Economic direction and role of government — II

The overall economic policy, including that of the philosophy of Budget, must take into consideration the fact that cutting-off from the trickle-down economics and dismantling elite capture as a main stumbling block in its way, requires understanding that random financing of sectors, and people and projects within it, will not provide equitable and sustainable growth. The rate of growth may increase in the short-term, but without dismantling the elite capture and purpose-driven meaningful role of government, which brings in different sectors and leads them to solve the main stumbling blocks indicated above, which face our economy – trickle down, and elite capture – long-term economic interests of mainly reduced income inequality, poverty, and climate change crisis.

The role of the government should be more mission-oriented and involved in terms of sharing the fruits of progress. PTI’s overall economic policy, including the Budget 2021-22, like previous governments for many decades now, have not taken that mission-oriented approach. It has not corrected the underlying direction of economy away from obsession with GDP growth and less with providing a purpose-driven role of government. Mariana pointed out in her recent book ‘Mission economy: a moonshot guide to changing capitalism’, and which lays out a clearer path in this regard the following: ‘The ambition of the government should be to set off catalytic reactions across society, an important part of which would be performing as a better partner to business – helping steer change towards meeting society’s challenges, offering clear rewards for businesses willing to help make it happen and stumping up the high-risk early investment that business tends to shy away from. And in taking such risks, government would be recognized as an active investor – not just a lender of last resort – and command public support for sharing in the rewards.’ Without this role of government, just financing more of the poor and middle-income groups will not allow them to sustainably move up the income ladder because of the absence of the needed institutional environment and overall effort by government in a better economic direction.

And in exercising this role, the government should understand and think on the following lines as highlighted by Mariana in her earlier book ‘The value of everything: making and taking in the global economy’, while providing much-needed correction with regard to which direction an economy should take. She indicated in this regard: ‘The question remains: what direction should the economy take if it is to benefit the greatest number of people? Maximum GDP growth, one standard answer these days, is far too crude to be helpful: it sweeps away all the serious questions about value. Another common answer is fiscal probity, governments running balanced budgets, or even, as in Germany, a surplus. …The question of growth must thus focus less on the rate of growth and more on its direction.’

After witnessings decades of negative consequences of neoliberal assault in terms of lesser government, unfettered markets, and greater privatization and that too under weaker regulation, the government should move away from such neoliberal jargon as a ‘facilitator’ and ‘field leveler’ for the private sector. It should also shed its role in leading the economy as an equal partner in progress, along with the private sector. Hence, rather that, for instance, going for as much privatization as possible, it should improve its own capabilities to take the lead in running important economic sectors – airlines, railways, electricity provision, among others – like China, and the Scandinavian countries do, and many others have joined in after the tyranny of the private sector under its ‘profit-over-people’ mindset that came to the fore during the golden era of privatization and also under the neoliberal assault.

It is about time the government in Pakistan and other countries with similar experience with Neoliberalism, reoriented their role. Mariana in her book ‘The value of everything: making and taking in the global economy’ pointed out with regard to this reorientation: ‘Indeed, a key way to tackle some of society’s most pressing problems today is to learn lessons from historical periods in which bold ambitions were set to tackle difficult technological problem. Consider two lessons from the man on moon mission. First, the agencies involved from NASA to DARPA, built up their own capacity and competencies. They did not outsource their tasks… Second, Apollo mission required different types of actors and sectors to collaborate, from aerospace to innovations in textiles. The focus was not on subsidising a sector (aeronautics) but on solving problems together, which required many sectors and different types of public and private sectors to collaborate – even those in low-tech sectors like textiles.’

Pakistan needs that ‘bold ambition’ to correct its economic direction away from rate of GDP growth and a naïve stance to think stimulus, and that too random and without much government’s overall greater leadership and mission-oriented role. Instead of shedding responsibility by over-inclining towards privatization under neoliberal thought-process and better negotiating contracts in case where privatisation is necessary and even in the case of public-private partnership, the government should build its own capability and protect the interests of the demos. This purpose-driven, mission-oriented approach also requires that government shapes and co-creates markets with business, and not just facilitates. Without this approach, stimulus will most likely be quite a frustrating and hollow experience for the intended masses. Otherwise, countries who have provided trillions of dollars of stimulus such as the US have also seen increasing income inequality, and there has been increasing pressure on governments worldwide to move away from this neoliberal thought process of limited government; people in addition to stimulus, and even more importantly, need government’s dynamic leadership and the institutional environment, organizational behaviours, and market fundamentals that this non-neoliberal, purpose-driven, mission-oriented leadership creates. Moreover, years of outsourcing by successive governments have also contributed to a weak public sector, whereby it was not prepared - even to effectively deal with such instances as global financial crisis and pandemic-like situations, and private sector cannot be relied upon to play any deeper role, since as such it never invested much in this direction, due to its short-term interests in general, and also because it does not have the scale and means to take up that role, which governments can and should undertake.

The economic challenges facing Pakistan are indeed very big such as rationalizing prices in all the sectors of economy (goods, services, real, and financial), reducing income inequality, dismantling elite capture and diminishing climate change crisis, and therefore, require adopting policies on the lines indicated above. The government, under a mission-oriented and purpose-driven role may even consider forming an overall ‘Ministry of Economy’ and a ‘Pakistan Development Bank’ – details of which the authors has provided in his earlier articles in this regard to correcting Pakistan’s economy’s direction and its governance.

(To be continued)

(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