Ease of Doing Business Report 2018 & Business Law Education in Pakistan

Business law education is part of the curriculum of the business and management schools in Pakistan; in terms of percentage; however, the business law education may be a fraction of the total caseload of a degree in these schools. In like manner, law and information technology do not get much excitement from the information technology institutions. In the coming years, this might have to change.

Law and society are inextricably interlinked. The good practices in business and management, as well as the advances in technology can only be sustainably integrated into the society by establishing educational linkages with legal studies. The World Bank’s recent report “Doing Business 2019: Training for Reform” (hereinafter Report) may evince this point and may help in contextualizing the need for elaborate business law studies in institutions in Pakistan.

Stating the findings of the Report, on 1st November 2018, Illango Patchamuthu, World Bank Country Director for Pakistan, wrote an article entitled ‘Good Days for SMEs’ in daily Dawn. He noted that Pakistan had done particularly well in the global rankings of Ease of Doing Business and has improved eleven places from its earlier ranking – from 147th place to 136th out of 190 countries. He wrote:

“The World Bank Group’s Ease of Doing Business Report 2019 shows that Pakistan’s global ranking has improved by 11 places to 136 out of 190 countries. This report assesses, on an annual basis, the processes required to open, operate and wind down a business. This is a great development for SMEs that are the backbone of Pakistan’s economy, constituting almost 90 percent of all enterprises in Pakistan, employing 80pc of the non-agricultural labour force and contributing 40pc to GDP.”

Keeping in view the constitutional scheme of Pakistan, he credited the federal and the provincial governments for improving the performance. Specifically, the provincial governments of Punjab and Sindh were mentioned for introducing better property registration systems; the federal government, he mentioned, had tried to address the insolvency aspects of businesses by allowing them to reorganize than to wind down besides initiating automation and efficient tax collection mechanisms. While applauding Pakistan’s successes, he recommended that:

“…the country could implement a regulatory guillotine to streamline outdated rules and regulations across the federation…”

His recommendation for introducing a ‘regulatory guillotine’, however, needs to be analysed by the people having grounding in business law education. As a point of departure, it must be noted that the publication of ‘Doing Business’, a flagship report of the World Bank Group, was started in 2003 and has continued successfully uptil today. The Report has an elaborate methodology to measure the regulatory environment in which doing business is carried out. It considers eleven factors on which it gathers data and then triangulates it through different techniques. These eleven factors are: (1) starting a business; (2) dealing with construction permits; (3) getting electricity; (4) registering property; (5) getting credit; (6) protecting minority investors; (7) paying taxes; (8) trading across borders; (9) enforcing contracts; (10) resolving insolvency; and (11) labour market regulation. The Report succinctly states that:

‘The Doing Business indicators are based mostly on laws and regulations: approximately two-thirds of the data embedded in the Doing Business indicators are based on a reading of the law…”

The above excerpt from the Report clearly shows that all the factors are based on laws, which, in turn, give rise to regulatory frameworks. The eleven factors, which were measured in 190 countries, are invariably pegged into the economic systems of these countries. For example, the Report measures the above factors in countries like China and the Russian Federation, which confer property rights in a limited manner as compared to countries organized on the laissez-faire economic system.

Likewise, fifth factor of ‘getting credit’ may be dependent on the macroeconomic situation of a country. For example, in Pakistan, the entrepreneurs would prefer to take a start with equity and may use credit facilities for growth. The Report looks at contract enforcement as a civil justice function; this might not be true for countries like Pakistan and India, where coercive remedies are used for contract enforcement through criminal justice mechanisms. For example, in Lahore and Faisalabad, the businessmen use the law of dishonour of cheques (489-F of the Pakistan Penal Code, 1860) for contract enforcement. Many land disputes get criminalized under penal provisions of fraud and forgery. After inclusion of Article 140-A to the Constitution of Pakistan after the Eighteenth Constitutional Amendment, the local government is likely to be another player in overseeing the facilitation of businesses as it deals with field and line offices of many of the provincial and federal government agencies. Even for advocating a harmonized tax code for the country, the federal and the provincial governments will have to work closely with local governments so as to see that the national and provincial finance awards supplement and complement each other.

In a recent judgement, the Supreme Court of Pakistan has declared that labour-market regulation is a federal rather than a provincial domain after the Eighteenth Amendment to the Constitution. In the West, there is a full movement of the Economic Analysis of Law in progress that looks at law through the lens of economics. To excite the imagination of the policymakers and administrations of the business and management schools in Pakistan, it may be instructional to cite the work of Professor Richard Allen Posner of the Chicago Law School who elaborated different aspects of the Economic Analysis of Law in the following words in his book titled ‘Frontiers of Legal Theory’:

“Economic analysis of law has heuristic, descriptive, and normative aspects. As a heuristic, it seeks to display underlying unities in legal doctrines and institutions; in its descriptive mode, it seeks to identify the economic logic and effects of doctrines and institutions and the economic causes of legal change; in its normative aspect it advises judges and other policymakers on the most efficient methods of regulating conduct through law.”