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December 24, 2015

Towards transformation


December 24, 2015

Pakistan has not been able to sustain its GDP growth rate at a high level, nor has growth had a substantial impact on the living conditions of the majority of the people. After over six decades since independence almost 60 percent of the population lives in poverty (in terms of $2 per person per day); 40 percent of the children are suffering from malnutrition; the majority of the people are deprived of safe drinking water, decent sanitation, quality education, quality healthcare and decent public transport.

The public services are so inadequate in terms of coverage and quality that an ordinary citizen suffers a loss in dignity when trying to access them. It is apparent that most citizens are deprived of the minimum conditions of civilised human existence: the great potential of a people lies dormant. Institutional structure, human values of love, tolerance, honesty are at their lowest ebb, while the leadership has so far been unable to pursue a coherent long-term development strategy that could pull this country out of its morass. Clearly this condition of comprehensive decay requires a multifaceted transformation if the people of Pakistan are to actualise their great potential and build a bright future.

The first step in designing a transformational development strategy is to break out of the narrow and flawed confines of orthodox development thinking. Within this paradigm, development is simply about raising per capita incomes through technical solutions such as achieving exchange rate stability, budget deficit reduction, mobilising resources (usually through foreign loans) and achieving efficiency in their allocation through the market mechanism. The strong belief in the efficacy of markets is associated with the idea of a minimal role of the state. These features constitute the core of mainstream economics today.

The elegant edifice of orthodox economics has been shaken to its foundations by the shock of four contemporary events: (1) the world economic crisis that has demolished the proposition that markets are self-regulating; (2) the rise of the South which has demonstrated the diversity of development policy and the essential need for a committed, energetic state; (3) the rising expectations of people everywhere, for dignity and jobs, as they get more educated and globally connected; and (4) the global environmental crisis. Responding to these challenges requires new relationships between states and markets, and states and the people.

Transformational policymaking requires an understanding of the dynamics of the power structure that underlies the formulation and implementation of public policy. Development policy is not simply a matter of getting good advice from ‘experts’. The power play of political elites within the state structure and between these domestic political factions and international interests are often more important in shaping policy than the long-term interests of the country and its people.

Equally markets in Pakistan and other countries cannot be imagined as free and neutral with respect to individuals and social groups. Markets are mediated by power and so they are asymmetric with respect to the rich and the poor respectively. For example in some areas the price that a small farmer gets for his output is lower compared to what the big farmer gets. Even in the provisioning of public services such as quality healthcare and education the powerful get preference.

The market-based, minimum role of the state and quick fix economics continues to hold sway in the face of the rise of the South which is based on an alternative development paradigm. Over the last two decades a seismic shift has occurred in the centre of gravity of the global economy for the first time in three centuries from the West to some of the third world countries. The rise of the South demonstrates that countries such as China, Japan, South Korea – the South-East Asian ‘tigers’ – were able to dramatically improve the conditions of life of their people through an enhanced role of the state. They conceived of long-term economic growth in the context of a transformation of society, economy and political structures.

Dr Khalid Malik’s seminal work has shown that the state in countries of the rising South has played a pivotal role in their transformation. The state nurtured firms that had a potential for innovation and exports, set up infrastructure and undertook in some cases the universal provisioning of basic services such as education, health and social protection. New evidence provided by the 2013 Human Development Report suggests that these forms of state intervention not only dampened inequalities during the growth process but also helped to generate and sustain high economic growth.

The universal provisioning of social services has played a key role in the success of these countries. These are transformative actions that cannot be postponed. They set the stage for a healthy, educated and motivated labour force that catapults the economy on a broad-based and sustained high growth path. Equally important, they help maintain social cohesion and win legitimacy for the state and the political system. Recent research by William Easterly and others has shown that cohesive societies tend to grow faster and on a sustained basis than less cohesive societies.

The economic orthodoxy, in contrast, makes a case that developing countries cannot afford such universal provisioning, that they have to adopt a targeted approach, and proceed on a gradual path. Historical evidence suggests the contrary. Germany under Bismarck in the 18th century, Japan under the Meiji dynasty in the mid-19th century and Sweden and Norway in the late 19th century undertook universal provisioning of basic services when the per capita income of each of these countries was lower than the per capita income of Pakistan today.

For example, compulsory elementary education was introduced in Sweden in 1842 when its per capita GDP was $876 (in Geary-Khamis International dollars at 1990 prices); Norway introduced education for all children in 1848 when its per capita income was $912. By contrast the per capita GDP of Pakistan (by the same Geary-Khamis measure) was $2239 in the year 2008, which is higher than that of any of the countries at the time in history when they adopted the universal provisioning of basic services.

After being locked into repeated IMF programmes within a narrow and flawed analytical framework, Pakistan’s economy has stagnated and mass economic deprivation has persisted. It is time to devise a policy framework for Pakistan’s transformation to fulfil the great potential of its people, establish a cohesive society and a strong state. In an earlier article, Dr Khalid Malik and I had argued that as a starting point a key transformative policy can be initiated: free, compulsory and high quality public education for all. A second transformative initiative that can be undertaken is free and quality medical insurance for the bottom 60 percent of the people and subsidised medical insurance for quality healthcare for the remaining 40 percent of the people.

A process of transformation requires five conditions: (i) the leadership adopts a long-term development vision; (ii) a reformed bureaucracy that is committed to the development vision, is professionalised, incentivised to achieve specific annual targets and systematically evaluated; (iii) an inclusive and sustainable development strategy is specified with time-bound targets and implementation mechanisms; (iv) the universal provision of basic services; and (v) a normative structure based on a positive improvement in habits, attitudes and values that underpin a dynamic and humane society.

The writer is a professor of economics at the Forman Christian College University, Lahore.

Email: [email protected]

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