Cartels are illegal within countries as they behave like monopolies. That is, they restrict output and jack up prices. While their profit maximising output is also determined at the point where marginal revenue is equal to marginal cost, the price is considerably higher and is driven by demand conditions.

In Pakistan, cartels have been reported in cement, sugar, wheat, rice, banking, automobiles, pharmaceuticals, and fertiliser industries. This is a lot of cartelisation, if proved.

The World Bank recently asked the government to take tough action against the cartels due to their adverse impact on the economy. The Competition Commission of Pakistan (CCP) formed under the Competition Commission Ordinance 2007 has succeeded the Monopoly Control Authority (MCA). CCP is supposed to promote competition and act strongly against restrictive trade practices. It is, however, facing immense pressure from various powerful groups because of which it is finding it difficult to act as per its mandate. Our foreign financiers have observed that cartels have grown stronger due to tacit support from the bureaucracy.

Question, therefore, is if the MCA could not function due to the power of the concerned quarters, will the CCP be able to discharge its responsibilities if the same forces remain at work? A related question would then be if laws by themselves are necessary and sufficient to put this house in order. Despite the formation of the CCP, rice cartels reportedly made an additional Rs200 billion during the last six months by colluding to have prices increased significantly during the same period. The prime minister himself reported in the parliament last month that “some honourable people” are involved in wheat hoarding. Collusive decision making practices in automobiles and banking are well known and complained about to little or no avail.

So, a third related question is that if despite deviant business practices, the players are considered “honourable,” will a change in structure from MCA to CCP be of any use if it is the power wielders who are in the price game? If the iron hand of the law is softened up due to politico-economic considerations, it is very important to discuss what good business behaviour is and what must it be driven by. That is, there must be an agreement on what the reason for being of businesses is as laws are a necessary but not a sufficient condition to rectify behaviour.

Our Prophet Muhammad (PBUH) recognised as “the great law giver” but is little remembered as “the great business manager” here even though he demonstrated highly honest business practices as a young trader well before the Revelations. He was honest to the extent that he would even communicate the product defects to prospective buyers. The result was not a loss or even decline in profits as profits during the expeditions he led were several times more than what was the case in the past. For, his business aimed at mutually beneficial exchange relationships through provision of products that provided service to the buyers. He was aiming at needs satisfaction. The fallout was profits many times over.” Did he seek more gain for himself also? No. When business owner Hazrat Khadija (AS) offered higher commission to him for his good work, he declined firmly and said that he will only take his contractual return and not more. A second lesson communicated by him was that the reason for being of businesses is not personal gain-maximisation. These lessons jibe with the state-of-the-art thought in business management and corporate social responsibility.

Peter Drucker calls all profit-maximising businessmen and economists as average businessmen and average economists. Business must not be based on elementary theory of the firm taught in microeconomics. Economists have studied more to get a better understanding of the firm. They have come up with institutional economics.

No business can thrive if it focuses only on one functional level goals of finance. If it does, it will keep trading-off with the goals of marketing, production, HR, and the environment amongst others. Such a firm might be able to maximise profits in the short-term but it will do so at the expense of its long-term growth, development, and profitability. Successful corporations in the world have been driven by strategic objectives and not just financial objectives that flow from strategic objectives. To attain financial results also, a firm must be positioned strategically and must be competitive.

Strategic objectives revolve around product/service quality, market share, cost advantage, quick response, relationship with stakeholders, and higher and higher customer satisfaction. .

The successful organisations maintain balanced scorecards and gauge performance on the basis of how satisfied the firm’s customers, managers, employees, and other stakeholders are. They constantly evaluate their operations, processes, business ethics, and social responsibility performance. Financial targets comprise just one of the many areas on which a quality business evaluates itself.

It is very important for our businesses to think in terms of how successful businesses operate and get ahead.

For successful businesses, profits are a result of doing good business and not the reason for being. For, if profit becomes the overarching goal, the very reason for being of business is defeated and profit becomes that much more remote to achieve. At best, profits are financial targets along with other functional level objectives in the light of strategic objectives and corporate mission. Unless financial goals are woven into overarching business goals, financial gains too will remain elusive and there will be a tendency to cartelise.

Cartelisation is a symptom of a deeper issue that must be rooted out through the efforts of the country’s regulatory agencies and business schools alike. Otherwise, the society will keep sinking into the quicksand of greater greed.

Pakistan will keep losing its competitiveness and the issues of inflation, growth, and development will become even more intractable than they are. The link between the micro and the macro levels of performance must be appreciated before it is too late.