Doing it differently

We need to revisit trade and industrial development vision if it wishes to develop a pro-poor economy

By Zubair Faisal Abbasi

The last two years have been witness to a decline in the industrial and trade development fortunes in Pakistan with wide-ranging implications for economic growth and poverty eradication. During the last fiscal year, large scale manufacturing witnessed negative growth of 7 percent while value of imports increased to almost double of the export. The phenomena, however, has a history of policy orientation behind it. In fact, as predicted by a number of experts on trade and industrial development, the rapid liberalisation of trade regimes along with dismantling of industrial policy during the 1990s and 2000s, there has been progressive increase in the trade gap and unsatisfactory performance in attainment of a sustainable industrial competitiveness and development.

Historically speaking, many researchers argue that Pakistan was unable to craft and implement a planned scheme of industrial development and up-gradation leaving continued absence of a national system of innovation. It failed to facilitate and execute inter-sectoral linkages amongst trade, industry, banking, and education sectors which could design the required social infrastructure for sustained economic development. On another account, unlike many late industrializers of East Asia, the role of the state in Pakistan remained questionable in allocation of resources for rapid industrialization and modernization of economy. As mentioned by Dr. Asad Sayeed, the regulatory and financial systems served on the basis of political alignments with the regime instead of creating a genuine entrepreneurial class.

However, after wasting the 1980s despite having massive 'big push' by the public sector from the 1970s, the 1990s were strangulated under structural adjustment programmes. It must be noted that during 1990s, there have been frequent settling and unsettling of political regimes with interim governments playing a big role in the management of economy. During this time, a serious effort for implementation of the Washington Consensus approaches wedded to the policies of 'liberalisation, stabilisation, and privatisation'. It focused more on what is called 3D approach e.g., dismantle the state, dis-empower the worker, and Depend on market. The trend continued and the economic management of Pakistan took a slow but sure turn from being predominantly developmental to neoliberal idea system.

Notwithstanding, despite having a structurally adjusted economy, the fortunes of industrial sector have not flourished. The economic management acumen could not bring the required social infrastructure which is essential for pro-poor growth in industrial and commercial capital. There is no exaggeration that this is the industrial and manufacturing sector which helps create valuable items for exports as well as generates employment and labour utilization potential in an economy. Empirical evidence from many countries including from East Asia and China shows that poverty can be rapidly and substantially be reduced only in those economies which can create a flourishing industrial sector and modernize the agriculture segment.

If we look at Pakistan, during the period between 1999-00 to 2007-08, the growth rate of the banking and finance sector was higher than the industrial and agriculture sector. The commodity and electricity shortages that were witnessed later in 2007-09, are not a product of one or two years rather some critical issues in availability were resolved during the democratic government.

According to Rashid Amjad, Chief Economist of Pakistan, the economic growth in Pakistan has largely been contributed by increased use of factors of production rather than improvement in quality in techniques of using the inputs i.e., increase in total factor productivity (TFP). Improvement in TFP which is possible only when economic planning for labour, technology, and business generation follows a coherent vision for modernization of both industry and agriculture. Empirical evidence tells a boom-burst scenario that despite having a peak growth (19 percent) in 2004-05, the subsequent years 2007-08 could see industrial sector growth nose-diving to 4.8 percent.

It appears that the current economic management needs a politically embedded role of the state to create vision for economic management and follow up the vision with developing appropriate institutional arrangements. Pakistan, despite having vast resources for material progress was not able to create a turn around and catch-up with the industrial world let alone that it could have made a strategy for forging ahead. Historically speaking, there were acts of omission and commission which failed the state to enable itself in playing a more constructive role in trade and industrial development of Pakistan.

In the international development context one can argue that Pakistan needs to go beyond the Millennium Development Goals (NDGs) approach. While these goals emphasize poverty eradication by 2015 does not mention the processes of industrialization and growth of manufacturing sector which can help generate potential for labour utilization. One can suspect that despite being structurally adjusted, many developing countries will not be able to create jobs and upgrade their industrial structures for improvement in trade gaps through value additions. The economic managers (read masters) of Pakistan, need to pay heed to this fact while developing the next five year plan. This is heartening to see that the impending new five year plan has the vision of 'investing in people' which was also the theme of international conference organized by the Pakistan Institute of Development Economists in Islamabad recently. How much of such a plan can be successful, if we keep 'rolling back the state', is a million dollar question?

Under the circumstances, the democratic Pakistan needs to seriously revisit the trade and industrial development vision if it wishes to develop a high-quality pro-poor economic development which reduces incidence of poverty. Pakistan should learn to manage competition and build inter-sectoral cooperation. Rather than believing in the neoliberal religion of level playing field in which the stronger player perforce wins, Pakistan, borrowing wisdom from Prof. Ha-Joon Chang, needs to understand the analogy of a boxing match. There are different weight categories for different players so that the week has also the chance of winning a game while playing against an opponent of the same category.

The industrial sector of Pakistan can become competitive in international trade if the banking, government, education, and business sector follow a sensible industrial policy backed by suitable institutional arrangements. Democratic Pakistan would need to deliver on this account for successful poverty eradication -- a poverty eradication which rests on increases in capabilities of social infrastructure to provide employment and social assets beyond basic needs.