Optimal regulation

Published November 21, 2014
The writer is senior adviser, Pakistan, at Open Society Foundations, associate professor of economics, LUMS, and a visiting fellow at IDEAS, Lahore.
The writer is senior adviser, Pakistan, at Open Society Foundations, associate professor of economics, LUMS, and a visiting fellow at IDEAS, Lahore.

THOUGH over time the rhetoric has become less voluble, businesspeople still find regulatory structures to be quite stifling. Starting a business still requires dealing with too many departments and it takes too long to successfully negotiate with all of them. It is no wonder Pakistan consistently scores quite low on various ease-of-doing-business surveys.

At the same time, the ineffectiveness of the regulatory structures is evident to all. CNG kits and boilers keep exploding; road accidents due to poor vehicle maintenance keep happening; cartels continue to thrive; unfair business practices are hardly checked or penalised; spurious products, including drugs, rule our markets; safety, hygiene and efficiency standards are almost never implemented; and most service providers, including doctors, have no fear of ever getting caught or punished for malpractice.

When a bus, carrying schoolchildren, had an accident at Kallar Kahar some years ago, many promises were made about investigations and tightening the regulatory structure for the manufacture of bus bodies. But nothing seems to have changed. The story was repeated when a van carrying schoolchildren caught fire due to the faulty installation of a CNG kit. This reflects the general state of affairs that has prevailed in the wake of almost every industrial accident reported over the last few years.


The ineffectiveness of the regulatory structures is evident to all.


A life-saving injection costing Rs800 when made by a licensed pharmaceutical company could have a substandard version available in the market for Rs20 or so. If there is little probability of being caught and punished, fake drugs will become widely available. Is it any wonder that we have not been able to create an effective regulatory structure that would be able to discourage the production and availability of spurious drugs?

And the issue is not restricted to drugs. A lot of food items, even consumer durables, suffer from similar problems. There are more than 300 fan manufacturers in Pakistan. A few have brand names, but the majority do not. Do the fans of the majority comply with the safety and efficiency standards that this industry should adhere to? Have these standards been set out? Does the standards-enforcing body have the wherewithal to implement the standards? The answers to all of these questions are in the negative.

Go to the market to buy replacement parts for your vehicle and you will be offered a whole range of variety from ‘genuine’ to Chinese, Taiwanese and even Pakistani alternatives. Variety is not a bad idea: the buyer can choose the quality she wants.

But the problem is that you, as a non-expert, can almost never tell whether what you are buying is actually of the same standard as what you have been told. And you can never have the comfort of knowing if the cheaper and lower quality or even the more expensive and supposedly higher quality parts meet minimum safety standards that should be adhered to.

When industrialists complained too much about the labour department and its surprise inspections and raids on factories, and the bribes that had to be paid to them, the Punjab government decided to do away with labour inspections completely even though this is against ILO-mandated best practices.

Is this the way to develop the right regulatory environment? Instead of making the department efficient, we decided to have no inspections. How are labour laws, which industrialists find onerous and have a tendency to ignore or violate, going to be implemented if inspections are not allowed?

When you visit a doctor or a hospital are you confident that you will be provided with the best care that is humanly possible? How many cases of mistakes, negligence, greed, and sometimes outright criminality have we read about in the papers, and how many smaller errors of omission and/or commission must go unreported?

Most people go to more than one doctor to have the comfort of a second or even a third opinion. But more opinions do not address the underlying problem: if the regulatory framework is weak the incentive for doctors to make fewer mistakes and not allow greed to take over is also weak, and the patient, who has no knowledge of the medical world, cannot be confident that she or she will be given proper treatment. How many doctors/healthcare providers have been censured by the Pakistan Medical and Dental Council? The regulatory framework is clearly not working.

Do you know if the school you send your child to has arrangements for fire hazards? Are school buildings safe enough and do they have all the exit/entry points that buildings with hundreds of children should have?

There has recently been some debate on whether Pakistan is an overregulated economy and needs to deregulate. And most commentators have come on the side of saying we need to do so. But, the issue seems to be different. On paper, Pakistan might be overregulated. In practice, it is not. In fact, being overregulated or otherwise may not be the right lens through which we should be looking at this issue. We should be thinking about optimal regulation: do we have the right laws and are the laws being implemented correctly?

The ability to implement a law should be part of the thinking on optimal regulation. As we look at the problem, there will be areas where we will reduce the number of laws on the books, while in some areas we will need to amend the laws and even make them more stringent. But most changes will need to come on the implementation side.

To ensure that manufacturers and service providers are getting the needed support and enabling environment, while the interests of the consumer are protected, is the objective but this can only be achieved if the law and its implementation are both looked at together.

The writer is senior adviser, Pakistan, at Open Society Foundations, associate professor of economics, LUMS, and a visiting fellow at IDEAS, Lahore.

Published in Dawn, November 21th, 2014

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