‘… In succession Houses rise and fall, crumble, are extended, Are removed, destroyed, restored, or in their place, Is an open field, or a factory, or a by-pass. Old stone to new building, old timber to new fires, Old fires to ashes, and ashes to the earth…’ – T. S. Eliot, East Coker.
Economics is a dynamic process and requires a policy that caters to the needs of changing times and has an in-built approach to learn from mistakes. Policy, both globally and in Pakistan, needs a re-think.
For too long it has been in inertia, whereby there did not take place an ongoing in-house deliberation to learn from the failings of capitalism, socialism, and neoliberalism, both within and outside of Pakistan. Two quotes come to mind:
“Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.” – John Maynard Keynes
“The years since the global financial crisis have exposed fundamental flaws in mainstream macroeconomic thinking. We are living in a world of deep structural instability and uncertainty, in which policy makers have had no choice but to look for new policy tools… More broadly, social and political upheavals, technological change, rising inequality within countries, and an impending climate crisis all demand that economists challenge their own assumptions, and that businesses re-think how they operate.” – Mark Cliffe; Chief Economist of the ING Group.
The economic vision of the PM, indeed, has strong footings in the way the global re-think has taken place for greater role of government in terms of (a) forming special economic zones (SEZs), (b) taking on more active role in running state-owned enterprises (SOEs)
A situation that Keynes explains is quite explanatory for the continued inertia for the economic policymakers in Pakistan; educated in the ‘mainstream’ or neoliberal economics tradition, they did not care to learn from its misgivings for multiple economies around the world, especially those under IMF (International Monetary Fund) programs, of the nature of structural adjustment and based on the overall philosophy of Washington Consensus.
During his recent comments at the 50th meetings of the World Economic Forum, and one that stems from the entrenched dilemma behind the un-sustained economic development in Pakistan over the years, PM Imran Khan pointed out that rather than disincentivizing wealth creation in the country, as was done after the 1960s – a decade during which along with wealth creation, its accumulation into a few hands took place – through initiation of a process of nationalization, under (a particular brand of) socialist mindset that gave little importance to the incentive of profit-making, there should be internalized process of redistribution in the current economic policy, while wealth creation should be encouraged through appropriately incentivizing industrialization and businesses.
Moreover, he pointed out that incentivization, at the same time, needs to be supported by improved public institutions, and better governance.
The economic vision of the PM, indeed, has strong footings in the way the global re-think has taken place for a greater role of government in terms of (a) forming special economic zones (SEZs), (b) taking on more active role in running state-owned enterprises (SOEs), (c) intervention in markets to encourage a conducive environment for economic exchange, and (d) to overall meet the challenge of bringing wellbeing to human beings.
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Economic policy in Pakistan, therefore, needs to evolve to encapsulate all these goals and more, as highlighted by the PM. Only then, could the economic policy be called to have genuinely entered the next decade.
It is on the PM now to take the momentum of his thought process and work with his economic team to formulate an economic policy based on these ideas. Here, foremost, GDP growth needs to be cut to size in terms of its importance, since for too long it has been seen as a leading indicator of economic development in Pakistan.
This needs to change, as is highlighted in two important quotes below:’”Not everything that counts can be counted, and not everything that can be counted counts.” This old adage is particularly pertinent as we look ahead to 2020s and beyond.
Part of the popular backlash against political and business elites may simply be that people feel the elites are not really focused on what matters to them. But while the single minded obsession with maximizing market output and profits is being challenged, a more meaningful replacement is not yet in clear view.’ – Mark Cliffe; Chief Economist of the ING Group.
An economic policy that focuses on human wellbeing, and not just GDP growth, and one that works for all, requires a balanced approach, and this should be the guiding principle for the economic policy of the 2020s for Pakistan
‘The key, ultimately, is not to lose sight of the fact that GDP is a means and not an end. It is a useful means, no doubt, especially when it creates jobs or raises wages or plumps the government budget so that it can redistribute more.
But the ultimate goal remains to raise the average person’s – and especially the worst-off person’s – quality of life. And quality of life means more than just consumption.
Most human beings care about feeling worthy and respected, and they suffer when they are failing themselves and their families… Higher GDP is only one way to achieve this, and there should be no presumption that it is always the best one.
Many of the important development successes of the last few decades were the direct result of a policy focus on this broader notion of wellbeing.’ – Abhijit Banerjee (2019 Nobel Laureate in Economics) and Esther Duflo (2019 Nobel Laureate in Economics)
To describe, the way the economic policy obsession with neoliberalism and growth rates in Pakistan has painfully panned out for the overall wellbeing of its citizens, ‘we seem to be back in the Dickensian world of Hard Times, with the haves facing off against the increasingly alienated have-nots, with no resolution in sight’.
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Questions of economics and economic policy are central to the present crisis… Change seems all too often to benefit other people, unseen people, unreachable people… The rich and the talented step nimbly into the glittering pockets of economic success, but all too many of the rest have to hang back… Policy is powerful. Governments have the power to do enormous good but also important damage, and so do large private and bilateral donors.
A lot of that policy stood on the shoulders of good and bad economics… The only recourse we have against bad ideas is to be vigilant, resist the seduction of the “obvious,” be skeptical of promised miracles, question the evidence, be patient with complexity and honest about what we know, and what we can know.’ – Abhijit Banerjee (2019 Nobel Laureate in Economics) and Esther Duflo (2019 Nobel Laureate in Economics)
An economic policy that focuses on human wellbeing, and not just GDP growth, and one that works for all, requires a balanced approach, and this should be the guiding principle for the economic policy of the 2020s for Pakistan.
Within this balance, the foremost thing to understand is the ‘primacy of institutions’ for everything that concerns the economy. Without efficient institutions, the underlying organizations and the associated markets will not provide the right environment to create wealth and its equitable distribution.
That kind of ‘unified policy’ is essential for driving home institutions that really allow reaching true price signals, and those that internalize prices for reaching welfare consequences
Institutions or ministries need to bring laws, rules and procedures that allow correct & rationalized pricing for goods and services so that prices and incomes have a healthy connection; with consequences for rationalizing the importance of money – and not too much as currently is the case at the back of greed of few for earning abnormal profits – for both economic agents, and for allowing improving the quality of democracy, with voters becoming enough economically empowered to elect representatives on merit.
Improved institutions will enable organizations – departments and SOEs in public sector, and firms/entrepreneurs in the private sector – and associated markets, to work towards this rationalization of prices; with positive consequences for reducing inequality and poverty on one hand, and for diminishing the unnecessary (and in turn damaging) role of money in politics.
Hence, the primary goal of the economic policy is to improve the capacity of institutions, so that they align the involved incentive and governance structures to the overall improvement of organizations and markets.
Currently, all three are quite inefficient, and this has reflected in the way economic growth has fared – (a) being un-sustained, and (b) beneficial for few, while excluding others from both an equitable share in the fruits of growth, and in weakening the capacity of voters to make better choices in electing representatives to parliament; which in turn has led to the institutions remaining weak, allowing in turn space for political and economic elites to use them to perpetuate their wealth, power and influence.
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To do this, the mandate of the current Ministry of Planning and Development (MOPD) is too limited – mostly restricted to the planning and monitoring of development-related projects with little focus on the overall economic policy of the country; one that is appropriately detailed, technically sound, timely and above all is properly informed of local political-economic context & realities and global thinking.
At the same time, the main interface of the government in the shape of Ministry of Economic Affairs (MOEA), with the development partners – bilateral and multilateral – along with MOPD have little capacity and coordination to plan for improving the institutions involved in all the four sectors of the economy – real, external, fiscal, and monetary/financial.
Instead, there should be a Ministry of Economy (MOE), which should have the overall mandate to plan for the whole economy, on the lines being suggested for the 2020s; overseeing the work of institutions/ministries in all the sectors of the economy at the federal level, and working with devolved subjects/departments at the provincial level (or institutions; for instance, health, education, etc.), and State Bank of Bank (SBP).
For the PM to reach his vision of economic progress for Pakistan, he needs to look beyond the economic policy paradigm that is currently being presented to him as the panacea
That kind of ‘unified policy’ is essential for driving home institutions that really allow reaching true price signals, and those that internalize prices for reaching welfare consequences, where needed, in a well-determined and better-targeted way.
Financing for development projects, including those that involve development partners, should be entrusted to a proposed ‘Pakistan Development Bank’ (PDB), which like an investment bank has the technical skills of risk management – one that is based on sound macroprudential and microprudential policies, receives feedback from the MOE to align projects with the overall development goals of the economy, and facilitates authorities, development partners, and domestic and foreign investors to work in a harmonized way – and is more specialized in skills than the current MOEA and MOPD; where the latter should give way to the proposed MOE in terms of its proposed extensive role in economic planning.
At the same time, the role of MOEA should be replaced with the proposed PDB, while policy direction received from MOE; where MOE is also responsible for formal negotiations for development assistance with development partners- both bilateral and multilateral – while PDB lays out all the technical grounds for informed negotiations, along with performing its other duties as indicated earlier.
Based on the same structure as the federal one, provincial MOEs should be formulated, and likewise being the top economic department at the provincial level, and working in collaboration with the federal MOE.
Underlying the provincial MOE are the finance department and other departments of the four sectors of the economy at the provincial level. This would mean doing away with the provincial planning departments.
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Overall, the economic policy needs to find a healthy balance between the monetary and fiscal/governance-related policies to address the issue of inflation so that growth is not unnecessarily sacrificed to reach price goals on the one hand, and on the other hand, growth with equity is reached, and that the determinants – current and new – of growth are made more climate-conscious than the extent to which they are currently.
The above is indicative of the change needed in the economic policy paradigm of Pakistan; in the same way as there has been a call globally to move away from a neoliberal mindset. For the PM to reach his vision of economic progress for Pakistan, he needs to look beyond the economic policy paradigm that is currently being presented to him as the panacea.
What has not worked in the past will not still, especially where there is a global wave to re-think these sorts of policy mindsets, like the ones currently in Pakistan. The economic policy of Pakistan needs to shake-off this inertia, with ideas of the sort presented here.
Dr. Omer Javed is an institutional political economist, who previously worked at International Monetary Fund, and holds Ph.D. in Economics from the University of Barcelona. He tweets at @omerjaved7.
The views expressed in this article are the author’s own and do not necessarily reflect the editorial policy of Global Village Space.