Wednesday, May 24, 2006

Refusing to grow up

The recent glut of imported cars in Pakistan has been a significant factor in the country's worsening current account and the local automotive industry is - predictably - up in arms. But there are two sides to every story. The local automotive sector was cosseted for over a decade in a classic example of 'infant industry' economic reasoning: protect local industry from foreign competition in its nascent phase so as to allow them to reach economies of scale, expertise, competitiveness, etc. later on. The national economy is the winner as both consumers and producers are better off in the long-term. Impeccable logic.

Except it doesn't work. Weaning local industry off its incentives and lack of competition is notoriously difficult. The automotive lobby in Pakistan has grown to be particularly formidable, and moves are afoot to restore their ascendancy. As this report from Dawn suggests, the lobby and its allies in parliament are conspiring to continue to defraud the consumer. According to the report,the Indus Motor Company, which began production thirteen years ago, has stated that a 'long-term policy and restriction on imports of used car is necessary'. Obviously a decade isn't enough to get their house in order.

Whether the industry is simply incapable of ever achieving competitiveness is a technical question, but anyone who has tried to buy a car in Pakistan can attest to another truth: motor companies, car dealerships and banks have conspired to keep the sticker price of a car out of reach. Through a combination of that peculiar creature known as 'on' money and long waiting lists, anyone who wants to buy a car outright is probably better off obtaining car financing from a bank.

Given the collusion between the industry and our legislators, effective policing of the industry appears out of the question. In the meantime, for once the government's mantra of neo-liberalism can come to the rescue of consumers. For the sake of car users across the country, let's hope efficiency trumps nepotism.

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