Stabilisation and growth without much reforms – II

In contrast to the prescription being followed in Pakistan like in many other IMF programme countries over the years, the state mostly fixed markets; it did not shape them, as China did and continues to do. In the same vein, China played a leading role in reforming and running its state-owned enterprises (SOEs) to the overall economic advantage of the entire country. Pakistan under neoliberal mindset and lack of greater political will, however, has been trying to delegate responsibilities to the private sector to manage SOEs when regulatory frameworks have also remained weak. This is strange in view of the fact that the international experience has clearly pointed out over the last decade or so the limitedness of private sector in pursuing long-term interests generally those of SOEs. Even growth of the Scandinavian countries – another role model for economy for PM – has significantly depended on well-run SOEs by the public sector, especially in terms of attaining equitable and sustainable growth.

Moreover, Isabella in her same book ‘How China escaped shock therapy: the market reform debate’ has pointed out the advantage of China using market to pursue its long-term development related goals in the following manner: ‘As such, it preserves a degree of economic sovereignty that buffers China’s economy against the global market… . Abolishing this form of “economic insulation” has been a long-standing goal for neoliberals, and our present global governance was designed to put an end to national protection against the global market (Slobodian, 2018, 12). China’s escape from shock therapy meant that the state maintained the capacity to insulate the economy’s commanding heights – the sectors most essential to economic stability and growth – as it integrated into global capitalism.’

Pakistan’s economy on the other hand continues to suffer a boom-bust cycle, because the government has not avoided the neoliberalism-led broad-based liberalization policy, and over the years has not ‘insulated’ enough essential economic sectors such as agriculture and industry in terms of supporting and shaping the markets. China and India achieved a lot more financial stability and create conducive conditions for attracting foreign direct investment (FDI), by successfully communicating to the world that unlike the West their financial systems were not enough developed to allow highly liberalized financial markets. On the other hand, Pakistan, however, has not adopted the same rigidity or greater insulation of the financial market to show greater interest in attracting FDI, but rather in very fluid foreign portfolio investments for short-term foreign exchange cushion.

No wonder a big part of our inflation pressure comes through the channel of imported agricultural commodities, many of which were once amply produced locally, but because of lack of institutional, organizational, and market reforms in a non-neoliberal way over the years, both government capabilities and the economy overall have failed to provide the required support to this sector. In that sense, a recent statement by the Finance Minister while giving an interview to electronic media that providing more finances to people in the agricultural sector, and at better terms and easier ways, will be the ‘main game-changer step’ is counter-productive to providing a strong institutional, organisation, and market reform package that farmers need to enhance productivity and motivation and get fair prices, better quality inputs, and much-needed greater logistical support. This reflects the overall thought process of the government, which has laid more emphasis on stimulus than institutional reform, ignoring the fact that reforms are more important and consequential than stimuli; so while both are needed currently, reforms should come more vociferously.

An important aspect of this economic environment is not to move towards limited government under neoliberal thought-process, but towards a rationalized role of government for both shaping up markets, and one that is carrying a multi-sectoral, purpose-driven, and mission-oriented role of government – including the reform of public service towards being a dynamic, and creative entity – seeing in turn itself, as an ‘entrepreneurial state’. So that the government does not just ‘facilitate’ the private sector but becomes a significant risk-taker and reward-reaper, along with the private sector; and with greater investment in its own capabilities, is better prepared to engage private sector in terms of meeting country’s development goals.

Renowned economist Mariana Mazzucato in her (2015) book ‘The entrepreneurial state: debunking public sector vs. private sector myths’ highlighted the concept of an entrepreneurial by arguing, among other things, that ‘This conventional view of a boring, lethargic State versus a dynamic private sector is as wrong as it is widespread. …in countries that owe their growth to innovation… the state has historically served not just as an administrator and regulator of the wealth creation process, but a key actor in it, and often a more daring one, willing to take the risks that businesses won’t. …Yet by dismantling the role of the public sector as not important, the focus inevitably is not on making the government more competent and smarter but on making it smaller or absent entirely. …It is only through an exciting vision of State’s role that such expertise can be recruited, and is then able to map out the landscape in the relevant space…’

Moreover, the state should also understand that sustained macroeconomic stabilization, and equitable and sustainable economic growth will only come by adopting a purpose-driven, mission-oriented approach by an entrepreneurial state, the same way as for instance, it was successfully practised by the US for going to the moon. The government in Pakistan, like any other government in the world, should come out of self-delusion that a neoliberal way of doing things could allow this to happen.

If anything, the pandemic has amply shown the lack of preparedness to effectively deal with it by governments in many parts of the world following the neoliberal policy of limited government over many decades now. Even the spirit of mostly ‘facilitating’ the private sector did not allow governments to have better contracts with, for instance pharmaceutical companies, whereby while a lot of base research for many Covid vaccines was provided through public funding, the governments had little control over pricing and intellectual property rights-related features of vaccine as a final product. In Pakistan, while dealing with independent power producers (IPPs), or with K-Electric, the government under could not optimally negotiate contracts with the private sector; where partly it had also to do with the lack of investment in public sector capabilities over the years, including creating a more dynamic public service to better understand and deal with private sector expertise.

In her recent book ‘Mission economy: a moonshot guide to changing capitalism’ Mariana Mazzucato has discussed this approach: ‘The moon landing was a massive exercise in problem-solving, with the public sector in the driving seat and working closely with companies… It required collaboration between government and many different sectors… Government used its purchasing power to develop procurement contracts short, clear and massively ambitious. …What integrated all these efforts and gave them direction was that they were part of a mission – a mission led by government and achieved by many. …By rethinking how the relationship between the public sector and private sector can be better governed around public purpose, we can create growth that is better balanced and resilient… But this means, at the start, replacing the fashionable, bland terminology of ‘partnership’ with clearer metrics as to what a symbiotic and mutualistic ecosystem looks like; that is one in which risks and rewards are more equally shared. …I call this different way of doing things a mission-oriented approach. It means choosing directions for the economy and then putting the problems that need solving to get there at the centre of how we design our economic system.’

China adopted this non-neoliberal, mission-oriented approach – including that for reaching rationalized prices – around four decades ago, while during the same time Pakistan has vociferously followed neoliberal policies, both as a prolonged user of IMF resources, and also by many policymakers deeply influenced by this mainstream economic orthodoxy. Pakistan should also follow this non-neoliberal, purpose-driven approach if it wishes to set the direction of macroeconomic stability and economic growth on an equitable and sustainable growth trajectory, where government, the representative of public interest, is in the driving seat.

The celebratory tone of PM and his economic team is naïve to say the least, because economic growth has not resulted on the back of institutional reform; and in the absence of non-neoliberal thinking on the part of government, the economy is yet to be put in the correct direction; one that brings fast, equitable, and sustainable economic growth, and one where the ‘bottoms-up’ approach has a chance to succeed. In addition, with the pandemic-like situations likely to resurface again and again unless climate change crisis is properly dealt with, and neoliberal assault is reversed, the change in thinking by government should come sooner than later, given the world is facing such precarious times, posing strong existential threats to any reasonable way of life as we know it.

(Concluded)

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

He tweets@omerjaved7

Copyright Business Recorder, 2021