partner’ through improving Pakistan’s ranking and score in ‘Enforcing Contracts’ and to improve the overall ranking of the country in the World Bank’s Doing Business Index over 2016-18.
A lengthy, cumbersome and costly mechanism to seek enforcement of contracts is detrimental to the business environment of a country. Investors shy away from such economies where rule of law is weak and uncertainty looms large. Therefore it is important for achieving a favorable investment climate in the country that business contracts get honored and where a dispute arises, it can be settled at a suitable cost and time duration.
All names mentioned in the case herein have been changed to protect privacy. Real court cases, where final order has been passed, have been picked for illustrating the nature of disputes and the issues with the contract enforcement mechanism in Pakistan. The case studies do not mean to comment on the justness or unjustness of the arguments presented by any party to a case.
All publications by PRIME Institute can be viewed online at primeinstitute.org

PRIME Analytical Reports are independent evidence based studies on the investment climate, economic policies and demographic changes in Pakistan, prepared to improve understanding of business and policy challenges faced by the country’s private sector to help steer it on path of growth. This report focuses on Circular Debt.

Circular debt is the shortfall in collections by an entity which causes it to withhold payments to its suppliers spreading the cash crunch to the whole supply chain. More specifically, with regards to Pakistan’s power sector, circular debt refers to unpaid bills by DISCOs to key players especially: oil companies, gas companies, IPPs, and WAPDA.

To read more, download the file:

Select item to view

A new report issued by an independent think tank PRIME has warned that continuous build-up of the circular debt, which stands at an all-time high of 5.2% of GDP, poses a threat to the country’s energy security and consumer welfare. The report acknowledges the federal government’s efforts to reduce capacity payment liabilities and its plans to introduce a long-overdue competitive market regime. The Prime report mentions that the share of renewables in the energy mix has gone down from 8.2% to 2.4%.

The key messages of the report are: for every unit of electricity produced, on average only Rs. 14 is collected as opposed to its real cost of Rs. 21, adding the difference of Rs. 7 to the ever-mounting ledger of circular debt. The circular debt build-up is attributed to multiple causes namely, Tariff Differential Subsidy, Capacity Payments, T&D and Recovery Losses, and Governance Issues. The report establishes that this has led to an unprecedented level of circular debt amounting to Rs. 2.3 trillion.

To read the report click on PDF

To read more, download the file:

PRIME Policy Report is a monthly publication that provides actionable intelligence at both micro and macro levels of the economy. Each report is segmented into: Business Climate Review, Market Analysis and bird-eye view of major Economic Indicators. It is a one stop information hub for business leaders, SMEs, Corporations, trade commissioners, MNCs, Institutions and Individuals aspiring to understand the policy dynamics, business prospects and interpretations of key economic indicators.

Read more

State coercion and the fledgling enterprises in Sharaqpur (2014)

This study is based on a survey of 100 small scale enterprises based in Sharaqpur, a small town near Lahore. The study aims at understanding the dynamics of small scale entrepreneurs as they interact with with the government on their path of survival and growth. The study provides an inventory of workable recommendations requiring changes in the laws, regulations, and attitude that these industrious entrepreneurs face on daily basis.

Read more