Syed Bakhtiyar Kazmi
“After all if you prevent your enemy from drawing his rations, his remedy is simple: he will prevent you from drawing yours”, extract from chapter 4, “The Live-and-Let-Live System in the World War I”, from the book “The Evolution of Cooperation” by Robert Axelford. The chapter illustrates with the help of examples from World War I, how mortal enemies during the trench wars developed a system to cooperate even when their superiors and their country believed that they were at war; the essence of such cooperation basically was you scratch my back I scratch yours.
This Tit for Tat principle perhaps perfectly also explains the recent spate of negotiations amongst our political elite, whilst they played, who will be Prime Minister/Chief Minister/Speaker. Hopefully, by the time this article is published, that particular mystery has been solved and the winner might just have started focusing on the more critical matter of getting the economy moving in the right direction, and quickly.
For the moment to digress a bit more, the four suggestions for iterated cooperation in Axelford’s book also satisfactorily clarify why political parties keep shuffling to and fro between other parties, over and again, without any conscience and repentance. And to be honest, our leaders might be more successful in their political relationships if they listen to the author and: don’t be envious; don’t be the first to defect; reciprocate both cooperation and defection; and don’t be too clever.
Nonetheless, moving forward, much as everyone might like to believe, very few, almost next to nothing, situations in real life are win-win; where cooperating with the counterparty is not really rocket science and in fact comes naturally. Unfortunately, most calls in the political sphere, and all decisions, action or inaction, relating to the economy are zero sum; meaning somebody gains and somebody loses. And, Yes, I am absolutely clear that, based on my knowledge to date, all economic decisions are zero-sum; and hence leave little choice for the counterparties other than that of cooperating with complete strangers, even antagonists, to arrive at an acceptable compromise. Trade, much as western economic thought might want to convince you otherwise, is one such game. And here is where the four suggestions from the previous paragraph can become useful.
Without delving into the why, when and how of the current crisis, which factors have already been debated endlessly over the last few months, it can safely be asserted that there is only one clear path, in the short term, to reverse the recession, and that is to reduce Pakistan’s trade deficit. Borrowing from IMF or China or Saudi Arabia will only be stop gap arrangements and we will be back to square one within the year; increasing exports will take a long time, even if we manage to do that at all with the current tax policies and practices, and our apparent attempts to make doing business in Pakistan more and more difficult; baring very few, privatizing all the rest of the State Owned Enterprises will not generate enough dollars to balance the foreign currency shortfall of the current year even, not considering the added future costs of guaranteed returns for these privatised units and the golden handshakes.
So how do you reduce the trade deficit? Well, unfortunately, whether you like it or not, if you are dealing with a mercantilist, the Trump option is perhaps “The” option; impose tariffs. And let there be no doubt, all our trading partners, at least, appear to be mercantilists; why else would we have negative trade balances with almost everyone we trade with?
For some strange, inexplicable reason, we seem to have latched on to the belief that total trade is a good thing; no it isn’t. Lopsided trade where one trading partners is significantly the net exporter is fatalistic for the net importer; again, for emphasis, which is Pakistan’s situation in almost all its trade relationships. Makes you wonder why we trade in the first place; because if we didn’t, we would not have a trade deficit and workers remittance could pay for essential imports!
If there was any doubt before, Trump’s trade war with China has proven one thing, trade is a zero sum game and the only principal for cooperation in trade, which is essential, is Tit for Tat. Contrarily, economic theories, based on the supply and demand curves, which postulate that trade, will balance out in the long term are mainly bullshit. For one, all economic theories exist in a supernatural plane and have nothing to do with reality; secondly when you look at trade between China and America, you cannot help snicker about “long term”. Pakistan really does not have that kind of time! And thanks to Trump, the WTO is fast becoming toothless.
Going forward we need to seriously understand that gross trade in not a key indicator; net trade is what matters for every trading relationship. For the record I count workers’ remittances as part of net trade with a country. And in the short term, if we are going to address our trade deficit, we will need to brush up our skills relating to the principle of Tit for Tat.
(The writer is a chartered accountant based in Islamabad. Email: [email protected])
