Mediobanca was established by Mattioli and Cuccia in 1946, immediately as a joint stock company, and its full name was Mediobanca Banca di Credito Finanziario. It operated from the beginning having, as founding partners, Banca Commerciale, of which Raffaele Mattioli was President at the time, and Credito Italiano.
Enrico Cuccia was an unsurpassed analyser of balance sheets and accounts – in fact, one of his best known witty remarks was the one on Berlusconi’s Fininvest: “Indeed, how much is a TV antenna really worth?” He was General Manager of Mediobanca from its foundation until 1982, when the dual crisis of public and private companies and of the banks that supported them could already be perceived.
What was the logic behind the establishment of this particular financial structure?
Simply to guarantee and meet – in the medium and sometimes long and very long term – the economic needs of the manufacturing companies, which had been devastated by World War II.
After the banking reform of 1936, of which Mattioli and Cuccia’s father- in-law, Alberto Beneduce, had designed the general guidelines – later imitated in many financial laws following the 1929 crisis, also in the USA- there were many banks that had chosen to operate in the traditional market of savings collection and then in the short-term credit market.
There was, therefore, the lack of a specialized financial structure which worked only for companies, funded them in the medium-long term and finally led them – where possible – to be listed on the Stock Exchange.
At the time, legislation clearly separated credit and savings banks from those that operated for companies and led them to the listed on the Stock Exchange.
It was the most rational way to separate companies from banks, so as to avoid companies’ crisis leading to the death of public savings.
Enrico Cuccia, who certainly did not like the Italian ruling class, except for his friend and old banker Ugo La Malfa, kept Mediobanca clearly out of the many pressures coming from the whole political world.
However, particularly from 1982 onwards, Cuccia had to face very strong tension with the Institute for Industrial Reconstruction (IRI) – at the time led by Romano Prodi – that forced the three banks of national interest, namely Banca Commerciale, Banca di Roma and Credito Italiano – which were all within the IRI sphere – not to renew Enrico Cuccia’s term of office.
Nevertheless, there was another factor that led to the inevitable transformation of Mediobanca.
The 1993 Banking Law, in fact, abolished the obligation for banks to be specialised – hence the separation between savings banks and financial credit institutions for medium-long term companies – and a real crisis occurred between the banks participating in the shareholding structure of Mediobanca and the old medium-long term credit institution.
The central idea underlying the 1936 Law, however, was not entirely wrong, even though it was no longer comprehensible in the context of financial globalization.
Either the banks are separated from their clients or the likelihood of a parallel collapse increases disproportionately.
Moreover, the Consolidated Law of the then Prime Minister Giuliano Amato, i.e. the 1993 reform law, put an end to the structural division between banks and anticipated by six years the end of the U.S. Glass- Steagall Act which, in essence, resumed the principles of separation between banks and companies enshrined in the Fascist Banking Law of 1936.
Currently, in Italy alone, 200 billion euros are needed within the next 18 months in view of resuming the path of development and even of mere productive stability, apart from the E.U. governments’ initiatives – albeit necessary – to face the impact of the Covid-19 pandemic.
This is the extent of a complete post-war reconstruction. With a view to solving these specific problems, the States have always resorted to forms of extraordinary debt – as was the case with the traditional War Bonds – which are bearer financial instruments with a lower average income than the standard ones, but have a long duration ranging between 7 and 15 years.
Nowadays, however, the securities market is very complex and structured, but we could also envisage a monthly issue of 15-20 year Italy Bonds – a market that is already very large and currently appreciated by savers – with a 1.5-2% constant coupon, the same as the current BTPs, obviously exempt from all present and future taxes, but with a tax credit – if anything – for corporate or retail customers equal to or even higher than the coupon (for example a 3-4% tax credit).
The SMEs’ crisis, however, has been worsened by the COVID-19 pandemic and the necessary lockdown of many companies and craft businesses.
Just think that the Italian small and medium-sized enterprises account for over 90% of the total number of companies – and I am referring to those with less than 20 employees – but receive only 13% of bank loans.
In 2019 there was the biggest drop in loans to SMEs as from 2015.
If we look at the Bank of Italy data processed in early 2020, it turns out that credit to riskier SMEs – calculated on the basis of CERVED criteria – has fallen by 8% for micro-enterprises, but the rating and the amount of bank loans available also for the “safest” SMEs have decreased.
In the meantime, bank loans have increased throughout the Eurozone by 3.7% in continental Europe – hence also in Italy, although only by 3% – with a rate of five percentage points lower in Italy than the trend currently recorded in the rest of the European Union.
A credit crunch for the Italian smaller companies, which makes them very weak, often unable of achieving good globalization, and also inevitably slow in renewing their cutting-edge technologies, but finally prone to the cycle of their short term and loan capital.
One of the reasons for this structural weakness of the Italian SMEs’ finance is, on the one hand, the fact that they have no access to the debt market, with the issuing of bonds or mini-bonds, but, on the other hand, the real European regulatory jungle, which is aimed at reaching one single goal, i.e. to severely lower the credit risk for banks.
All E.U. regulations in the banking sector tend not to grant credit at all to the weaker and smaller SMEs and to consider the usual non-performing loans of companies only as an immediate prelude to bankruptcy.
If we had behaved like this during the huge economic boom of the 1960s, we would still have the rubble of World War II in our major cities.
If a bank follows the completely risk-averse behaviour of a traditional insurance company, then it might as well change business.
Furthermore, the new E.U. regulations in the offing, regarding the regular provision of bank loans to companies and households, are even stricter and more stringent than the international ones – hence money is lent only to those who basically do not need it.
Not to mention the regulations known as Basel II, i.e. the International Convergence of Capital Measurements and Capital Standards developed by the “Basel Committee” established within the Bank for International Settlements (BIS), located in the big tower overlooking the centre of the Swiss city.
Ironically, the BIS was created in 1930 to manage the implementation of the Young Plan, the ingenious and very modern financial operation that cut the war debt of defeated Germany by 20%, dividing it into instalments to be paid every 58 years, with the last one paid in 1988, one year before German reunification.
Unlike this brilliant idea of debt repayment, which was developed in the 1920s, the Basel II regulations, which came into force in 2007, have only one obsessive goal, i.e. to make the banking system stable and radically reduce the companies’ credit risk vis-à-vis the system itself.
In some years after the Basel II regulations, the reduction in loans to companies, and in this case also to large companies, was even 3.5% on average.
It should also be recalled that the Basel III regulations have been in action since January 2013, becoming fully operational in January 2019.
According to the latest data from the Bank of Italy, the decrease in loans to SMEs ranges between 1.9 and 2%.
The estimate is made on the basis of already largely insufficient data.
Furthermore, the weight of bank loans on Italian corporate balance sheets, both of SMEs and large companies is, on average, over 60% of total debt.
In Germany, the United Kingdom and France the bank debt burden on total corporate debt is around 50%.
Hence, if the companies themselves do not take risks on their own and tend to be not only risk averse but also focused on unproductive income, also the banks tend to protect themselves more than usual and even more than it happens with the Basel III regulations.
Hence companies’ low capitalization, but also naive, excessive and bureaucratic formalism of banks, which often forget that their business is to sell money and, when giving information, put together national, European and international standards that, in addition to Basel III regulations, also include the IRFS 9, created in 2014 to improve and standardize financial information.
Finally, the Italian SMEs pay much more for loans than their competitors because the risk analysis procedure is much more formalized, legalized, bureaucratic and very strict, while the German and French banks serve their business clients in a much more flexible way.
The guarantees are almost always the applicant’s personal ones. This is not even provided for in the various Basel regulations. The rates of access to credit in other European countries are 2-3%, with Italy that, for a low rating company, even goes so far as to charge a 7-8% yearly interest rate.
It should be recalled that currently 92% of Italian companies are micro- enterprises and SMEs, with five and a half million VAT numbers. The average turnover of all these micro-enterprises and SMEs does not exceed two million euros per year.
In France, Germany and Great Britain, the number of entrepreneurs is half of the Italian ones. In France, however, 75% of companies – which are not SMEs, but medium-sized and large enterprises – are concentrated around Paris, while in Germany – despite the E.U. regulations do not accept it – the banking network is still in the hands of the Länder and of KfW – the equivalent of the Italian investment bank “Cassa Depositi e Prestiti” – which supports all banks in crisis, again in defiance of E.U. regulations.
The bank rating is primarily public, i.e. that of the companies specialised in the sector – which, in Italy, are controlled by CONSOB – and the SMEs often cannot afford to pay large sums of money to the rating companies and also wait for a long time before the rating is made official.
The non-official rating that, instead, Italian banks often adopt is – so to speak – “private”. It is above all the software that the Bank of Italy makes available to banks to evaluate the companies’ balance sheets and accounts, always based on the principle explained by a great and well-known Italian entrepreneur: “the first balance sheet is for everyone and is submitted to the banks; the second one is seen only by company managers and is not made public; the third is very confidential and is seen only by the CEO and the main shareholder, who never speak about it”.
The Bank of Italy’ software studies companies according to a geo-sectoral criterion and following the past trends only of the sector to which they belong.
If the rating turns out to be negative – as is often the case in a phase of crisis and in “mature” sectors, where many SMEs still operate – the bank offers them an 8% interest rate, which is completely off-market, or – as often happens – does not grant them any loan, thus making them go bankrupt.
Therefore, also the SMEs must be equipped with a “language” suitable for banking procedures, good accounting tools, such as business plans and management budgets, as well as fintech tools, such as business analysis and professional creditworthiness assessments.
At least initially, this could break the wall of incommunicability that separates the business banking clients from the banks’ way of thinking or not thinking at all.
What could be a possible alternative? The private capital market. In Italy there are 1,375 billion euros of private savings which could be invested productively.
In France and Great Britain, the investment in start-ups is on average, year after year, 2.5 billion euros. In Italy it is worth 160 million euros.
The Prime Minister’s Decree known as “Curaitalia” has established the Guarantee Fund for SMEs, which also provides for long-term operations (over 36 months).
However, will the Guarantee Funds and the Credit Consortia be enough to ensure credit flows to SMEs? I do not think so.
According to the latest data, the Credit Consortia have a very low risk profile. They are currently 34 and are subject to the supervision of the Bank of Italy.
In 2019 they issued guarantees to the tune of 7.3 billion euros. Hence, once again, they are not sufficient.
Therefore, we officially propose the establishment of a Medium-Long
Term Credit Bank dedicated to small and medium-sized enterprises.
You can have access to it with the same criteria as an ordinary industrial credit bank, which can lead the most promising SMEs to be listed on the
Stock Exchange or can possibly organize an effective market for the mini- bonds issued by any small and medium-sized enterprise.
Ordinary credit banks or, even better, industrial credit banks and companies can be shareholders of our Mediobanca for SMEs. It can also have its own research unit developing analysis and risk profiles for its clients. It can issue debt and credit securities on the market and can also take part in merger, acquisition and expansion operations in foreign markets.
Hence a Mediobanca model specifically adapted to suit Italian SMEs.
Future Economy: Micro-Manufacturing & Micro-Exports
Recovery now forces economies to emerge as dynamic entrepreneurial landscapes; today, the massively displaced working citizenry of the world may not return to old jobs, but with little help slowly shifting towards entrepreneurial startups as new frontiers to create economic independence and increased local grassroots prosperity. Today, the latest global influences of trendy entrepreneurialism optimizing available options like high quality “Micro-Manufacturing” and high value added “Micro-Exporting” now common discussions on the main streets of the world. Although, this is not an easy task, but still very doable for so many and promises local uplifts. Smart nations are awakening to such bold notions and entrepreneurial driven agencies mandated to foster local economies are using virtual events to rise up with global rhythm and rich contents.
Therefore, the blueprints and new models of today on upskilling SME exporters and reskilling for better-designed manufacturing, nation-by-nation and city-by-city are mobilization ready ideas to optimize abandoned talents. Nevertheless, such upskilling and reskilling of masses demands already skilled leadership of most of the gatekeepers of local economic development venues.
Furthermore, global competitiveness has raised the bar and now only high quality value added goods and services traded for the wide-open world. The conveyer belts of technology and zoomerang culture of virtual connectivity flourishes platform economies. Missing are the advanced skills, complex problem solving and most importantly national mobilization of entrepreneurialism on digital platforms of upskilling to foster innovative excellence and exportability. SME and Startups must advance on global thinking, optimize access, and maximize image and quality superiority to reach the farthest markets with deeper pockets.
This is not an easy task. Methodical progressions needed. Study how Pentiana Project tabled advanced thinking on such trends during the last decade. Export Promotion Agencies, Chambers of Commerce, Trade Associations and most SME and midsize economic developments bodies all called for bold and open debates. For fast track results, follow the trail of silence and help thought leadership to engage in bold and open debates and give them guidance to overcome their fears of transformation.
Small enterprises must now open to new world of 200 nations and 10,000 cites
Micro-Exporters: Upskilling Startups to think like global exporters; the pandemic recoveries across the world coping with a billion displaced all have now critical needs of both upskilling and reskilling. Upskilling is the process of learning new skills to achieve new thinking. Reskilling is the process of learning new skills to achieve new performances. What is exporting, how to start at micro-levels and how to expand globally with technology are new challenges and promising options.
Micro-Manufacturers: Reskilling Startups to think like smart manufacturers; the real goals for startups to enlarge and base thinking on reskilling for “real value creation” becomes mandatory. How to start by thinking better, design quality with creative global age strategies and advance? Advanced Manufacturing Clusters in various nations will greatly help, but understanding of global-age expansion of value offerings with fine production is a new art and commercialization to 200 nations a new science.
The future of economies, The arrival of Virtual leadership and Zoomerang culture is a gift from pandemic recovery, although at infancy, the sector will not only grow but also alter global commerce for good. Once successful the traditional advertising and marketing models dying, direct access live interaction is now far superior to mass-mailing and social media screaming. The zoomerang impact of global thought leadership now forcing institutions to become armchair Keynote speakers and Panelists to deliberate wisdom from the comfort of their homes round the clock events has arrived.
The Difficult Questions: Nation-by-nation,when 50% of frontline teams need ‘upskilling’ often 50% of the back-up teams need ‘reskilling’ so how do you open discussions leading to workable and productive programs? Each stage challenges competency levels and each stage offers options to up-skill for better performances. Talent gaps need fast track closing and global-age skills need widening. New flat hierarchical models provide wide-open career paths and higher performance rewards in post pandemic recovery phases. When executed properly such exercises match new skills and talents with the right targeted challenges of the business models and market conditions. The ultimate objective of “extreme value creation” in any enterprise must eliminate the practices of ‘extreme value manipulations”.
First Three Steps: In order to mobilize a startups revolution along with a small medium business economy, start by identifying 1000 to 10,000 high enterprises anxious to grow for national global markets. To quadruple exportability, select a small leadership team, from local trade Associations, Economic Development Bodies and Chambers of Commerce responsive to calls of upskilling and reskilling as critical steps. Suggest roundtable discussions to reach local, national or global audiences to spread the message. Explore such superior level debates to mobilize local businesses. Most importantly, such mobilizations are not new funding dependent they are deployment hungry and execution starved. Futurism is workless, uplifting mental powers towards better value-added production of goods and services will save economies. Optimize zoomerang culture and use virtual events to raise the bar on thought leadership. The world is moving fast and best to join the pace.
The rest is easy
Portugal’s crisis management: “Economic patriotism” should not be tied to ideological beliefs
The economic policy of the Hungarian government has provoked fierce criticism in the last decade, as it deviated from the neoliberal mainstream and followed a patriotic path, putting Hungarian interests in the foreground. While many link this style of political economy to the conservative position of the Orbán-government, in Portugal, a left-wing administration followed a similarly patriotic line to overcome the symptoms of the Eurozone crisis, showcasing that economic patriotism is not tied to ideologies, but is merely responsible thinking.
The catastrophic path of austerity
According to the theory of austerity, the government by implying austerity measures, “puts its finances in order”, hence the state does not become indebted and consequently investors’ confidence in the economy returns. However, if we think about what we really mean by austerity (tax increases, wage cuts, budget constraints, etc.), even the theory itself sounds counterproductive. Not surprisingly, this theoretical counter productivity has been demonstrated in practice in several cases.
One of the best examples is the case of Portugal, which along with Greece and other Southern-European nations was probably hit the hardest by the financial crunch. While all of the “GIPS” (Greece, Italy, Portugal, Spain) entered a steer recession, Portugal somehow managed to overcome it more successfully than its regional peers, but before that, it felt the bitter taste of neoliberal structural reforms.
Although the case of Portugal was not as traumatic as the ones of its Southern-European counterparts, in order to keep its debt under control, stabilize its banks and introduce “growth-friendly” reforms, Lisbon negotiated a € 78 billion bailout package in 2011, in exchange for a rigid austerity program aimed at the 2011-2014 period, orchestrated by the European Commission (EC), the International Monetary Fund (IMF) and the European Central Bank (ECB), the infamous “Troika”.
The neoliberal recipe did not differ much from that of Greece, and the then ruling Passos Coelho conservative government faithfully followed the structural reforms demanded by the “group of three”: working hours increased, number of bank holidays fell, holiday bonuses were abolished, wages and pensions have also been cut by 20 per cent, while public spending on health and education was drastically cut, and due to escalating privatizations, public assets have also been sold off quickly.
Despite the fact that by 2014 the country’s budget deficit as a share of the GDP had fallen to 4.5 per cent from the staggering11.2 per cent recorded in 2011 and the current account showed a surplus – as domestic demand fell apart, forcing companies to export –Portugal was still on the brink of social and economic collapse.
Public debt soared to more than 130 per cent of the GDP, tens of thousands of businesses went bankrupt, unemployment rose to 17 per cent and skyrocketed to 40 per cent amongst the youth. As a result, many talented Portuguese fled abroad, with an estimated 150,000 nationals emigrating in a single year.
The post-2015 turnaround
Things only began to change in 2015, when the Portuguese elected Anotnio Costa as Prime Minister, who was the mayor of Lisbon under the years of the crunch. Shortly after his election, Merkel encouraged the center-left politician to follow the neoliberal prescription proposed by the “Troika”, while her Finance Minister, Wolfgang Schäuble, underlined that Portugal would make a “serious mistake” if it decided not to follow the neoliberal doctrine and would eventually be forced to negotiate another rescue package.
Not being intimidated by such “threats”, Costa ditched austerity without hesitation, restored working hours, cut taxes and raised the minimum wage by 20 percent in the course of just two years. Obviously, his unpopular position made him crush with Brussels, as his government allowed the budget deficit to reach 4.4 per cent, compared to the agreed 2.7 per cent target. However, in May 2016, the Commission granted Costa another year to comply, and since then Portugal has consistently exceeded its deficit targets.
Tourism also largely assisted the post-15 recovery, to which the government placed great emphasis, so that in 2017 the number of visitors rose to a record high, reaching 12.7 million. Concurrently, Portugal has significantly improved the international reputation of its businesses and products, which contributed to increasing the country’s export revenues and attracting foreign investment.
Furthermore, Costa has raised social spending and at the same time planned to invest state revenues in transport, environmental infrastructure and energy, initiatives that could be extremely beneficial, as they would not only significantly improve the country’s sustainability, but also boost job creation, something that yet again indicates how important public investment is to an economy.
Additionally, Portugal has become an undervalued tech-hub, with plenty of start-ups offering good employment opportunities in addition to fostering innovation. The government with several initiatives, seeks to create a business-friendly ecosystem for them, under which they can thrive and boost the economy to the largest extent. It is thus not surprising, that Portugal has been the fastest growing country in Europe when it comes to the number of programmers.
Finally, one of the Costa’s top priorities, has been to lure back emigrated Portuguese who moved abroad during the crisis. To this end, tax cuts are offered to Portuguese citizens who choose to return home.
In a sum, since Costa stepped into office, Portugal has undergone a rapid recovery: economic growth has returned, unemployment has fallen radically, the public debt was also set on a downgrading path, while the budget remained well-balanced despite the increased spending, with Costa himself explaining that “sound public accounts are compatible with social cohesion”. Even Schäuble acknowledged Portugal’scrisis management, by actually calling Mário Centeno – the finance minister of the Costa government – the “Cristiano Ronaldo” of finance ministers.
Of course, not everything is bright and wonderful, as the country has emerged from a large crisis, the effects of which cannot be eliminated in just a few years. Public debt is still amongst the highest in the EU and several other challenges lie ahead for the South-European nation, especially by taking into consideration that the world economy just entered yet another crisis.
Furthermore, according to many, it was not Costa who led the recovery, but Portugal passively benefited from a strong recovery in Europe, falling oil prices, an explosion in tourism and a sharp drop in debt repayment costs. Indeed, it has to be taken into account that Portugal entered the recession in a relatively better position than many of its spatial counterparts and the relatively high quality of its domestic institutional infrastructure and policy-adaptation capacity aided the previous government to efficiently complete the memorandum of understanding (MoU) as early as 2015. Nevertheless, this is not a sufficient reason to discredit the post-2015 government’s efforts and justify the harsh austerity measures implied by the Troika. Taking into account that austerity never really provided decent results, it becomes evident that Costa’s policies were quite effective.
Economic patriotism should not be connected to ideologies
While in the case of Hungary and Poland “economic patriotism” has been fiercely criticized despite its prosperous results, this spite tendency has been an outcome of strong politicization in economic policy analysis. Even though the political context is verily important, it is also crucial to interpret economic policy independently, in order to take away valuable lessons and identify mistakes. Political bias is not a fortunate thing, as it is absolute and nullifies debate and hence development.
The case of Portugal is a perfect example, as it provides sound evidence, that a patriotic economic policy can be exercised by governments from all across the political spectrum and that the notion should not be connected to political and ideological beliefs. The left-wing Costa-government with its policy-making demonstrated that a solution always exists and that requires a brave, strong and decisive government, that pursues its own plan in the interests of the ‘patrie’, regardless of its positioning.
The Question Of Prosperity
Galloping economic woes, prejudice, injustice, poverty, low literacy rate, gender disparity and women rights, deteriorating health system, corruption, nepotism, terrorism, political instability, insecure property rights, looming energy crisis and various other similar hindrances constrain any state or country to be retrograded. Here questions arise that how do these obstacles take place? How do they affect the prosperity of any country? No history, geography, or culture spawns them. Simply the answer is institutions that a country possesses.
Institutions ramify into two types: inclusive and extractive. Inclusive political institutions make power broadly distributed in country or state and constrain its arbitrary exercise. Such political institutions also make it harder for others to usurp rights and undermine the cornerstone of inclusive institutions, which create inclusive economic institutions that feature secure property rights, an unbiased system of law, and a provision of public services that provide a level playing field in which people can exchange and contract; it also permits the entry of new businesses and allow people to choose their career. On the contrary, extractive political institutions accord clout in hands of few narrow elite and they have few constrains to exert their clout and engineer extractive economic institutions that can specifically benefit few people of the ruling elite or few people in the country.
Inclusive institutions are proportional to the prosperity and social and economic development. Multifarious countries in the world are great examples of this. Taking North and South Korea; both countries garnered their sovereignty in same year 1945, but they adopted different ways to govern the countries. North Korea under the stewardship of Kim Il-sung established dictatorship by 1947, and rolled out a rigid form of centrally planned economy as part of the so-called Juche system; private property was outlawed, markets were banned, and freedoms were curtailed not only in marketplace but also in every sphere of North Korea’s lives- besides those who used to be part of the very small ruling elite around Kim Il-sung and later his son and his successor Kim Jong-Il. Contrariwise, South Korea was led and its preliminary politico-economic institutions were orchestrated by the Harvard and Princeton-educated. Staunchly anticommunist Rhee and his successor General Park Chung-Hee secured their places in history as authoritarian presidents, but both governed a market economy where private property was recognised. After 1961, Park effectively taken measures that caused the state behind rapid economic growth; he established inclusive institutions which encouraged investment and trade. South Korean politicians prioritised to invest in most crucial segment of advancement that is education. South Korean companies were quick to take advantage of educated population; the policies encouraged investment and industrialisation, exports and the transfer of technology. South Korea quickly became a “Miracle Economy” and one of the most rapidly growing nations of the world. Just in fifty years there was conspicuous distinction between both countries not because of their culture, geography, or history but only due to institutions both countries had adopted.
Moreover, another model to gauge role of institutions in prosperity is comparison of Nogales of US and Mexico. US Nogales earn handsome annual income; they are highly educated; they possess up to the mark health system with high life expectancy by global standards; they are facilitated with better infrastructure, low crime rate, privilege to vote and safety of life. By contrast, the Mexican Nogales earn one-third of annual income of US Nogales; they have low literacy rate, high rate of infant mortality; they have roads in bad condition, law and order in worse condition, high crime rate and corruption. Here also the institutions formed by the Nogales of both countries are main reason for the differences in economic prosperity on the two sides of the border.
Similarly, Pakistan tackles with issues of institutions. Mostly, pro-colonial countries are predominantly inheritors of unco extractive politico-economic institutions, and colonialism is perhaps germane to Pakistan’s tailoring of institutions. Regretfully, Pakistan is inherited with colossally extractive institutions at birth. The new elite, comprising civilian-military complex and handful aristocrats, has managed to prolong colonial-era institutional legacy, which has led Pakistan to political instability, consequently, political instability begot inadequacy of incentives which are proportional to retro gradation of the country.
Additionally, a recent research of Economic Freedom of the World (WEF) by Fraser Institute depicts that the countries with inclusive institutions and most economic freedom are more developed and prosperous than the least economic free countries; countries were divided into four groups. Comparing most free quartile and least free quartile of the countries, the research portrayed that most free quartile earns even nine times more than least free quartile; most free quartile has two times more political and civil rights than least free quartile; most free quartile owes three times less gender disparity than least free quartile; life expectancy tops at 79. 40 years in most free quartile, whereas number stands at 65.20 in least free quartile. To conclude this, the economic freedom is sine quo non for any country to be prosperous, and economic freedom comes from inclusive institutions. Unfortunately, Pakistan has managed to get place in least free quartile.
In a nutshell, the institutions play pivotal role in prosperity and advancement, and are game changer for any country. Thereby, our current government should focus on institutions rather than other issues, so that Pakistan can shine among the world’s better economies. For accomplishing this highly necessary task government should take conducive measures right now.
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