Shock therapy neoliberal market reform in Pakistan

One can only be shocked to see the lack of understanding by local media, and many of their guests on TV shows discussing economic policy, in terms of lessons learnt globally.

There is strangely a sheer lack of understanding on the very adverse economic impact from adopting neoliberal, pro-cyclical, austerity policies, in both developed and developing countries over roughly the last four decades, and especially since the Global Financial Crisis (GFC) of 2007-08.

In addition, even in this age of fast modes of gaining and sharing knowledge, the talks that happen, or the print media representation of their ideas in opinion pieces, or from similar discourse emanating from the government’s own, and the platforms of virtually all main political parties, ‘economic experts’ seem to have remain quite out of touch of the dangers of shock therapy-styled market liberalization plans, for instance, in the case of its practice in former USSR and then Russia, and the benefits of dual-track pricing policy instead in the case of China.

Moreover, more often than not, India’s economic success over the last three decades is also discussed loosely in opinion-sharing spaces with ‘economic experts’ highlighting early 1990s’ deregulation, and liberalization policy as a main reason behind this, which in fact, is not the case.

India understood the importance of deregulation, and of directing the economy towards building a capital base, and living with a low but more sound level of ‘Hindu growth rate’ for a number of years before they gradually, and in a piecemeal way opened their economy to lesser trade barriers, and their economic sectors to fewer regulations. Having said, even after the so-called ‘free trade’ wave of globalization since the latter part of the 1990s, they remained cautious to wholesale liberalization, especially in terms of capital controls.

Pakistan, on the other hand, mostly remained a consumer-oriented economy, with much looser capital controls, and also left a lot on market fundamentalism, especially in agricultural markets where, for instance, in China, prices of important commodities for agriculture, and the broader economy were strategically planned through the system of dual-track pricing system.

Hence, the country suffered from low-quality and narrow industrial base, frequent balance of payments crises, the build-up of external and domestic debt to difficult levels from time to time, and greater presence of imported, and cost-push inflation in overall inflation due to mainly weakening of domestic currency, and lack of governance in domestic markets.

Moreover, diminishing quality and extent of government – mainly due to greater outsourcing of otherwise core responsibilities of government, and receding role of government in directing markets in not just effectively dealing with market failures, by creating more meaningful partnerships with the private sector, but also in checking over-profiteering – primarily since the late 1980s.

This happened mainly through neoliberal/Washington Consensus-based IMF programmes’ policy conditionalities, and a greater number of ‘Chicago-boys’-styled economists – at the back of deeper entrenchment of neoliberal economics in mainstream Universities globally – entering the policy echelons badly hurt economic development in the country, especially in terms of ineffectively dealing with both the pre-, and post-distributional consequences of economic growth, which in turn evolved into a very non-resilient, less-green, and highly non-inclusive composition over the last four decades in particular.

Globally, neoliberal policy, allowing perpetuation of ‘profit-over-people’ mindset, and austerity accentuating inequality, and entrenching greater elite capture, along with damaging the quality of democracy, and also allowing political parties, and xenophobia-spreading political parties to be closer to being mainstreamed, received a big backlash.

Hence, both the domestic economic scenario, and global perspective giving clear signals, especially in the wake of GFC, and then as climate change-induced disasters increased, and Covid pandemic hit, all indicated the lack of government and market preparedness to effectively deal with market failures, especially in terms of increasing resilience, and reducing inequality; not to mention in terms of increasing political voice, and its impact on public policy in any significant way.

Having said that, the lack of clarity by anchors conducting TV programmes, and these ‘economic experts’ – both in and outside of the government, and even in main political parties, including PTI (Pakistan Tehreek-e-Insaf) — even when the negative consequences of neoliberal shock therapy — quick price, trade, and capital liberalization, especially when real and financial sectors are quite under-developed to protect themselves, or lack of capacity of government to effectively safeguard consumers from the profit-excesses of the private agents in markets, or in economic exchange through the ‘middle-men’ – are quite evident for a number of years, both in and outside the country, is shocking to say the least.

Pakistan needs to become an entrepreneurial state with a smart role of the public sector in both reducing the transaction costs involved in economic exchange, and in safeguarding the economic interest of the taxpayer. It needs to have a non-neoliberal, non-austerity, counter-cyclical policy along with having a more cautious and creative price reform approach that is not based on shock therapy.

Also, it needs to be understood that while India has seen high growth rates over a number of years since the start of the century, yet depth of macroeconomic stability, especially in terms of inflation, the level of poverty reduction, and the extent of income inequality has been far less than in the cases of, for instance, China or the Scandinavian countries. The main reason is that while India was cautious in deregulation, and loosening capital controls regime over the years, yet it still gave in to considerable neoliberal price shock therapy.

However, China, unlike former USSR, adopted a highly-gradualist way of liberalizing, and continued with both greater role of government in terms of state-owned enterprises, and in setting prices strategically through, for instance, the dual-track pricing regime.

Similarly, social democratic policies in the Scandinavian countries (Sweden in particular) and lack of application of any meaningful shock therapy, put their macroeconomies and economic growth on a deeply sound basis. For example, even in the heyday of the supply-shock crisis during the pandemic, they did not have difficult inflationary pressures.

Copyright Business Recorder, 2023