How to grow

Based on my limited experience of world economies, and based on other people's research, there does not exist a single recipe for growth. And recipe is the right world; given the right instructions even an idiot can boil an egg; unfortunately, however, no set of right instructions exist which can be followed to ensure economic growth and that too in a given time frame.

Whilst I am not a fan of GDP, for a variety of reasons of which the fact that its accuracy is highly suspect, undeniably the real economy has to grow or improve; especially the components of GDP which matter, investment and net trade. In simplistic terms growing for the sake of showcasing growth, politically or for accolades from global financial institutions, is a misguided objective; sustainability and job creation are the pillars of growth. Whilst only time, and that too, a very long time, is needed to answer the puzzle whether infinite growth in a finite world is even possible, but then it hardly matter because if growth is not resulting in improving the quality of life for those struggling below the poverty line, than why bother in the first place.

If the economy is growing because the rich make more profits lending to the government, is it really something to be happy about? Globally there is no evidence that policies designed to cajole the rich, such as low corporate tax and tax holidays, have ever done anything for the poor; sure there was growth but at a heavy price. The rich got richer and had more money to lend to the government for more profits; which is why income inequality is the biggest economic challenge for the world today. Even the neoliberals and their institutions now give lip service to social welfare.

So how do we bring in qualitative growth?

Unfortunately, as stated in the beginning, no one has an answer to this particular question.

There is no one answer to why Japan, South Korea, China, Taiwan, India, Bangladesh and Vietnam grew and whether they can keep growing at that pace or at a higher pace. If there ever was one simple answer, or recipe, every country in the world would be growing and by now we would have had an answer to infinite growth.

Yes, you do have a "Do and not to do" list; but that is rather dicey too.

Inflation is not good for growth is the dictum, but since zero inflation is also not good, what is the right rate for inflation and can it be applied ubiquitously in all countries, are questions which remain to be answered. As we have seen in Pakistan, an overvalued currency is a disaster waiting to happen, but then what is the value at which a currency can optimize trade is a mystery. It's good to bank on the private sector for growth, and here I might add that my vote is for the domestic private sector alone, hence privatization is the right policy. On the other hand, not only China but all the other Asian economies which economically stand pretty today relied on state led industrialization, and in selected sectors still do.

Education is a do, albeit what comes first? The resources to spend on education or education to generate wealth remains a conundrum. In our case we apparently have never had sufficient resources to educate all our children, let's not even talk about higher education. Another pertinent question here is that if you rely mostly on indirect taxation to meet collection targets and then spend that money on debt servicing, will you ever have sufficient resources to invest in education?

Last week's column argued that looking good was necessary and austerity related policies forming part of the Washington Consensus did help in facilitating looking good objectives quickly. But will the same policies that worked in Egypt actually work here, or whether Egypt is actually flourishing are questions which are yet to be answered.

So is emulating China a solution? Would it help if we exactly did what Bangladesh is doing?

Probably not. The bigger question then is, what do you do?

Apparently not what we have done for the last two decades, essentially because whatever we did has not worked.

So we definitely need to think before we leap. The solution perhaps lies in focusing on the problems of the poor economy and fixing them whilst all the time keeping job creation at the forefront.

Obviously this article was not going to come up with a set of instructions to grow, like I said they don't exist. As a follow up to last week's column, the objective only was to point out that getting to feeling good will not be a walk in the park. The assumption that complying with a set of instructions, Washington consensus in this case, is a solution is perhaps a fallacy.

There is a lot more than meets the eye when it comes to solving the riddle, how to grow.

(The writer is a chartered accountant based in Islamabad. Email: [email protected]. The views expressed in this article are not necessarily those of the newspaper)