Growthmania, again

There is an old Sindhi saying to the effect, loosely, that: When God is displeased, he turns the mind, he wields no weapon; he shows (safety in) that way, which puts life in danger (rabb rusay matt khasay, haney ko na hathiyar; disay ehnro panh, jinhen san jokhon jiyo ki).

In the echo chamber that is Islamabad there is a rising, ominous rattle of Growthmania. The view that economic growth—and growth, by itself—is the panacea to all that ails Pakistan. The ministries of finance and planning, the Pakistan Institute of Development Economics (PIDE), prominent think tanks and respectable economists, all are advocating that high economic growth, to the virtual exclusion of all else, should be the objective of economic strategy and policy. God help us.

Jinnah’s Pakistan disintegrated due to neglect of regional and social equity, in blind pursuit of growth. Will we break Bhutto’s Pakistan also? With but a little imaginative licence, we can see the nascent outlines of an emergent New ‘East’ Pakistan (Balochistan and Khyber-Pakhtunkhwa) and a New ‘West’ Pakistan (Punjab and Sindh). Equally, as the ‘Haq’ of our times (Nadeemul Haque, of PIDE) points out: “while Mahbubul Haq talked of 22 families dominating Pakistan in 1967, in 2018, some 50 years later, the wealth in the stock market may be largely owned or controlled by 31 families.”

In Jinnah’s Pakistan, regional equity was an issue from day one. By 1962, the East Pakistan members of the National Finance Commission noted: “We feel for our part strongly that the most crucial issue facing Pakistan today is the growing economic disparity between the two provinces,” and called for a “fresh and dynamic approach to this problem.” None came forth.

In May 1970, citing these words, the East Pakistan economists made a final plea for sanity:

“The passionate call [in 1962] for a harmonious national development went unheeded. Instead, the then Deputy Chairman of the Planning Commission subsequently referred to some of the East Pakistani economists as ‘minions of foreign powers’ in a widely publicised radio broadcast. It is a sad commentary that … after 9 years those words [on economic disparity] … hold only with greater force… Will an impatient nation give us yet another opportunity?”

The answer wasn’t long in coming. Ten months later military operations started in East Pakistan. Another ten months later, West Pakistan became Pakistan.

Fast forward fifty years, and everything has changed and yet nothing has changed. The wildly popular—yes, at the time, they were extremely popular—socialistic reforms of the 1970s and the government-managed economic recovery of the 1980s came to an end in the late 1980s. Under IMF tutelage, from 1989-2002, economic decisions started to be taken according to ideological dogma, rather than by rational and empirical analyses. The long-term growth rate plummeted. It fell every year, for fourteen years in a row (from 7pc to 3pc). Yet in a triumph of faith over reason, both the IMF and the government stayed the course. In 2004, when exceptional capital inflows started, Pakistan bid farewell to the IMF. But the IMF is back again, and they are still peddling the same ideological nostrums.

That ideology, rejected thoroughly after the 2008 global financial crisis, is neoliberalism. It was fashioned by an Austrian-British economist-lawyer (Friedrich Hayek, 1899-1992) who was afraid that a strong government in his adopted home, England, would lead to socialism (as in Russia, after the revolution, 1917-23; and Germany, after Hitler, 1932-33). All his life, therefore, he advocated minimal government: relying on markets, built on the firm foundation of British common law, and opposing all government planning, regulation, and welfare programmes. As an undergraduate, Margaret Thatcher had studied Hayek and when she became prime minister (1979-90), she reshaped British government according to Hayek’s neoliberalism.

While visiting the University of Chicago (1950-62), Hayek also influenced the economist, Milton Friedman, whom Ronald Reagan, the US president (1981-89), admired. Friedman’s economics, monetarism, holds that money supply is the proximate determinant of national output (at current prices). Monetarists believe that economic policy should aim to control inflation by monetary and exchange rate policy, rather than to promote growth, employment, and equitable income distribution by fiscal measures. For us, this means that the locus of economic management should shift away from the ministries of planning and finance to a technocratic imperial central bank, “independent” from national political influence.

This is the IMF-sponsored change under implementation progressively for the last thirty years. Yet, without realising the contradiction, there are now loud claims from a weakened planning-finance complex that the prime goal of economic policy should be to raise economic growth. Albeit, this growth would be “inclusive” this time. This is encouraging. But what does inclusive mean?

The term is from an academic work published in 2011 (Acemoglu and Robinson, Why Nations Fail?). The authors distinguish between “extractive” and “inclusive” political and economic institutions. Extractive institutions—political: rule by a few, without constraints, checks and balances, or rule of law; economic: lack of law and order, insecure property rights, oligopolistic markets, and a non-level playing field—“are designed to extract incomes and wealth from one subset of society to benefit a different subset.” This seems to describe Pakistan quite well: tax the people to pay interest (mainly) to “31 families”.

“Inclusive economic institutions,” by contrast, “are those that allow and encourage participation by the great mass of people in economic activities that make best use of their talents and skills and that enable individuals to make the choices they wish. To be inclusive, economic institutions must feature secure private property, an unbiased system of law, and a provision of public services that provides a level playing field in which people can exchange and contract; it also must permit the entry of new businesses and allow people to choose their careers.” A delightful vision. If wishes were horses, beggars would ride.

Crucially, “Inclusive economic institutions need and use the state.” So, we can’t be both neoliberal and inclusive. Besides, to be convincing, advocates of inclusive growth need to back it up with concrete proposals to end social exclusion, promote political participation, remove market distortions, and establish rule of law. Unless they can walk the talk, “inclusiveness” is just a marketing jingle, and the pursuit of high extractive growth will rip the country apart, once again.

In spring 1972, now living in America, Mahbubul Haq reflected on “What went wrong?” and wrote: “My feeling is that it went astray in two directions. First, we conceived our task not as the eradication of the worst forms of poverty but as the pursuit of certain high levels of per capita incomes… Besides the constant preoccupation with GNP growth, another way we went wrong was in assuming that income distribution could be divorced from growth policies and could be added later to obtain whatever distribution we desired… I am afraid that the evidence is unmistakable and the conclusion inescapable: divorce between production and distribution policies is false and dangerous. The distribution policies must be built into the very pattern and organization of production.”

In this, there are lessons for the wise.

(The writer is a retired economist, who has served as Senior Economist, World Bank, Chief Economist, Government of Pakistan, and Chairman/CEO of a private consulting firm)

Copyright Business Recorder, 2021