global supply chain

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Informal Economy

Published in Dawn on January 21 2018

THE 12th Five Year Plan (2018-23) — to be finalised soon — is based on a strategy that combines “inclusive growth with green development”. In recent years ‘inclusive growth’ — growth that benefits all segments of society — has replaced ‘poverty alleviation’ as a catchphrase in development planning. Everyone is talking about it, including the IMF, World Bank, ADB, ILO, national governments as well as those averse to the ‘growth’ paradigm. So let’s hope all players in the international and national arena mean it and are out to promote “equity, equality of opportunity, and protection in market and employment” as defined by the World Bank.

The time has come for Pakistan to address inequity and to tackle the informal economy, which is considered a barrier to inclusive growth as it excludes the majority of people from accessing opportunities of productive growth in the economic realm and deprives them of entitlements at work because of their informal status. In comparison, workers engaged in formal, registered, tax compliant businesses and units are legally covered for social protection.

The government cites its inability to bring thousands of small enterprises under the tax net, while the enterprises point to financial constraints as the main reason for remaining informal. However, both concede that formality is desirable for it benefits all stakeholders in the long run. Yet the goal remains elusive.

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Winds of Change

WHILE debate on the contradictions of capitalism, its ruthlessness and vulgarity, gains momentum on the margins of global discourse, capitalism glides smoothly along on the back of its modus operandi: the global supply chains. Termed as the foundation of 21st-century trade, global supply chains account for 80pc of global trade, benefitting Western populations through the availability of cheaper products manufactured by the low-wage, abundant labour of developing countries.

Pakistan is one of the low-cost production centres in Asia. In this country, Sialkot is a hub of several industrial clusters producing surgical instruments purchased by the healthcare industry in the West through global supply chains. According to a 2012 report by the Trade and Development Authority of Pakistan, 2,300 units in Sialkot, employing 150,000 workers, produce 150 million surgical instruments every year. Sialkot manufacturers sell to suppliers at a very small margin of profit; the suppliers then sell to the end users at much higher rates. For example, according to an estimate quoted in the 2010 report of the Rawalpindi Chamber of Commerce and Industry, a pair of surgical scissors costs $1 to produce, is exported from Pakistan to Germany at a price of $1.25 and, probably, sold to a hospital for about $80.

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