Why Will the Government Offer Grants for Small Business?

Are you an entrepreneur that needs a business or small business grant? Are you motivated and skilled enough to begin your own small business? Do you need free money to start a small business but haven’t got a clue as to where to start? Look no further; there’s hope for your small business. As an enticement to small business owners, the government earmarks several million dollars in government grant money to assist small and personal businesses to flourish. There are millions that are unclaimed each year resulting from the lack of knowledge in regard to government grants. Thanks to Matthew Lesko, more knowledge has gotten out about how to get free government grants for small businesses, paying bills, college, etc. Matthew Lesko has written several books that educate individuals exactly like you on the way to receive a small business grant from the U.S. government. An average person may feel a little skeptical of any opportunity to get free money and may ask at least some of these questions: Is there really a catch to getting a small business grant? What exactly does the government get out of making an investment in small businesses? What can I do in order to obtain more general information and tips about small business grants?

It has been said that about 50% of all small businesses don’t make it beyond their first year. Why don’t small businesses succeed? Not enough funding and a lack of experience are a couple of the more customary reasons that small businesses aren’t going to make it beyond their first year. Why does the government give out small business grants to help entrepreneurs with startup costs if there is so much failure in small businesses? Why exactly does the government have such a high interest in small businesses? Small businesses likely represent ninety five percent of all employers in the United States. In addition, they contribute 50 percent of the gross domestic product of the country. Grants for small businesses are offered to business owners to promote economic improvement or growth. Three of four new American jobs are offered by small businesses.

The United States government doesn’t actually give out federal grant money to begin a small business. The Small Business Administration (SBA) is a Federal government agency that supports, protects the interests of, advocates, and provides resources small business concerns. The federal government has left it up to each individual state to appropriate funding by way of state grants to assist small businesses to thrive and grow. Small businesses are critical to the economic security of the U.S.. Keeping this in mind, the SBA has a mission to put money and time into helping entrepreneurs so they can start, grow, and develop their small businesses. Giving a support system to new businesses by awarding a small business grant is a small gesture when the economic development of the United States plays a role.

If you’re an entrepreneur, the U.S. government has small business grants so they can help your business to succeed. If you would like help finding more information about these small business grants, it would be a benefit to hear what Matthew Lesko has got to say about free money that might be available that could help your business to grow. His research shows that more than 1 million business owners receive small business grants each and every year. Grants like these may be available by way of the local government of your specific state. Keep in mind, that through assisting small businesses to develop and grow, the United States economy is going to grow and flourish as well. Small business grants are an incentive to business owners and to the economy of the nation as a whole. The more small businesses that are started, the more employment will also be created. In order to secure the advancement of small businesses, the government can help by providing small business grants as well as other resources that are necessary for small businesses to flourish.

About the Author: Find out about the best ways to get Small Business Grants! Matthew Lesko.com will show you ways to get available funding, regardless of your business’ income amount, credit rating or age! Look at this web site for a completely free preview: http://www.MatthewLesko.com now! For more information and tips about Small Business Grants, click here.

M Lesko
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                                                       CHAPTER 1
INTRODUCTION AND THEORETICAL BACKGROUND

Economists through out the world are searching for what really are the major determinants of growth of an economy and different policies have been used in pursuit of the answers. The world as large has gone through a lot of economic problems, such as depressions of 1930s, 1970s and 1980s. The 1930 depression led to employing of the Keynesian policies of strict government intervention. However, the 1970s depression made policy makers lose faith in Keynesian economics. Nevertheless, most Third World countries continued with their central planning type of economic policies. There was strong disenchantment with this type of policies, which led growing number of economists and influential international development organisations to begin, in recent years, to advocate the increased use of the market mechanism that is to liberalise the markets, as the key instrument of promoting greater efficiency. In this regard economic liberalisation implies minimisation of government intervention in allocating economic resources and letting the market forces play the cardinal role, doing away with all forms of government distortions in running the economy. The market forces should play a leading role in financial, trade, labour, commodity markets and other sectors, increasing reliance in market forces is normally accompanied by stabilisation programs, (Krueger 1978,1985).

        There has been an increasing call for the private sector to take up the challenges of national development. According to Robert Barro (1996), most empirical facts point to primacy of government choices; countries that have pursued broadly free market policies, in particular trade liberalisation and maintenance of secure property rights, have experienced higher growth, than those which pursue central planning type of policies. For this reason, there have been calls for the privatisation programs.

  On the other hand Rodrik, (1992) argues that trade reforms is frequently met with scepticism on the part of the private sector and may lack support, the country implementing them suffers from terms of trade deterioration which may result into reduction of capital inflow and increase capital flights. He goes on to say that this is coupled with inflation and low zero growth. Krueger (1978) points out that to avoid this, appropriate macroeconomic policies need to accompany the increase in price of foreign exchange (devaluation), or else domestic inflation would soar and affect the intended benefits of liberalisation. That is why stabilisation programs, such as reduction in government expenditures, accompany liberalisation by cutting on government consumption, which is often negatively related to the growth of an economy.

         However Wha Lee (1993)’s findings in the case of Korea are very interesting, Korea gave subsidies to some firms manufacturing exports, managed to grow faster. He argues that the theoretical predictions about the link between growth and open trade may be ambiguous and misleading. According to critics, tariffs can either enhance or decrease growth rates, depending on which sector is protected. This is the argument of infant industry. Krueger (1985) notes that LDCs have been protecting infant industries for decades, but they have still remained infants; this is an indication that there is something wrong with the economics of protectionism. Nevertheless Wha Lee (1993) notes that since the current theory of liberalisation is inconclusive, as is the empirical evidence, the link between trade policy and dynamic efficiency is vague, depending on the industry considered.

Kirkpatrick (1995) argues that the orthodox arguments concerning the role of trade policy as the determinant of industrial performance are seen in the major role of creating price incentives. This is because liberalisation and a neutral incentives structure between import substituting and export activities is expected to yield both static and dynamic effects, static in form of technical efficiency and dynamic in the form of switching process. However, many models, both for planning and explaining the development process, according to Krueger (1978), have made a foreign exchange central to determination of the growth rates. This focus is on the role of foreign exchange (forex) in complementing domestic savings needed to support domestic investment. The effect on economic growth will be via an increased volume of exports and reduced imports due to liberalisation and devaluation respectively. It is argued that if trading partners removed tariffs, we expect the market to expand which will ultimately lead to growth of exports. Exports are also viewed as a stimulus to greater capacity utilisation, greater horizontal specialisation, increased familiarity with absorption of new technologies transmitted through trade, greater learning by doing, as a result of the increased market size and output levels and stimulation effects of having to achieve international price and quality. Expanded market economies of scale enable a producer to cast or spread a “net” widely on various consumers who may be helpful by sending back comments on how to improve the quality of the products. Since tariffs tend to be reactionary, if a country adopt liberalisation policies, its trading partners will also do away with tariffs the moment one country scraps trade restrictions, so the market size will expand.

           However, Trade liberalisation alone is not an answer. For this to be successful, there is a need to liberalise the financial sector, so that exporters can have ready capital for re-investment; nuisance taxes have to go, so that most of the foreign exchange earnings are retained by the exporters. This creates incentives to them. Macroeconomic stabilisation also has to be enforced so that inflation will not impede planning, and if this creates confidence in investors, exports should increase.

 Pro-liberalisation economists have argued that more open economies are more efficient in absorbing exogenously generated innovations, since, without barriers, not only will this increase the volumes of essential imports, but it will also facilitate the entry of new technology which developing countries are able to absorb and assimilate easily in order to expand their manufacturing base. Edwards (1992), finds strong evidence supporting the hypothesis that, with other things being equal, more liberal economies tend to grow faster than those which are not. He calls this learning by doing type of process, “technical progress ” where more contact with new commodities and technology enhances efficiency, which result in higher production. He argues that if the rate of technical progress is positively affected by the gap between the stock of the world and domestic knowledge with respect to the foreign source of technological improvement, then the country’s ability to appropriate world technical innovations depends positively on the degree of economic trade liberalisation. Therefore more open economies have an advantage of absorbing new ideas from the rest of the world. He finds that countries with more open and less distortive trade policies have tended to grow faster than those with more restrictive commercial policies. His results are in conformity with the catch up theory effect. Wha Lee (1992), points out that international trade is perceived as a vehicle through which foreign inputs are provided to domestic production. According to him trade distortions caused by tariffs and exchange rate controls decrease the long run growth rates more significantly in a country that needs to import more.

            Therefore, it can be summarised that liberalisation enhances international trade which provides comparative advantage and also provides an additional source of competition to domestic firms. Subsidies to ailing industries, no matter how much they may alleviate economic distress in the short run, represent an effort to decelerate growth, reduce incentives for mobility and lock in resources in the inefficient industries that should contract in the process of economic growth.

 However, there is a problem of measuring the benefits of trade liberalisation, which even Kirkpatrick (1995) acknowledged. Kirkpatrick admits that measuring of trade liberalisation benefits is a difficult and frustrating task. It involves two considerable methodological problems; it is important to assess the extent to which the World Bank’s conditions have been adopted. This is because most of the liberalisation policies of LDCs are not unilaterally adopted, but imposed, and therefore may lack consistency. The other problem is the assessment of the reforms that were implemented. It is complicated by problems of separating causality from association. According to him, it is difficulty to establish counter factual, and separating out the effect of multiple influences on economic performance.

             Larry Sjaastad (1982) noted that the economic liberalisation that swept Southern cone during the 1970s and 1980s was a clear reaction to the failures of preceding economics of protectionism. Uruguay and Argentina, once prosperous nations had fallen on hard times by the mid 1970s. Real per capita income in Uruguay had been declining at a rate of 1 percent in 20 years. Chile, though never a prosperous country, was crippled with a continuos fiscal deficit and an inflation of 1000 percent. Their economies were characterised by inefficient state enterprises, which despite massive tariff protection, regularly required subsidies to sustain their operating loses. Price controls, tariffs, subsidies and export taxes severely distorted relative prices with much of the private enterprises devoted to production of luxury goods. Regulatory bodies administered import duties and quotas, interest rates, credit allocation and wages. The monetary and financial sectors were dominated by the state banks with special rediscount privileges at the central bank. Their economies were in a bad state. Therefore all these countries introduced liberalisation programmes in the1980s, but their results were disastrous. The Southern cone experiences, according to Sjaastad (1982) are widely interpreted as evidence of the failure of economic liberalisation.

Zambia like Argentina, Uruguay and Chile had almost the same type of economic policies, with nationalised economy before the liberalisation program which swept the country in 1991. Its economy was characterised by inefficient state enterprises with massive tariff protection in order to enhance import substitution industries. Price controls, nuisance custom duties, subsidies on production and consumption, export taxes, foreign exchange controls. Private enterprises had to declare all their export earnings to the central bank, as it was illegal to hold forex. Zambia, before privatisation and liberalisation, had regulatory bodies to administer import quotas, interest rates, credit allocation and wages. All the macroeconomic factors were determined by political decree. The monetary and financial arenas were dominated by the state banks, with special rediscount privileges to the Bank of Zambia. According to the advocates of the liberal markets, poor rates of growth, massive inflation and balance of payment problems experienced by LDCs, and Zambia in particular, during the 1970s and 1980s were because of the rising burden of public spending through parastatal companies, excessive price distortion and inward looking trade policies which are the order of the day in the planned economy.

       Zambia today, according to the World Bank Report (December, 1997), has the most liberal and least nationalised economy in Africa. In 1991, more than 80 percent of the economy measured as a percentage of GDP was state owned. Now, as at 1997, more than 80 percent of the economy is in private hands. The one party state, which ruled Zambia since independence in 1964 from the British, chose the path of nationalisation and centralisation. According to the World Bank report (Dec., 1997), this was ruinous. The government and international organisations such as the World Bank and IMF believe that macroeconomic stability and growth are being achieved after years of inflation and decades of stagnation. According to them, the foundation for higher growth have been laid by liberalising the markets, broad tax and tariff reforms, financial sector reforms and by privatising the state enterprises. The key element in the government’s programme has been the reduction of inflation, which has fallen from 200 percent in 1990 to 20 percent in 1997. This helped the GDP to grow by 6.4 percent in 1996/7 period.

         This dissertation investigates whether there are genuine reasons behind economic liberalisation and related austerity measures, using Zambia as the case study, by describing and comparing its economic performance before and after liberalisation. We then use panel data and cross-section regression analysis on selected African countries to see if the econometric analysis results support the calls for liberalisation measures.  The dissertation is organised as follows Chapter 1 has provided introduction and theoretical background to economic liberalisation. In chapter 2, Zambia’s detailed account of its pre-liberalisation economic policies is presented. Chapter 3 looks at post-liberalisation economic policies of the country. Chapter 4 presents econometric analysis and empirical results, and Chapter 5 concludes the findings.  It should be borne in mind that this study is not about the direct measurement of the effects of liberalisation policies on economic performance. This is due to the problems cited by Kirkpatrick (1995) and the unavailability of many of the data required for undertaking a more detailed study of the country.

                                   CHAPTER 2

THE PRE-LIBERALISATION ECONOMIC POLICIES OF ZAMBIA

          Zambia’s economic history traces back to the colonial era. Zambia a former British colony was known as Northern Rhodesia. The British’s main emphasis was the mining of copper, which they exported as a raw material. Zambia obtained independence on 24 October 1964 with an economy characterised by an industrial enclave based on copper mining using British and USA capital (Hawkins, 1991). During this time there was little or no significant investment apart from the mining sector, and before independence most of the copper profits were expatriated and very little was re-invested. However, in the first years of independence 1964-69 the economy unfolded and great progress was recorded (Turok, 1979). The country had a GDP per capita that was amongst the highest in Africa; according to Turok, 1979, it was just below that of South Africa. Copper prices were high and the industry was profitable, so every indication was towards rapid growth and development. The economy was more of a capitalist than a state led.

2.1-Post-Independence Economic Reforms

          Few years after independence in 1968 and 1969, President Kaunda, with the then ruling United Nation Independence Party (UNIP), initiated reforms. According to him, this was to lead state control of the whole economy to enhance growth and equal distribution of income. It was also aimed at empowering the indigenous people to control and decide the destiny of their country’s economy. This was characterised by developmentalist philosophy (command economy) and recognition of political realities (Turok, 1979).

          The 1968 and 1969 Mulungushi and Matero economic reforms were meant to repossess the foreign economic and business interests, which now became under the state control. The UNIP government also introduced indigenous import substitutions in the industrial sector, this was aimed at reduction in the dependence on foreign manufactured goods. Although a small indigenous and foreign private sector was left, a large public sector was created and maintained by copper revenue and protected and supported by government controlled markets. As a result of the state controlled type of the economy, which emphasised the creation of industrial capacity, commercial agriculture perished and the private sector was crowded out.

          According to Turok(1979), it is commonly accepted that the weaknesses of the economy, which levelled off in 1972 and then began declining, cannot be solely blamed on the falling copper prices, though this might have been one of the contributing factors. This is because, even by 1974 before the collapse of copper prices, foreign exchange had started posing a serious constraint on economic development. A major explanation lies in the economic policies of the day. Despite its inheritance of highly concentrated and buoyant foreign owned mining enclave, the Zambian government was determined to use the state for development. The state sector share of manufacturing output was growing almost every year. Four years after Mulungushi reforms in 1968, in which the government announced its acquisition of major companies it was 53 percent of total manufacturing output and this was concentrated on essential consumer goods required by Zambia. However, despite its size and scope, the state sector which included parastatals had not established an integrated economy with forward and backward linkages, parastatals, though they were import substitution industries (ISI) deeply depended on essential inputs from abroad. The government intervened extensively and imposed a number of restrictions on the private sector, while parastatals’ decisions were made by political leaders and ministers who sat on their boards. The parastatals were to be organised on lines of the country’s philosophy of ‘Humanism’, which was coined by the President as an African socialism. There was intervention in pricing policy, which seemed to be concerned more with social welfare than with pursuing economic development goals.

In 1970, barely two years after the Mulungushi and Matero reforms capital expenditure was only growing at a marginal increase, while consumption expenditure soared. Table 2.1 shows the higher government consumption and lower gross domestic consumption from 1964-90. Due to little emphasis which was made on capital expenditure, in 1973, value added in manufacturing recorded only a marginal increase from 106 Million Kwacha to only 107.5 Million Kwacha in 1976, compared to 480 Million Kwacha in 1965 a year after independence (GRZ Economic Report, 1977). Value added by manufacturing in 1978 real terms was 15 percent lower than 1974. Hence by the mid 1970s, the bells of economic doom were loud enough in politicians’ ears, but pretended to be deaf. They instead nurtured and guarded the inefficient parastatals and the command economy. To make the situation worse, some more parastatals were created and added to the list of inefficiency. After 1970, a substantial part of Zambia’s economy was dominated by parastatal organisation, about 60 percent of the economy in terms of GDP was now in parastatal hands. Most larger companies which had been run and owned by foreigners came under government control through Industrial Development Corporation (INDECO), an agency of a government holding company.

These newly nationalised companies were especially active in such industries as food processing, textiles, auto assembly and mining. Through large- scale capitalisation, using copper revenue, these parastatals became the pillar of the Zambian formal sector. They employed 1/3 of the workforce and maintained their employment levels even during the recession, for political reasons. For instance during recession, the number of employees in private manufacturing fell from 27,370 to 23,390 in 1977, about 14.5 percent reductions, while in the parastatals they remained constant over the same period (Turok, 1979). In these parastatal bodies there were rampant and continuing reports of corruption, inefficiency and mismanagement, but government decided to give it a deaf ear. The Kayope Commission (1976), revealed catastrophic failures in major parastatals and widespread misappropriation of funds, but still the government shelved the report, and continued to give subsidies and protection to these inefficient parastatals.  Real Gross domestic fixed investment declined as there was no significant capital formation. The emphasis was put on government consumption while the economy continued   to decline. This can be seen in the decrease in capital expenditure which fell in 1979 to its lowest since independence in 1964 as Table 2.1 shows. This shows that INDECO, on which the government relied as agency of intervention was performing poorly.

 At independence, Zambia’s economy had poor foundation, domestic production supplied less than one third of the local market for manufactured goods, while total manufacturing goods accounted for only 6 percent, the same setting continued even 10 years after independence, domestic economy was not integrated lacking forward and backward linkages. In trying to enhance domestic integration the government after its 1968 Mulungushi and 1969 Matero economic reforms bought out the private share holders in INDECO which was established in 1965, but reinforced after these reforms, and obtained a larger share of profits from copper by means of higher taxation, which was then used for public investment.

TABLE 2.1: GOVERNMENT CONSUMPTION IN COMPARISON TO GROSS DOMESTIC FIXED INVESTMENT 1964-90 (IN KWACHA MILLION)

   Year              Government consumption                     Gross domestic fixed 

                                                                                             investment

1964

309.2

76.2

1965

383.4

120.4

1966

435.8

175.8

1967

558

225.8

1968

594

264.7

1969

589.4

253.6

1970

717.5

279.8

1971

801.9

264.7

1972

857.3

381.1

1973

900.7

426

1974

1083.1

560

1975

1241.8

510

1976

1337

483

1977

1547.8

437

1978

1789.3

450

1979

2045.6

65.8

1980

2473.5

566

 

Francis Mulenga Muma

Half a century ago nobody could even imagine the pace of growing that China is experiencing right now. Back then it was simply a country with a devastated by war economy that was just starting to recover from the most difficult periods in its history. Even a quarter of the century before when if was in the sunset of Mao period the future outcomes and opportunities for this country were not the best ones, they really looked unpromising. As of the beginning of this century China has the greatest pace of development among other countries of the world. Fifty years ago, no one could even closely estimate how China would grow. This fact sort of pushes back from any certain assumptions about the future China’s development. Anyways, for the past decade China has become one of the world’s leaders in production and economic growth. Since it has a great potential a great number of investors chose China to invest their money in. As the result for the past couple of years China started to experiencing overinvestment that is pretty dangerous and can easily cause a great place for investment to simply burst like a bubble. However, the country continues to show decent results in economic growth.

From the beginning of implementation of economic reforms in China the country has experienced cycles of rushes in economic activity and inflation that were chased by phases of retrenchment. In the 1980’s two cycles were finished by hard landings. It could be easily seen in 1986-90 cycle. It started with loosening the monetary and fiscal policies that resulted troubles for SOEs. In 1988 inflation was as high as 19 percent which actually caused the government to respond with reconsidering policies. They managed to take inflation into control but the administrative measures had bad consequences for allocation of resources. Another cycle of 1991-97 started with a rise in government spendings and loosing up bank’s credit policies. In 1992 China faced the investment boom which was quite similar to the one it is facing right now. The investment boom resulted GDP to grow by 14 percent. Demand forces resulted an increase of inflation. Government’s response was a “16-point” plan to cool the economy that they adopted in 1993. The key points of the plan were aimed to rise the interest rates, make the process of giving the loans to commercial banks by the central bank more strict and complicated, and also limit investment approvals. The tightening was reversed by the end of 1993. This was a base for a highest rate of inflation that occurred in China in 1994. It was as high as 24 percent. The government actually achieved the stabilization of economy in 1996, and the inflation was even less than 10 percent. While a soft landing was achieved, the rapid pace of credit growth in 1992–96 contributed to the weakness of the financial sector today. Most of the non-performing loans in the banking system date from this period.

The speed of economic movement in China greatly increased in 2003, regardless the SARS outbreak. The growth of GDP was at a mark of 10 percent for 2003 and it continued to grow with the same pace in 2004. This was mainly caused by great level of investment. CPI inflation was as high as 4.4 percent in May. Overinvestment in some sectors of the economy caused a great threat of a problem. Responding to that, Chinese government made monetary and administrative policies a bit stricter to prevent the potential overheating of the economy. Money and credit rates have decreased but they still remain about 18 percent per year as of midst 2004. Real GDP growth also owes to an increase in export. Fixed capital formation has increased by 20 percent in real terms (the fastest rate since 1993) achieving 44 percent of GDP. Due to SARS epidemic that was in the second quarter of 2003, consumption growth has decreased comparing to 2002. However, the influence of SARS was only for a short period o time and a country has fully recovered from it later in the year. Export growth was 35 percent in 2003 comparing to 22 percent in 2002. This mainly happened due to China’s acquired of big market shares in major industrialized countries. As well as exports, imports showed a great percentage of growth as the demand grew especially for raw materials. CPI inflation increased to 4.4 percent in May 2004 that resulted increases in prices for groceries. If not take to account the increase in food prices, inflation had a slight positive effect on the economy just as this rate of inflation should have. The increase of food prices was also caused by the decrease of the cultivation area and summer draught that took place a year before.

China’s integration into the world’s economy will create harsh difficulties for a great number of countries. During the last 20 years, China’s trade expanded at double the rate of world trade. Today China is one of the world’s top trading nations, and has 4% of total world trade, comparing to 1% in 1980. Nevertheless, China’s exports and trade surpluses are achieving politically sensitive levels, and more stress on export-led increase may not be sustainable. China itself is still a quite closed market, for imports of goods and even more closed for imports of services. Letting the imports to China’s markets, particularly as a member of WTO, can offer more reasonable development and simplify the international stresses arising from China’s transformation.

The importance of China in external trade, especially in the region’s production chain saved its growing trend. China’s exports and imports achieved 60 percent of GDP in 2003 and these amounts made country fourth largest exporter in the world. The increasing importance of China in the world’s production of manufactured goods and rising domestic demand caused other sectors of China’s economy to grow, and also resulted the raise in prices for a lot of goods. China’s imports that are mainly from Asia also got bigger and China’s trade deficit with the region enlarged but the trade with the U.S. and Europe balances it back. The general trade surplus was $45 billion which is about 3 percent of GDP. China’s international position continues to grow stronger. The current account surplus increased by a half percentage point in 2003 to three and a half percent of GDP. Official reserves grew by $162 billion in 2003. External debt increased to $200 billion in 2003 but it is very modest to exports and GDP. By the end of May 2004 China had a trade deficit of $9 billion as compared to $2 billion of surplus that it had for at the same time of the previous year.

The drive for investment by recent local governments that started by the end of 2002 was stimulated by extensive excess liquidity in China’s banking system. People’s Bank of China was worried about fast credit growth that was easy to see even in the beginning of 2003 but its policies were delayed by SARS epidemic. Significant increase in capital inflows made it more difficult for PBC to implement the monetary policies. However, they managed to do that, in July 2003 PBC increased the reserve requirement by one percent and also announced a planned increase of ½ percent in April 2004. By doing this they tried to reduce the credit growth to banks. To deter the increase of overinvestment in branches of economy that have already faced it, the government made stricter lending standards. To finish up PBC raised short-term relending by 0.6 and rediscount rates by 0.3 percent in March 2004.

If China continues to develop as it is doing right now then by the midst of this century it will have developed actually three transitions. First and at the same time the one of greatest importance is the transition from a planned to a market economy. Second is from agrarian to an industrialized country. Last, but certainly not least, from a centralized to a participatory government.

Only a half century ago, it was very difficult to predict great China’s development that it is facing today. Simply like nobody thought that Japan could reach the level that the country is on right now, nobody even could forecast the pace of China’s development. According to forecasts of some prominent economic scholars, by the midst of this century China’s economy will grow to about $20 trillion and would be about 4/5 of the United States economy. The income per capita in China can grow to about US$12,000 which is equal to the Korean’s before the Asian financial crisis. GDP of only Hong Kong, Macao, and Guangdong would be equal to France’s GDP. Chinese currency the renminbi will become a one of the major world’s currencies along with euro, U.S. dollar and yen. If they keep up with the pace of development, Shanghai could be world’s financial center. With the renminbi becoming fully convertible in the world, Shanghai could rise to the level of London and New York City.

New technology and knowledge will gradually develop to a high level as the country expands it integration. In couple of generations Chinese scholars and scientists could be a fresh source of brilliant ideas and innovations. China sets up a good base for its future generations, giving a good opportunity for a great number of students to go study abroad and get mostly western ideas and worldviews.

China of course has some difficulties that can result very unpleasant consequences not only for the country but for investors as well. Some possible outcomes are probable failure of the banking system, enormous level of unemployment that can be resulted by the reforms of government enterprises, considerable hardships with the level of the environment. To continue the growth rates China needs creative but at the same time practical leaders. Another great change that might effect China’s future development is changes in values of its citizens. As most of Chinese nowadays adopting the lifestyles of Europeans, Americans, and Japanese China will have a totally different society in thirty years or so. People will desire of better level of life, similar to the level of Japanese and Europeans.

Conclusion

A lot of hopes are put into China’s development due to the determination and pragmatism of Chinese leaders. The governing of the country has been positively changing or almost twenty years. China also has a great potential in its younger generation, it is an advantage for those young people to go study abroad and then implement all their knowledge it their home country that still has so many areas that need development. In the best position are those that are in their 20s and 30s. They will be running the country in twenty years when China will be a great industrialized power. It will not be the center of the world, as many like to forecast for China, it will simply be one of the advanced countries.

China now faces one of the most destructive problems that all the developing countries have which is corruption. It is dangerous because it slows down the country’s development and is very difficult to be deterred.

Despite all the difficulties that China faces on its crossroads of the development, it has great pragmatic leaders are capable of taking the country up to the new level. China has a great potential to construct modern economy by the 50’s of this century. It will surely become one of the most important countries in the world. It is obvious even now that China will become the largest trading country in the world. Due to its partners China has a great opportunity to become one of the financial leaders of the world. If China stays on the same track of its development and keeps up with its speed it will surely become a very modern and greatly confident country.

Jeff Stats
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Labour, employment, skills and development

By Nasir Hafeez

The diminishing role of the public sector in employment generation and the limited capacity of the formal private sector to absorb the growing labour force in developing countries have caused a large number of workers to join the informal sector which is comprised of a wide array of activities.

The formal sector felt threatened because of the fact that the informal sector was not obliged to pay taxes or any legal formalities. However, the growing rural population and the limited absorptive capacity of the agriculture and non-farm sectors in rural areas has forced people to leave rural areas to go to bigger cities in search of jobs.

The ill-organized informal sector is unable to come up with effective solutions; rather depopulation has caused a serious decline in local economic vitality in rural areas.

For example, the share of the informal sector in urban employment was estimated at 72 per cent in Indonesia in 1986, 57 per cent in Myanmar in 1983, 79 per cent in Pakistan in 1990 and 62 per cent in Thailand in 1988. Estimates of the informal sector employment in selected large cities in the region also show considerable growth of the sector over time. Apart from limitations of data availability, everybody can feel the tremendous growth of the informal sector in recent years.

Yet another factor that has impacted the employment situation in the country is globalization. The forces of global integration have gained momentum in the 1990s and many businesses felt threatened as a result of trade liberalization and tariff rationalization, which has swept through the developing world.

Businesses started making necessary adjustments in cost of doing business by acquiring most modern technology. Consequently, labour productivity increased in every branch of industry and commerce, which means replacement of labour with technology.

However, even after substantial shrinkage of the labour force, in many organizations, labour productivity remains a fraction of what it is in competing countries. Hence, there has been no increase in employment in organized industry and commerce. This implies that globalization offers little or no scope for employment growth in the organized sector in developing countries like Pakistan but is rather taxing.

As for the local scenario, many people are sceptical of the government claim that unemployment rate in the country has declined from 8.3 per cent in 2002-03 to 6.5 per cent in 2005-06. They view the recent higher growth as “jobless and joyless growth”.

The government’s assertion is right that higher economic growth has given rise to subsequent decline in unemployment. Although the government has come up with novel ideas of employment generation, they have mostly been left halfway.

The official recognition of the presence of a skill gap brought focus on the issue. However, progress on this count is agonizingly slow. The ailing vocational training sector is still eating resources without any utility. Skill development is a very important component of employment generating strategy. Another important component is career planning which is missing even in our public and corporate sector. The government should encourage career counseling and career planning at all levels. This will add to productivity gains in the economy.

Employer-led Skill Development Councils developed by Ministry of Labour Manpower and Overseas Pakistanis, have been established in all provinces to identify needs of geographical area, priorities them on market demand and to facilitate the training of workers through training providers in public and private sectors. These councils are aimed at the diversified training needs of the industrial and commercial sectors. However, this initiative lacks needed commitment and dedication both on the part of employers and the government. It is only doing number’s game by issuing proxy lists of trainees.

Technical and vocational training enhances the employability of the work force. The National Technical Education and Vocational Training Authority (NTEVTA), has been established to develop infrastructure of technical education at district level. However, it is yet to make any impression and is passing through red tape. Provincial Directorates of Manpower and Training are also helping in building skills at all levels under various limitations. Yet the need for skills development in accordance to the needs of modern industry remained tarnished. In this background it is not amazing that Pakistan lags behind many developing countries in reaping the fruits of globalization. In years to come, outsourcing would be the order of the day and presence of pools of skilled manpower will yield enormous benefits for the country. Pakistan needs only large pools of skilled manpower rather than so-called politically motivated rozgar schemes without any benefit to the economy either in the short-run or in the long-run.

It is hard to develop labour intensive technologies to absorb labour but we can enhance productivity in the agriculture sector. More than 50 per cent people in the rural are earn their livelihood from non-farming sectors. So our focus should be on generating non-farm employment opportunities in the rural areas. Provision of micro-finances and access to the market through institutional setup, the government could help grooming of new entrepreneur class. Attracting foreign direct investment (FDI) is also a viable option but for this we need a large pool of skilled labour force which is unfortunately not available at the moment.

The first priority of the government should be to create non-farm employment opportunities in the rural areas to stop migration from rural to urban areas through both imparting skills and promoting SME sector in rural areas. A Business Support Fund was proposed by the government while presenting the Federal Budget 2005-06 to promote SME sector but the idea was either shelved or has not been implemented. This was a good idea and should have seen the day light.

The governments in developing world has made blunder by ignoring agriculture, and the non-formal sector which were instrumental in meeting the growing employment demands of the country. Economists believe that the Input Capital-Output Ratio (ICOR) is much lower in the agriculture than in other sectors of the economy which means that for a given investment agriculture is the best bet for maximizing growth and creating employment opportunities as well. That has reinforced the view that agriculture and cottage industries alone can maximize growth and employment in the developing countries. Pakistan should look at things from this perspective also to create more employment opportunities in the rural areas.

The employment problem is instrumental because many social evils are culmination of this problem. We have acknowledgement from almost all tiers of power that unscrupulous elements use army of unemployed youth for their nefarious designs. It means law and order which confronts our investment climate and is also a product of unemployment. Another important development of recent times is the mushroom growth of private universities where degree is for sale for all aspirants. Today we have many times higher number of graduates and post-graduates than five years ago but number of advertisement that appears in the national press for employment in public and private sector is far below the level of ten years ago. If one goes through the archive of newspapers ten years ago and compare it with a holiday newspaper of today, it will emerge that the number of employment opportunities have shrank drastically.

Pakistan in the current economic situation needs a comprehensive employment strategy which is in full conformity with most modern growing economy. The official data itself admits the fact that unemployment has risen considerably since second half of the 1990s. We could not follow any poverty alleviation strategy without a credible employment strategy. It is a positive aspect that there is a wide recognition even in the official circles regarding the intricacies of unemployment menace and its likely impact on socio-economic conditions of the country. The government should devise policies to target the sectors which are labour intensive but should not undermine the importance of most modern sectors of the economy.

nasir hafeez

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The film includes highlights from the recent “Innovative Cities Global Dialogue,” which brought together mayors and managers from cities including Ahmedabad, India; Dar es Salaam, Tanzania; and Seattle, Washington.

The dialogue is part of a series that provides a forum for sharing innovations and lessons in urban governance. The series is a collaborative effort of the World Bank Institute and the World Bank’s Urban Development and Local Government unit.

Duration : 0:10:1

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