Domestic economic thought, profession, and ‘dual-track’ pricing mechanism

Although Pakistan came into existence at a time when there was a deeply renewed focus on economic thought process globally in the wake of establishment of Bretton Woods institutions a few years earlier to bring stability to both international financial system after years of sufferings caused by the two Great Wars the practice of ultra-nationalist/protectionist policies in the inter-war period, and the need for physically rebuilding, particularly the war-ravaged Europe, yet the country lacked any meaningful focus in evolving the otherwise very nascent level of economic acumen at the national level, and to forge partnerships globally with major economic institutions for creating much-needed economic intellectual space locally.

On one hand, during the 1960s, in the tradition of Keynesian Economics, the role of government in economic planning was not only made significant, it was also adequately inclusive and attractive for the private sector; along with adopting welfare policies for overall greater sustainable growth.

During the same time, on the other hand, neoclassical policies center-staged primarily ‘market fundamentalism’ that is basically market knows best, and requires very low level of regulation.

Therefore, the government made no concerted effort to analyse the domestic economic institutional, and market structures, to bring better price discovery, and to reduce information asymmetry, not only for reaching greater macroeconomic stability, but also for addressing otherwise rising equity concerns.

Therefore, an overall ‘trickle down’ economics model was practiced – even thought there was greater role of government involved in 1960s than in subsequent decades – and lack of ownership reform or private property reform, in particular right-sizing the agriculture land holding – unlike India where appropriately deeper cuts were made in this regard – resulted in rising income inequality, which together with an already lopsided initial distribution of property rights during colonial times perpetuated extractive politico-economic extractive institutional design over time.

Later, there remained a big gap between declared ‘social democratic’ policy stance, and actual practice of socialist policies during the Bhutto era, but that too to the extent of nationalizing industry and banking. Here, private enterprise was unnecessarily hurt while no meaningful distributional consequences were reached both due to lack of land reforms and insignificant role of government in enhancing agricultural productivity or strengthening industrial policy, especially in terms of improving the efficiency of public sector enterprises.

Moreover, there was lack of allocative efficiency in terms of neither enhancing physical infrastructure, especially of electricity, and railways, nor improving intellectual/social capital with regard to enhancing productivity of public health-, and education sectors.

During Zia’s tenure, and under subsequent governments – both civil and military – while moth-eaten socialist policies of the 1970s were rolled back to return once again to an otherwise economic policy norm of the country, and which was following neoclassical policy, and within it market fundamentalism, since this allowed lose control of economy which, in turn, suited perpetuation of ‘elite capture’ policies.

Hence, even though economic growth spurts were achieved due to either global windfall gains – given the country remained primarily an import-led one – or episodes of high inflow of foreign aid, yet overall the economy continued to remain stuck in rather frequent boom-bust cycles; resulting in high level of income and wealth inequality, high poverty levels, and little incentivization for re-investment of medium-to-long-term domestic-, or foreign savings into the economy – not to mention sub-optimal use of foreign aid due to issues of harmonization and alignment of overall multilateral support, significant level of corruption and red-tape, weak economic institutional environment, and very low-level developed markets, as some of the main reasons in this regard – especially into the real economy, resulting in unsustainable twin-deficits more often than not, and country becoming a prolonged user of International Monetary Fund (IMF) resources since the 1990s.

Here, IMF programmes being once again premised on neoclassical/neoliberal thought process, favouring ‘price shock therapy’, and unnecessarily employing over-board austerity policy to curtail aggregate demand when the issue was primarily unclogging bottlenecks on the aggregate supply side, only perpetuated the reasons underlying the boom-bust cycles.

Hence, the reason for such long and deep reliance on IMF programmes is because they allowed continuation of neoclassical or neoliberal policies that allowed the rich to get richer on one hand, and for weakening any democratic challenge to this elitist policy mind-set, given underlying austerity policies of this neoliberal thought process, in turn, not allowing economic and educational empowerment of demos.

This, in turn, likely reduced political voice, resulting in greater disconnect between public opinion and public policy over time on one hand, and enhanced, on the other hand, the influence of vested interest groups on public policy. As a corollary, this could be seen in the deepening positive correlation of increasing election campaign finance by vested interest groups of political parties, and greater orientation of public policy favouring the interests of those vested interest groups.

Hence, it is quite naïve of the IMF then to have over-board austerity and market-fundamentalism favouring policies that have a significant bearing in reducing political voice, which, in turn, is important to push governments to make policies against vested interest groups – like enhancing tax base and increasing tax progressivity that in turn also means greater implementation of policy on vested interest groups – on one hand and, on the other, excessively call out governments to have not adequately pushed for implementing these reforms!

Moreover, both within and outside of the IMF programme, ‘foreign economic thought’ remained prevalent, and that is why a strong influx and persistence of ‘Chicago boys’ or Neoliberalism-styled policymakers center-staged policy realm, which, in turn, allowed better coordination with similar neoliberal-minded IMF economists, and for overall continuing the policy tradition of Neoliberalism that suited the elites in their designs to perpetuate extractive institutions.

Hence, unlike China, which actively studied its domestic economy, and brought gradual economic institutional changes, and liberalized markets slowly, made possible by a strong presence of policymakers that evolved domestic economic thought process, and clearly drew boundaries of foreign economic thought in terms of extent of its ability to work in local context.

This meant that in China, instead of adopting market fundamentalism, ‘dual-track’ policy was adopted that allowed for liberal pricing in the area of goods that were in excess supply, while regulating prices for goods that were important for economic development, especially for strategic sectors like agriculture, and industry, both in terms of domestic production and exports, in particular those commodities in these strategic sectors, or involved in these sectors, which were in acute supply domestically and had to be imported.

Renowned Chinese economist, Li Yining, favoured this approach on the premise that China was in a ‘structural disequilibrium’, since markets were under-developed, and called for bringing greater competition among enterprises, rather than going for Big Bang kind of price reform; which was needed also because there was acute supply of essential-natured inputs, and the country, therefore, needed to adopt ‘dual-track’ pricing mechanism.

This is highlighted in the 2021, Routledge published book ‘How China escaped shock therapy: the market reform debate’ by noted economist Isabella M. Weber as follows: ‘At the core of Li’s argument was that China was in a state of structural disequilibrium… understood as a “balance condition under which there is neither a fully developed market nor a flexible price mechanism”… Li warned that overcoming aggregate excess demand under China’s conditions was not a matter of adjusting prices but of developing countries’ competitiveness… [which] could not be achieved by breaking up monopolies… [but by] fostering of management capacities and transferring the socialist enterprises into public stock companies. …Moreover, Li cautioned, China was to face an absolute scarcity of certain key inputs for some time. These scarcities could not be overcome by liberalizing prices. Instead, direct government regulation continued to be necessary, including certain price controls. In the government’s regulation of prices, prices prevailing on the market track of the dual-track system must be the starting point. …In Li’s approach, maintaining the dual-track price system for a long period was an essential part of China’s market reforms.’

On the contrary, the role of economists, especially those who favour social democratic styled, non-neoliberal policies, in particular those that hold the opinion that lack of market development, and insufficient level of regulation, along with deep perpetuation of elite capture do not see the benefit of price, and trade liberalization – given practice of ultra-nationalist policies by many developed countries, especially during crises like the Covid pandemic, which is an important factor anyways since the world is going through a deep level of overlapping poly crises, including existential threats - in one ‘Big Bang’ kind of way.

Instead, like China, the country should bring changes at the margin of economic institutions, organizations, and markets, and to the extent that ultimately the whole complexion of the economy changes in time, and effectively supports reaching more resilient, sustainable, and equitable economic development.

Moreover, instead of going for market fundamentalism, just like China, the country should evolve its domestic economic thought. In this regard, the country should adopt ‘dual-track’ pricing mechanism, and instead of following over-board austerity policies, should look to improve bottlenecks on the side of aggregate supply. This is because just like China in the 1980s, Pakistan is also in a state of ‘structural disequilibrium’.

For that, though, it is important the pool of economic policymakers in power corridors should be allowed to have much more diverse economic mind-set.

Not only that the profession of economics is given its due place both in terms of public and especially civil service – currently there is no economist group in civil service – so that greater perpetuation of domestic economic thought can be evolved, which can effectively check the traditional ones-sided policy menu, and by a handful of economic policymakers at higher levels of decision-making.

The situation of educational institutions also requires an over-haul of approach, whereby on one hand, rather than continuing with teaching a syllabus that wrongly glorifies neoclassical or neoliberal thought process, and sees, for instance, the problem of macro economy to be one of curtailing excess demand, making in turn relevant the practice of austerity policies, not to mention favouring ‘fixing prices’ as an end in itself, without understanding the local economic institutional and market context in terms of its rather very apparent existence of both narrow economic base, and deep level of short-sightedness, and profit-mindedness, instead of inclination to reach productive-, and allocative efficiencies, and in a way that empowers the demos economically and educationally.

The colonial legacy of carrying the office of the revenue collector, law-and-order, and economic manager at the bureaucratic level all super-imposed as one officer of the administrative service, as a top of the pyramid position, in the overall governance hierarchy in the realm of the non-elected public servants – where the educational quality of an average public representative, and where a majority is like that, and which is being from non-technocratic backgrounds – needs to be done away with.

Instead, area specific jobs need to be brought as individualistic offices with no super-imposed administrative service office, and with the inclusion of area specific economists in fields that need demand such as acumen in appropriately leading that office. This means, for example, there is a public finance economist, and a revenue collecting administrator as the needed colleague. This also means a trade economist and a customs administrator.

At the same time, police and law enforcing agencies support administrative officers in keeping law-and-order, judiciary manages legal aspects in dispensation of justice, interprets law and keeps them in line with judicial norms and ideological basis of the country.

On the same lines of approaching specialized offices, and proper inclusion of economists in governance, there is a need for institutional economists, and field statistics officers working together, along with, for instance, sports economists, tourism economists, health economists, working with their counterparts as professional sportsmen, specialized sports sciences people, tourism development specialists, professional medical staff, all collaborating in turn with a specialized economist in that area; not to mention a supporting and aligned educational institutional environment of colleges, universities, think tanks, etc. playing its part in this regard. This will allow producing more domestically wise, and economic discipline wise diverse economic students for the job market and private enterprise so that the boom-and-bust cycle can be broken, and a much greater equitable, green, democratically alive, economy can be reached and taken forward on a more sustainable basis.

Moreover, while it is important to deepen economic ties with China through effectively pursuing such partnerships as CPEC, yet, at the same time, it is essential that the economic approach of China is better understood, and which is to evolve domestic economic thought process, and given just like China’s economic situation in the 1980s, the country’s economic standing, and orientation as mainly an agrarian economy, and which is looking to reach better price discovery, for macroeconomic stability, and sustainable economic growth, and to improve its exports sector, it is important to adopt ‘dual-track’ pricing mechanism, and improve aggregate supply situation rather than curtailing aggregate demand though adopting an over-board austerity policy.

Copyright Business Recorder, 2025