Published Date: Dec 11, 2015
AN enriching discourse at two recent back-to-back conferences (one in Bangkok on Asian countries ‘transformation trap’, and the other the South Asia Economic Summit organised by SDPI in Islamabad) has given much to think about. The Bangkok conference was arranged by Friedrich Ebert Stiftung (FES), the German Social Democratic Party’s political foundation, and had a wide range of distinguished speakers from the social sciences — political and development economists, sociologists etc. — from eight Asian countries, including Pakistan and India.
The keynote paper was by Marc Saxer of FES (Mind the Transformation Trap) in which he lays out long-term global trends that could affect the development choices as well as trajectory of developing Asian economies, especially with regard to industrialisation. These trends include: the migration from China of labour-intensive industries; net capital outflows from South to North; the reduction of labour costs via digital automation in the world’s developed economies; and a secular decline in energy costs.
A worrying theme across much of Asia that is likely to have a profound impact on long-run economic growth and development, and which is already increasingly exerting a large negative influence, is the rising political, ethnic and religious polarisation of societies, leading to erosion of social cohesion. Countries that are experiencing varying degrees of this phenomenon include Thailand, Malaysia, South Korea and possibly India.
What is the relevance for Pakistan? Not only that if these global trends do play out as envisaged, including climate change which was not addressed (and which is no longer a distant if), the window for certain growth and development strategies that appear implicit and embedded in Pakistan’s policies for the last three decades at least, will close.
Which brings us to a fundamental question: does Pakistan have a development paradigm, and if so, what is it? And if it’s a settled question, then who decided it, and where and when was it debated? The said paradigm would lay out the kind of development that Pakistan is aiming for; examples would be economic development via growth in per capita income built on export of low-wage goods, or via investment in human and social capital (human development); via pursuit of state capitalism or neo-liberal free market liberalisation and de-regulation etc.
There is a disconcerting lack of debate on our development paradigm.
Some of the questions that need to be addressed (and the policy trade-offs articulated) include: what are the growth processes that would be desirable to be unleashed; should these be left unfettered or be guided by the state; should there be an industrial policy; should development of underdeveloped regions be an explicit policy objective, and if so, how best should it be pursued; should there be income re-distributive policies; should sustainable development be a policy goal right from the start, or should it come after a certain per capita income threshold?
Even in terms of economic policy, it is less than obvious if Pakistan is following any clear-cut vision or direction. Beyond a singular focus on generating headline GDP growth, and the occasional half-baked target for exports pulled out of the nearest hat, random and disconnected from any policy and growth process, or a list of privatisations to be achieved under the IMF programme, there is no coherent, comprehensive and long-term economic policy that is being followed by either this government, or any recent previous one.
For this reason, the finance minister while recounting his government’s economic achievements, is reduced to taking credit for moving GDP growth from a dismal 3.7pc to a modest 4.2pc (provisional, and with caveats). His other constant theme for the past nearly three years is to remind us — even as we enter 2016 — that he saved us from a sovereign default back in 2013. Beyond these two themes is of course the final theme: of having achieved macroeconomic stabilisation under the most successful IMF programme in the country’s history.
The IMF-induced stabilisation has come at the expense of growth — as well as (paradoxically) key long-run reform, especially in the area of taxation where the pressure to generate revenue on a quarterly basis reinforces the decrepit and corrupt status quo that needs to be reformed in the first place. (At the South Asia Economic Summit, two scholarly papers by Dr Deepak Nayyar from India and Dr Akmal Hussain from Pakistan, presented incisive and insightful critiques of the Fund’s stabilisation policies, and how there does not need to be an inherent trade-off between growth and stabilisation.)
There is a near-consensus on the broad contours of neo-liberal economic policies in this country, with an emphasis on liberalisation, privatisation, de-regulation, financial deepening and fighting inflation. This has been fostered and influenced in the main by a corpus of policymakers, advisers, analysts and media persons from the financial markets and banks (including people like myself), or from the multilateral institutions, or those associated with large corporate groups.
However, as a recent article in this paper by Dr Niaz Murtaza aptly demonstrated, there is a large disconnect between Pakistan’s economic performance and its outcomes on development and other related indicators such as strength of the institutional framework, societal and individual well-being etc. Nearly three decades ago, William Easterly made his famous observation of the presence of “growth without development” in Pakistan. This observation holds largely true even today, indicating the strong persistence of an economic thinking that has not delivered in many spheres.
To break out of this paralysis and to chart a way forward in a multi-disciplinary manner with active participation of all stakeholders, the Planning Commission bears a heavy responsibility and must lead the way. To be able to do this, it needs to reinvent itself into a ‘knowledge commission’ and become the centre and crucible for an active and ongoing engagement and debate on Pakistan’s development paradigm and economic policies.
The writer is a former economic adviser to government, and currently heads a macroeconomic consultancy based in Islamabad.