Wednesday July 24, 2024

Make your own economic model

By Mansoor Ahmad
June 15, 2024
A boy walks past a sidewalk money exchange stall decorated with pictures of banknotes in Karachi on September 30, 2021. — Reuters
A boy walks past a sidewalk money exchange stall decorated with pictures of banknotes in Karachi on September 30, 2021. — Reuters

LAHORE: Economic planners have finally recognized the need to revisit our growth strategy by emphasizing on improving the efficiencies of existing infrastructures instead of announcing new projects from meagre resources.

When the resources are scarce, it is not prudent to keep adding new infrastructure projects while simultaneously squeezing funds for the projects that are already in the pipeline. The finance minister has this year allocated more funds to complete the ongoing projects instead of launching new ones. This will ensure the timely completion of these projects.

In our attempt to promote industries we loaded ourselves with too many things that we could not manage. We forgot other sectors of the economy that could have triggered more growth. We have become mimics as we try to copy the models of other countries without realizing that those successes were a result of better governance and transparent policies. We copied the basic theme without going into the details of its implementation processes.

The main reason for unemployment in Pakistan is the failure of economic planners to realize that Pakistan’s labour market is going through five transitions: from farm to non-farm; rural to urban; unorganized to organized; subsistence self-employment to decent wage employment; and school to work. We need industries and services that can accept the skills acquired during these transactions. Moreover we need to close down programmes that do not produce the required skills.

Over the years, we have failed to develop our governance; improve our human capital; introduce measures that improve efficiency; and strengthen domestic commerce.

This has resulted in a wavering economic performance. This is the reason that we grow at a high speed for a few years and then go into recession.

Lopsided growth cycles are more injurious for the economy than relatively slow but sustained growth. Industries that become sick during downturns rarely revive.

Sustainable long-term solutions need an integrated approach to ensure that infrastructure after completion creates job opportunities. Through this integrated approach, we will have to introduce reforms in infrastructure, education, skill development and labour laws. Enriching human capital is vital for economic growth.

Evidence is now available from more than a hundred countries with different cultures and economic systems that shows that high school and college education coupled with adequate state-provided healthcare facilities greatly raise a person’s income, even after netting out direct and indirect costs of schooling, and even after adjusting for the fact that people with more education tend to have higher IQs and better-educated, richer parents.

We promoted industrialization on special incentives, which have failed to deliver. Power and energy shortages are not a valid excuse for slow industrial growth. How many green projects were launched during the 1997-2007 period when both power and energy were in surplus? Interest rates and inflation were also mostly low during that period. If we look at the progress made in industrializing by our competing economies, we will find that India and China experienced the same infrastructure constraints but they continued with sustained growth.

The only difference is that we neglected prudent management, efficiency, innovation and productivity while China and India did not. We still persist with a rent-seeking mentality instead of providing fair opportunities for everyone.

There is dire need to change the mindset of our planners. Growth will not come from only exports, domestic commerce is equally important. Hurdles in domestic commerce should be probed and removed. Rural development should be given priority.

The growth model should shift from incentive-based industrialization in a few sectors to a thematic approach where all sectors should be given the same incentives and facilitation which the government claims will be the policy from now on.

Market reforms, innovation and entrepreneurship should be the basis for new economic planning.