ARTICLE: Pakistan's economy needs to grow at an annual average rate of at least 10 per cent of the GDP over the next 10 to 15 years to be able to lift the teeming millions from below the poverty line and generate enough jobs to absorb its ever-expanding youth bulge in gainful employment, provide to the majority of its population affordable educational facilities, health cover, public transport, communication facilities and housing. But in order to grow at this rate, the economy would need investment to the tune of at least 35-40 per cent of the GDP at an annual average for the next 10 to 15 years.
However, our current rate of savings has been stagnating at around 12-14 per cent of the GDP for the last several years. The gap of almost about 25-30 per cent between the required rate of investment and the existing rate of saving could be filled with borrowed resources and foreign direct investment (FDI). Borrowing is not bad as long as the borrowed resources are invested in economically and socially-profitable avenues.
Most of the revenues collected domestically are through indirect taxes which are regressive in practice and a big chunk of direct taxation is collected through what is known as withholding taxes which again amounts to no more than a minuscule residual of huge settlements made through black cash in most of the major transactions.
The biggest source of black economy which has reached almost the size of the white economy is the exemption allowed to incomes from agriculture. Today, most big businesses own huge land-holdings in barren regions. On books they show the profits earned from their other businesses as income from agriculture and declare losses from the former. Most of the professionals like doctors, engineers, lawyers, high-end educational institutions, hospitals, etc. share their taxes in three ways keeping a large part of the amount in their own private lockers, distributing the remaining balance between the tax collector (bribe) and the treasury (under-declaration).
Indeed, it has been our policy of handing over the commanding heights of our economy to the private sector which as a class has continued to evade taxes, pilfer utilities and deny legitimate contractual rights to its employees that has actually kept our economy in perpetual stagnation.
The Asian Tigers could not have become the export powerhouses that they are today without extensive government interventions during the two decades since the 1980s. The Chinese "miracle" wouldn't have been possible without the nation as a whole sacrificing to its bones - from cradle to grave - to create assets worth trillions of dollars.
We knew India went the import substitution way from day one using mixed economy with a predominant public sector and vast amounts of savings. We, on the other hand, continued on the dole path making fun of India's Ambassador car (as we raced around in gleaming Japanese cars shipped to Pakistan in lieu of war reparations) and what was called the Indian rate of growth (2-3%). In a nutshell, all three economies before opening up to their respective private sectors, unlike Pakistan, were being underpinned by extensive public sectors.
Governments in poor countries, especially those which are energy and capital deficient with very poor access to technology need to be business-minded to be able to rationalize the dependence and reduce the burden on the import bill by being experts of the market as are the international oil sharks who rake in millions on price fluctuations of as little as a minimal most fraction of a cent.
Donor-driven poor countries need business-savvy governments even more because if not well versed in what is happening in international trade, then you'll likely end up returning almost the entire aid back to the donor country in import bills.
Also, it is only a business-minded government, which can make a distinction between an enterprise that yields profits of immense social value and those that yield purely financial profits.
The problem to understand in short is that not everything that is financially profitable is of social value and not everything of social value is profitable. Reality TV, fashion, sports and gambling casinos are all of questionable social value, but each is quite profitable and exists in the private sector. On the other hand, few would argue that the armed forces, coast guards, police, fire department, libraries, parks, public schools and government hospitals are of no social value yet couldn't exist if they were required to be financially profitable.
A government has no business doing business. Sounds logical. But a government devoid of the necessary instincts of a businessman would find it almost impossible to frame socio-economic policies ensuring progress with equity. Such governments either end up widening the gap between the rich and poor, or failing them both miserably.
The basic problem is with the economic model itself being used throughout the last several years. Free market economy - riding on the shoulders of deregulation, divestment and denial of safety nests, along with all eggs in the basket of the private sector in countries like Pakistan has only caused more poverty, illiteracy and health risks.
In order for such countries to make the most of the limited indigenous energy, capital resources and poor access to technology, they need to adopt an economic model that is based on principles of mixed economy with the commanding heights of the economy in the hands of the state and the private sector working under a strictly-regulated regime with even their profit margins fixed by the state along with greater emphasis on human resource development.
Even in countries that have thrived on naked capitalism it is being increasingly felt lately that their economic model has only increased inequality.
The crisis of capitalism is being increasingly linked to the recent figures showing that the wealthiest eight billionaires in the world have as much wealth as the bottom half of the global population, or some 3.5 billion people. The equivalent figure was the 62 wealthiest billionaires in 2016. Back in 2010 it was more than 300.
This is how rapidly wealth is being sucked up to the top - this may be termed the vacuum-up effect as opposed to the myth of trickle-down economics.
The reality of deregulated free markets, most evidently in financial services, has been monopoly, cartels, collusion and rigging.
Here is what is happenning currently in countries that had over decades sold their souls to capitalism: During the 2008 financial crisis, going against the basic tenets of free market economy, the US government saved the Wall Street banks and other big financial institutions with tax-payers money and now breaking more rules of the free market economy, more of the same money is being injected into strategically sensitive companies to save them from collapsing.
In fact, the entire industrial sector including energy and airlines, as well as the market for corporate bonds are in a manner being taken over by the government as it is buying private assets with freshly printed dollars, forcing these entities to function under rules that controvert the basic planks on which stands capitalism.
The US government has also earmarked enormous sums for certain industries. Airlines could receive $50 billion in loans and aid in the $2 trillion CARES Act. The law set aside around $17 billion for businesses critical to maintaining national security, an excuse widely seen as being intended for the aerospace and military giant Boeing.
American conservatives are said to be worried that the budget deficit was out of control, but there is not much they or anyone else could do about it as it is difficult to cut the bloated military budget.
No nation-state or a country can now claim to be absolutely sovereign, in both socio-economic or/and military sense. However, without an irreducible minimum sovereignty over its economy and culture as well as its military prowess no country can escape being turned into a subservient state fated to trade its independence for survival.
Therefore, economic security takes particularly into account the new risks occurring from the incredible new role of information, for example, threats on data, attacks on public research centers, attacks from financial predators against state currencies, stock market manipulations, short selling exports to damage competitors in the world market, etc.
As a result, Chinese strategists have developed the notion of Comprehensive National Power (CNP), which gave a higher weight to economic and social aspects of national security over the purely military.
CNP can be calculated numerically by combining various quantitative indices to create a single number held to measure the power of a nation-state. These indices take into account both military factors (known as hard power) and economic and cultural factors (known as soft power).
Copyright Business Recorder, 2020
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