Undo neo-liberalism

ARTICLE: 'This nation asks for action, and action now' - Franklin D. Roosevelt

As a government that came on the slogan of 'change' of the magnitude of 'Tsunami' completes two years in office, it will not be wrong to say that while it has made some efforts to take on elite capture, and bring some reform and welfare, yet what it has done mostly, in this regard, is fire-fighting of a daily nature. Such reactionary actions have only partially attended to the symptoms, while the basis of issues remains quite intact on both economic and political sides - the root cause of both remains the practice of the tools of neo-liberalism by the elites to only perpetuate their influence over public policy, and in turn have continued to add to their incomes and wealth.

Sadly, the pandemic, which has further exposed the fragility of the economy and the deficiencies of political discourse, has not been able to indicate to government of the real challenges facing the economy, and how to handle them effectively. An extractive institutional design created and perpetuated by the collusion of the politico-economic elites is at the heart of such challenges, and created through the use of neoliberal policy framework has allowed this collusion to influence public policy to their advantage. Such inordinate advantage has not only not allowed economy to be fixed in terms of fundamental basis over the years, and in the process the wealth created through this biased environment has been used as election campaign funding, has on one hand allowed gaining votes through exploiting the existing weak pre-requisites of democracy, and on the other, to buy in return for the financiers in the private sector to gain influence over public policy.

A government that put elite capture in its manifesto, and then centre-staged it in the goals of one of their flagship 'Ehsaas' (or care) welfare programme, has not been able to see the main role of neo-liberalism in allowing the elite capture to perpetuate itself, which the elites have successfully continued to do, especially since the emergence of neo-liberalism, for over forty years. Before that, most elites became elites in the first place through inordinate distribution of property rights by the Britishers as a reward for the allegiance and services of such individuals/families towards strengthening the roots of colonialism by lending support in keeping the people subjugated.

During the times of Ronald Reagan and Margaret Thatcher 40 years ago, the corporate interests had amassed enough influence over public policy through financing election campaigns. Such interests were able to convince that the 'government' was the problem to the economy, and needed to be kept only at the margins of providing the basic environment of order and security, while the economy was to be primarily left to private actors, market signals, and least regulation. While by the time of the Global Financial Crisis of 2008/09, and the sustained economic development and little level of inequality, relatively speaking, in the social democratic Nordic block, the ravages caused by neo-liberalism to economy and democracy had become quite clear, but given the deep level of entrenchment of corporate influence over public policy, on the back of significant role money has continued to play in elections, especially in the developing countries, the policy response to undoing neo-liberalism has remained quite weak. In Pakistan, unfortunately, purging neo-liberalism has not been declared as a policy objective as such.

It was hoped that the current government, being the 'third force', since being an alternate to mainly the previously two status-quo parties, would call neo-liberalism out, and formulate a whole policy to undo this onslaught. It is, therefore, of utmost importance that the government should understand that structural changes to the economy will only work once the extractive institutional design - under which such policies are made by the collusion of the politico-economic elites that unjustifiably allow the few in the economy to transfer resources and wealth to themselves, which should otherwise have been more spread out among the many in the economy - has been dismantled. Such transfer of resources and wealth have allowed a tiny segment of society to continue to use political parties - and even remain part of most parties - as 'one business party', serving the interests of corporations or unaccounted private tyrannies in most cases.

This has in turn weakened democracy in the country over time, since moneyed people have had a lot more voice in policy corridors than swaths of demos in the lower-income brackets, which has disenfranchised majority of voters, who in turn have continued to lose interest in the political process, resulting in lower turnouts in elections. Moreover, the strengthening of relationship between election campaign funding and election results has left an increasing number of demos over time to carry a feeling of helplessness, and not be the vigilant, active electorate that is required as a pre-requisite of healthy democracy.

It, therefore, falls on the shoulders of the incumbent government to attack neo-liberalism, for which it is important that first of all one wholesome policy is made to reform institutions or ministries, so that well-regulated and equally enabling environment is provided for underlying organizations - including the state-owned enterprises (SOEs) - and the markets. This will make the institutions non-extractive or inclusive, and will help reduce artificially created income and wealth inequalities. At the same time, truer price signals will be reached which would allow approaching more broad-based consumption and investment interventions by the economic agents. Over time, inequalities will be reduced. Moreover, this naturally balancing act achieved through equality of opportunities on the back of equality of voice in the process of public policy formulation will create positive consequences for economy and democracy.

Institutional reform would mean that the ministries provide adequate governance and incentive structures to the organizations and markets. Moreover, such a reform should, as one of the main steps, improve the quality of public service, for which it is important to reform the civil and government service. Here, it would make sense to undo civil and government service in favour of 'one' public service in all the domains of public sector, where the public service is seen in terms of administrative and technocratic service within any one sub-sector of the public sector, with the added feature of regular and fast streams, to differentiate between average and above-average performers.

In fact, given the gravity of economic turmoil, especially after the ravages of the pandemic, which has left a) millions unemployed, b) a looming debt crisis, c) a precarious situation of public finances, significantly increasing the number of people below the poverty line, and d) causing income and wealth inequalities to woefully exacerbate. It is, therefore, of utmost importance that at the federal level, the PM should constitute an 'economic war cabinet' to urgently and deeply focus on institutional, organizational and market reform; in particular with regard to health, education, energy, and SOEs. In principle, neo-liberal policies should be dismantled, and reform, which is more broadly focused. Moreover, in Punjab and KPK, PTI has its governments, at the least, the respective chief ministers should allocate dedicated time to each division of the province, where they should physically camp with all the secretaries, and work for the improvement of development and governance matters; and repeat such visits, and review progress. Such focused attention is a must given the gravity of the crisis at hand.

The government will need to take the front seat if it meaningfully intends to beat neo-liberalism. Anything short of that will not allow addressing the current challenges facing the economy, and democracy, not to mention coming up with a befitting response to the existential threat of climate change, and the likelihood of future pandemic shocks. In taking centre-stage, the government should take responsibility of all strategically important SOEs, where it could look to follow in the foot-steps of China, which successfully ran and at the same time involved private sector, through the principle of mixed-ownership model. As lukewarm experience of the 'golden age' of privatization of the 1990s, and in the case of Pakistan of Karachi Electric, which has amply shown that privatization has not worked as such especially in countries like Pakistan where exist no strong economic institutions and regulatory frameworks.

Last but not the least, the government should formulate a 'Price Commission' which should reform markets so that better price signals are reached in markets of real sector (including price of labour or wages/income), and financial sector (mainly in terms of the price of loanable funds or interest rate), and in checking the process of cartelization and abnormal profits; something which should also be addressed in the overall market reforms.

But nothing will work meaningfully before the neo-liberal strings in the hands of the elites over economy and politics are broken. The government should declare its objectives and roadmap in this regard without any further loss of time.

(The writer holds PhD in Economics degree from the University of Barcelona, and previously worked at International Monetary Fund. He tweets @omerjaved7

Copyright Business Recorder, 2020