Dr Shahid Javed Burki, an economist, a former finance minister and president of the Economic History Society, while delivering an inaugural address at a PIDE seminar, identified, in broad outlines four causes of what ails Pakistan today.
One, the country's excessive dependence on external capital flows, which have generated extreme volatility of the economy; two, the country's failure to raise resources from within its economy to fund investment and development projects; three, the country's poor integration with the global economic systems; and four, the gross neglect of human capital. Prolonged neglect of human capital has been a leading cause of Pakistan's failure to develop a vibrant, knowledge-based economy, despite the fact that the country is endowed with one of the youngest populations in the world, with a median age of only 18.2 years.
However, a significant proportion of half of the country's population of 170 million in this age bracket is illiterate, as a result of which it does not have the skills required to participate in the modern sectors of the economy. Above all, being uncertain of what the future holds for them, many of these young people have been attracted to extremist causes, of which there has never been a dearth and where the "rates of return" for these young people, who lack both modern skills and knowledge, are much higher. Aside from ideological considerations, economic considerations for these youngsters seem to carry considerable weight.
This route has served as a shortcut not only to assured income, but also to gaining social clout. Secondly, Burki has identified our highly centralised system of policymaking as a major cause of why the State has remained distant from the people whom it is supposed to serve. (The existing centralized system of governance in the country is a result of long periods of military rule.) In the early days, there was an ideological vacuum as far as providing direction to economic policy formulation was concerned.
This resulted in wide swings in the way the economy was managed. Burki has identified four broad policymaking trends in the country, starting from Ayub era that was marked by a growth-centric economic strategy, which allowed considerable space to the private sector, as a result of which the growth rate picked up, though at the same time it accentuated economic inequalities.
The pendulum of policy formulation then swung to the other extreme in the 1970s, when the focus was on wholesale nationalisation. Zia's martial law did what Dr Burki has called tinkering "at the margins" to introduce Islamic economic principles in the country's economic management. The fourth shift came with the induction of the first Nawaz Sharif government, during which faith was once again placed in the private sector, under a strategy known as the "Washington Consensus." This approach was kept in place by the military administration headed by Pervez Musharraf.
Pakistan's economy has landed in serious trouble largely because of what another leading expert Dr Ishrat Husain has called, the pursuit of an "elitist" model of growth that characterizes the economic systems of a number of developing countries such as Mexico, Brazil, Kenya and Nigeria. Under this model, both the economic and political power are held by a small group of people at the top, and state's economic apparatus is manipulated to deliver most of the benefits of economic growth to this group.
Secondly, under this system, markets produce insufficient and inefficient results that are detrimental to long-term sustainability of growth. A major defect of this strategy is that it has sharpened and consolidated the existing systemic inequalities. As a result of the pursuit of this pattern of growth, the country has had to pay a steep price in terms of burgeoning debt and rampant poverty. It is said that this pattern of growth has ensured the continued hold of only one percent of the population on the levers of economic and political power.
Thirdly, only faces have changed under this system, though no essential policy change in approach to issues of economic growth has taken place. Ishrat, in effect, has argued that unless this self-serving pattern of growth is replaced with a broad-based model that benefits the largest number of people, regardless of their caste, creed and other affiliations, such aberrations will continue to dog the system, leading to perpetual socio-economic inequalities, large enough to leave an adverse impact on governance.
A major cause of growth constraints in Pakistan has been the gross neglect, not only of agriculture, but also of the water and power sector, which has increased manifold the cost of production.
According to one estimate, the loss sustained by the Pakistan economy due to the non-construction of dams and water reservoirs is around $60 billion per annum, while Pakistan's energy import bill, due largely to increased dependence on the thermal option, is likely to spiral to about $42 billion by the year 2022. Had our hydropower and coal sectors been developed in time, this crippling burden on the exchequer could have been avoided.
Rising poverty and distributive inequalities are a result of the lop-sided and self-serving pattern of economic growth that needs to be suitably modified. There is an urgent need to address all these fault lines if we have to develop an egalitarian economic system, free from such anomalies. And lastly, there is a need to develop a reasonably inclusive policy framework in the larger interest of long-term socio-economic stability and economic progress of the country.
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