Entrepreneurship in Pakistan

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PIDE Working Papers
2007:29
Entrepreneurship in Pakistan
Nadeem Ul Haque
Formerly Vice-Chancellor
Pakistan Institute of Development Economics, Islamabad
PAKISTAN INSTITUTE OF DEVELOPMENT ECONOMICS
ISLAMABAD
2
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means—electronic, mechanical, photocopying, recording or otherwise—without prior permission of the author(s) and or the Pakistan Institute of Development Economics, P. O. Box 1091, Islamabad 44000.

© Pakistan Institute of Development
Economics, 2007.
Pakistan Institute of Development Economics
Islamabad, Pakistan
E-mail: publications@p ide.org.pk
Website: http://www.pide.org.pk
Fax: +92-51-9210886
Designed, composed, and finished at the Publications Division, PIDE. C O N T E N TS
Page
Abstract v
1. Introduction 1
2. Understanding Entrepreneurship 2
(a) What Makes up an Entrepreneurial Economy? 5
(b) Entrepreneurship as Rent-seeking 5
3. The Nature of Pakistani State 7
4. How Did Entrepreneurship Develop in Pakistan? 9
(a) The Big Push for Industry 9
(b) The Neglect of the “Small” 11
(c) Agriculture and the Elite Bias 12
(d) Subsidies for Export 13
5. The Unintended Consequences 14
(a) Inequality and Bank Defaults 14
(b) Crippled Innovation 15
(c) Rent-seeking and Land Development 16
(d) Non-commercial Cities 17
6. Understanding Business in Pakistan 21
(a) The Attraction of Rents 22
(b) The Costs of Corruption 22
(c) Lack of Research, Expertise Skills and Knowledge 23
(d) City Administrations Unfriendly to Small and Trading
Businesses 24
(e) Poor Legal Framework 25
(f) Lack of Trust and Social Capital 25
(g) The Constraint of Financing 26
(h) Why There is No Consolidation? 26
4
Page
7. Conclusion 27
(a) Reinventing the Role of Govern ment and Ensuring Rule
of Law 27
(b) Removing the Instruments of Rent-seeking 28
(c) A New Growth Strategy 28
(d) Building Growth Cities 29
(e) Identifying ‘Lemons’ 30
(f) Releasing the Energy of the Domestic Sector 31
Annexures 33
References 52
ABSTRACT
Entrepreneurship is viewed by economists to be a combination of innovation and risk taking. When such activity thrives, high growth rates are achieved as well as opportunities offered to all segments of society, including the poor. The latter benefit form growth and employment as well as through opportunities for entrepreneurship.

In Pakistan innovation and risk taking is severely inhibited by the intrusive role of government in the marketplace. From the early days of planning when protection and subsidy polic ies determined winners in the market place, entrepreneurship has been diverted to seeking government favours. Government economic policy also seeks to promote growth through a basically ‘mercantilist’ approach where domestic commerce through seriously neglect is heavily regulated. This sector either employs most of the poor or offers them entrepreneurial opportunities. Hence deregulating this sector could be a priority in and anti-poor strategy.

The paper also argues that land distribution and city zoning and management have also evolved to further reinforce the prevalent rent seeking path to success. The result is that cities are by design not allowed to become clusters of commerce that will be entrepreneur friendly. These clusters of dense urban commerce are magnets of employment and opportunity for the poor. To develop an entrepreneurship culture in the country, the system of incentives (laws and policies) that promote rent seeking will have to be dismantled. This paper presents an analysis of the state of entrepreneurship/rent seeking prevailing in Pakistan. This analysis allows us to obtain and understanding of the kinds of reforms (including legislative changes) that are required to develop entrepreneurship.

JEL classification: M13
Keywords: Entrepreneurship, New Firm, Startups

1. INTRODUCTION*
Economic development as a conscious...
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