Economic policy without being informed by history and institutions does not produce results
By Zubair Faisal Abbasi
The Planning Commission of Pakistan is developing what it calls a New Growth Strategy (NGS). The approach envisages increase in productivity, innovation, and entrepreneurship in Pakistan. It seeks to promote good governance as well as improve the structural capabilities of cities and change land entitlements in which economic efficiency is gained.
The ideals are worth-pursuing and have been adopted by many now developed countries in the past. However, these ideals were not always adopted in an ‘open economy’ fashion an idea on which the NGS has taken a hardliner position under the current economic management team at the Planning Commission.
The emphasis seems to be replica of ‘market-fundamentalism’ in which state is rolled back to the extent that it does not seem playing a role even in risk socialisation which is a necessary element in encouraging entrepreneurs to experiment for innovations in both product and processes.
What is being re-sold by economic managers is a case for near-religious belief in the social and economic effectiveness of market and competition which rests more on logic and theory than empirical evidence. An analysis of this approach in NGS is necessary, an analysis which explains rhetorical promises. It is worth mentioning here that economic policy without being informed by history and institutions does not produce results.
In fact, economic growth strategies in the UK, USA, as well as China have historically been discriminatory to promote infant industries as well as import substitution and export promotion. These economies at the comparable level of development vis-à-vis Pakistan of today did not cherish the ‘open market’ and free competition at all. They carefully nurtured local capabilities. So much so that some scholars call the US the mother of infant industry which later (in 1980s) started imposing for free trade and free market policies in less developed countries.
The now-rich countries always have had built protective barriers for local entrepreneurs to seek growth in technological capabilities, leading to innovation and productivity gains to become competitive in international markets. They carefully managed competition as in boxing matches where different weight categories divide the players according to their capabilities. The now-rich countries’ experience also tells that they did not use open market and open access approach for Foreign Direct Investment either. They carefully planned the priority sectors and discriminated against various types of FDIs to avoid disorientation in resource allocations.
Coming to the issue of good governance which is a major promise in the NGS, the economic history tells that governance improves with increase in economic growth and not vice versa. Once citizens start enjoying services provided by the state and they grow rich, they start demanding good quality government and hence good governance. In Pakistan, one can see that the country slides down on transparency standards regarding corruption once its rate of growth starts faltering.
Another point must be noted that ultimately, these are the structures of economic rights and obligations which determines ‘who gets what’ when independent system of justice is implemented. Countries can perform badly on accounts of general social and economic well-beings despite having very strict implementation of laws.
The systems of governance, especially the ones which govern the markets must protect the interests of poor individuals, labour, and local industries, otherwise under good governance the right of the powerful will be protected without any gains for social and economic equality. This aspect has not been given due importance in the NGS.
Merely aspiring to re-structure the role of the state as a facilitator for markets which return favours only on the basis of ‘ability to pay’ cannot ensure real social and economic well-being of Pakistan. This is absolutely not an answer to boom and bust cycles of the economy.
Market-fundamentalism also assumes that markets create the best economic and possibly social outcome through the medium of efficient allocation of resources. This assumption called “efficient market hypothesis” -- now making the core of NGS in Pakistan -- has seriously been challenged around the world, the current financial crisis being a glaring example of under-regulation leading to serious systemic risks.
The debate around sharing the benefits of economic productivity have re-surfaced in many countries such as US, UK and Tunisia and now Egypt while in Pakistan we are trying to avoid reconstructing the system of public finance and are more interested in inflation targeting. Trying to contain inflation without concomitant equality enhancing programmes would not serve long-term socio-economic development issues of Pakistan, the NGS team must know.
It seems that not having a party-trained economist to manage economy, anything is possible in Pakistan. Therefore, the so-called technocrats representing interests of the neo-liberal orthodoxy entrenched in the IMF, WTO, and World Bank can create NDA which is discredited elsewhere, surely at the cost of treatment which Pakistan direly needs.