I think the prevalent questions in the minds of Pakistani society regarding CPEC are that what will be the consequences of Chinese entering the domestic market? Either they will occupy the whole market by monopolising it or they will compete fairly in the market or they will destroy our domestic manufacturing industry by pumping lower priced China-made products into the market?
In my opinion basic Economics can be a great help to cater all these questions and following points seem important in this regard. Is import good for our society or bad?
The answer to this question depends on our understanding of what does it mean for a product or service to be good or bad for a society? What are the needed attributes in a commercial product being sold in a market? Either it is the standard of living of the Pakistani citizens which matter or the so-called national prestige which becomes high when we see the products mentioning “made in Pakistan”?
If it is the standard of living which is valued then decrease in the price level escalates the standard of living of the people because it increases our purchasing power. For example, I have Rs20 and I need to buy bread for my daily meal. The price of one slice of bread is Rs5, so I will get four slices by paying Rs20. Supposedly, the price of one slice decreases to Rs4, what will happen then? In fact, I will be able to buy five slices. Now we again suppose that the price of a bread jumps to Rs7. Now, my purchasing power will be decreased and I will get only three slices of bread. So, the benefit of society is in low priced items. The fewer consumers will spend, the more they will save which result in more investment. If a consumer wants to spend all her disposable income, then she will buy more items (less in basic needs and more in luxuries).
Is foreign investment good or bad?
Foreign investment is always good for an economy. It increases the know-how in the society by inserting advanced knowledge and technology. Important thing is that workers learn new things from their repetition of tasks and from the innovative practices introduced by entrepreneurs or foreign firms. Similarly, when a foreign firm introduces new ideas and practices in the society, their employees learn from them, it increases the rate of entrepreneurship because some employees leave their job and start their own business which they have learned from their experiences.
Ricardo Hausman writes this in the following words:
“The key to [Progress) is tacit knowledge. To make stuff, you need to know how to make it, and this knowledge is, to a large extent, latent – not available in books, but stored in the brains of those who need to use it……new firms are formed mainly by workers who leave other successful firms, taking the relevant tacit knowledge with them. The reality is that people learn more by performing and repeating tasks, better than mere reading books in Academics.”
Remember that local businessman has more competitive advantage than a foreign one because he knows more about the local environment. Bangladesh’s textile industry is a beautiful case study in this regard which shows that foreign investment increases the comparative advantage of the local firms. It increases total production of the society. It creates more jobs and opens more opportunities for entrepreneurs which definitely increase the standard of living of the people.
More investments mean the pie of the economy enlarges. The economy is not a fixed pie. The new entries in the market do not mean that new entrants will disentitle local firms from their fair shares in the market. When Chinese businesses will enter the market, they will definitely search the opportunities in which they have more competitive advantage. While local businesses will search the opportunity in which they can contribute better than their Chinese competitors. Be confident that our business community has the potential to do it and foreign competition will further enhance it.
The important thing to be more concerned about CPEC is not the foreign competition but the term
(The writer is an economist in a public policy think tank PRIME based in Islamabad).
