Tarin’s plan falls short of needed reform approach — I

‘In this context, ‘moonshot’ thinking is about setting targets that are ambitious but also inspirational, able to catalyse innovation across multiple sectors and actors in the economy. …Conventional wisdom continues to portray governments as a clunky bureaucratic machine that cannot innovate: at best its role is to fix, regulate, redistribute; it corrects markets when they go wrong. …government should simply level the playing field and then get out of the way – so the risk-takers in private business can play the game. This book’s thesis is that we cannot move on from the key problems facing our economies until we abandon this narrow view. …Public purpose must lie at the centre of how wealth is created collectively to bring stronger alignment between value creation and value distribution.’ – Excerpts from the 2021 published book ‘Mission economy: a moonshot guide to changing capitalism’ by Mariana Mazzucato

Finance Minister (FM) Shaukat Tarin detailed his plans for the economy at a recent press conference recently. He said that reform plans were being evolved for a number of areas including primarily, price stability, revenue enhancement, power sector, and state-owned enterprises (SOEs) reforms. Overall, he indicated that stabilization effort is needed to be shifted to pursuing economic growth concerns. This will require the government to successfully persuade the International Monetary Fund (IMF) to create greater space in its current programme. The government will also be required to further ease monetary and fiscal policies as demanded by pandemic-causing recessionary hardships, and also because a portion of inflation had no connection with policy rate.

While this is a much-needed shift in policy direction that the new FM has taken in terms of focusing on economic growth, the plan lacks much-needed policy approach to put in place levers that will deliver not just growth, but growth with equity, and one that is environmentally responsible. The plan does not exhibit understanding of the lessons learnt from the ills of Neoliberalism – a small government, virtually unfettered markets, and private sector under least regulation that the world, including Pakistan, suffered from for many decades now, both at the hands of IMF programmes, and Chicago-boys-styled local policymakers.

The plan talks about taking a ‘bottoms-up’ approach as against the earlier ‘trickle-down’ one, but highlights no reforms through which ‘elite capture’ can be curtailed, along with making available an institutional environment that allows the lower segments on income-scale to rise in a sustainable manner. In fact, the plan desires reducing this skewed income inequality, and resulting higher level of poverty, but brings to table no non-neoliberal reform policy that dismantles the extractive institutional design perpetuated by the collusion of politico-economic elites, mainly on the back of continued disenfranchisement of majority in terms of their influence over policy, where such influence has been significantly in the hands of these moneyed elites, given the rising role of money as election campaign finance in determining electoral outcomes.

In fact, the Shaukat Tarin economic plan talks little about how to provide the institutional environment to, for instance, farmers or labourers, or small and medium enterprises (SMEs), when the ‘rules of the game’, or the institutions or ministries do not provide incentives and governance structures that allow the majority players of the game –SME, or otherwise individuals in labour class or service sector – the same opportunities, information, and technical support that the elites receive through the vehicle of asymmetric information under extractive institutional design or elite capture, which operates in both the real and financial sectors.

The current economic thinking while tries to differentiate itself from previous policies adopted does not actually dismantle the underlying challenges to what is being desired for currently in terms of ‘bottoms-up’ consequences. For instance, it is rightly being argued that over-stabilization or excessive aggregate demand management, both in terms of depth and timelines of this adjustment under the current IMF programme, needs to be more balanced in favour of growth, yet falls well short of correcting the neoliberal extractive institutional design. A glaring example is in the shape of not understanding the importance of public sector, especially in developing countries like Pakistan where traditionally weak regulation and lack of strong democratic fundamentals, both private sector and markets have followed signals that maximize profits and in the shortest possible time, while long-term social, economic, political, and above all environmental concerns are paid little heed.

(To be continued on Tuesday)

(The writer holds PhD in Economics from the University of Barcelona; he previously worked at International Monetary Fund)

He tweets@omerjaved7

Copyright Business Recorder, 2021