Rethinking economic policy

Critics of a capitalist economy attribute inequality and underdevelopment to the fundamental contradiction between the capitalist system and a Marxian perspective and/or the result of neoliberal policies since the 1980s (Piketty, 2014 and Stiglitz, 2012).

The global free market economy under the neo-liberal regime has created under-development in developing countries. The theory suggests that there is always a core-periphery relationship between the developed capitalist economies and the so-called underdeveloped economies. The more these economies get integrated with the core, the more they become underdeveloped because the relationship is primarily defined by monopoly and dependence.

For these societies to grow, they need to develop independently and go through four stages – from primitive to traditional, from traditional to industrial and from industrial to post-industrial. In his famous thesis, ‘The Development of Underdevelopment’, Andre Gunder Frank attempted to defend this growth model through a number of examples.

For instance, the rapid economic growth in Latin America took place between the first and second World Wars when the ties of these satellite economies were at their lowest with the warring core economies. One example Japan’s Meiji Restoration when a de-satellited underdeveloped economy developed rapidly as it did not become structurally dependent upon the core economies.

From the classical Marxist critique of the capitalist economy to the postmodern critique of universal claims of capitalism, the theory and practice of economic development has evolved significantly, giving way to the ‘new normal’. The ‘new normal’ is driven by complexity, non-linearity and multiplicity, factors whose interplay shape human behaviour, economic functions and ideology of development.

The ‘new normal’ recognises the fact that the economic and social dividends of post-modern societies are, arguably, differentiated more by diffusion rather than simplistic distribution. Most of the developed capitalist economies face issues of recession, unemployment and low growth in an era of the new normal but there is an increased realisation to go back to the social democratic policy regime. Both the neoliberalism and postmodern economic theories are losing their political and intellectual credence. In this volatile global economic scenario, where do we stand as a nation?

Pakistan, like most postcolonial developing nations, has suffered economic and political setbacks – being inversely incorporated in the global economy. Yet our political and economic policy discourse is increasingly being shaped today by this uneven relationship, with little attention given to the national context of development. With little success, for decades Pakistan’s ruling elite and its policy think-tanks have been striving to impose a growth model of a trickle-down economy as a panacea to Pakistan’s underdevelopment. Right from the structural adjustment programmes of the 1990s to the unbridled privatisation measures of the current government, Pakistan has experienced multifaceted economic and political challenges.

This monolithic economic growth policy, inter alia, resulted in widening regional and income disparities, a sharp increase in poverty, lowering HDI scores and a surge of extremist ideologies. With its increasing reliance on International Financial Institutions, Pakistan seems more vulnerable today to a defunct growth ideology of neoliberalism.

Even proponents of free market economy like Joseph Stieglitz and George Soros have termed the neoliberal growth models as defunct, unrealistic and one of the key factors of intra-state and regional income disparities. Pakistan needs to come out of this vicious cycle of growth economics if it has to ensure an inclusive and sustainable development for its people. This will happen through drastic reforms in its economic and political system, and through mobilising its enormous untapped resources rather than relying on IFIs for economic development.

It is important that the government has a dynamic policy think-tank with capacity and vision to look beyond the monolithic growth model for the economic revival and progress of Pakistan. The notion of growth has been contested, sometimes even to polemical proportions, throughout the modern history of development. While on the theoretical side our development policy must be informed by this contested nature of growth, in practice it must provide context-specific economic development programmes for the country.

Pakistan is marred by low agricultural productively, de-industrialisation, high inflation, institutional decay, debt burden and worsening security situation. This calls for a radical restructuring of the economy and polity including land reforms for improved agricultural productivity, economic protectionism to promote indigenous industry, transition to meaningful democracy and equitable resource allocation. This then requires an ambitious national development plan; there are no short cuts.

The writer is a freelance columnist based in Islamabad. Email: ahnihal@yahoo.com