The 1990s’ world was mostly a neoliberal world with the Washington Consensus-styled policies such as small governments, weak regulations, unfettered markets and private sector seen as the panacea. On one hand, the ravages of overall neoliberal assault and in particular as witnessed during the global financial crisis (GFC) of late 2000s, and years of such policies as risky finance, and virtually unchecked profit-maximizing private sector, had led to deepening income inequality, exacerbating of climate change crisis; and on the other hand, ever weakening capacity of public institutions to deal with such sub-optimal markets and private sector performance, as seen in the current pandemic. Strangely, even after all these negative consequences of Neoliberalism, Tarin’s plan is mostly grounded in those fundamentals whereby, for instance, it is being suggested that State-Owned Enterprises (SOEs) should have least role of government, but rather private sector should lead it, when the number of SOEs being managed by public sector over the last decade has more than doubled globally.
The two economic models that the PM sees as important modern face of a welfare state, and wishes to emulate – the state capitalism model being followed in China, and the social democratic model being run in Scandinavian or Nordic block – both have strong non-neoliberal policies – big and efficient public sector, safeguarding long-term economic interests of the majority. Both have shown the importance of strong public sector for SOEs, and directing markets – real and financial – to more responsible, and sustainable economic growth model. Yet Tarin’s plan virtually goes in the opposite direction.
Hence, the current economic plan puts too much confidence in providing finances or money – increase the loans to SMEs, farmers, among others - and focuses little on reforming the institutions or ministries that will provide the needed environment for these finances to get efficiently employed for producing sustainable income streams. Here, an important contradiction of the plan also comes to fore, whereby while on one hand Tarin relies on current ministries’ and private sector’s input to create the economic reform plan in terms of detailed actions in the areas he has prioritized, yet he has little confidence in these ministries to run, for instance, SOEs or for government to provide purpose-drive, mission oriented leadership role; even though it has been amply realized during decades of neoliberal assault that markets and private sector inherently work in a ‘profit over people’ mindset for safeguarding both selfish individual interests, and also that of a tiny segment of population in the shape of politico-economic elites; and even during the current pandemic where corporate greed has come out as one important factor, among others, in hindering mass-production of Covid vaccine.
If not democratically elected public sector, who will ensure shaping ministries, and shaping markets to enable equitable fruits of growth, allow money being provided to enable businesses to flourish in a sustained way, and for environment to be protected? The current economic plan remains loudly silent on needed reforms in ministries and civil service reform in both private and public sectors, and including SOEs and market reforms. The plan talks of targeting subsidies and rationalizing prices, but does not understand that they both require a mission-oriented, purpose-driven, effective public sector. Least regulated private sector, and unfettered markets are the problem, and not the solution as four decades of the neoliberal assault, reflected in both domestic policy and IMF programmes styled in the same fashion have amply shown, and have led to perpetuation of extractive institutional design, serious loss of influence of majority on policy, and in turn led to more radicalization and populism.
Price rationalization requires setting up a ‘price commission’ that looks into the institutional mechanisms, and market infrastructure and supply chains, both in terms of true understanding of determinants of demand and supply, and also ways and means of excessive profiteering. Moreover, this commission should look into pricing in the real and financial sectors, and both in terms of goods and services. Only after prices have been rationalized, can proper and targeted subsidies be reached. Moreover, this will also allow correct pricing of lending and deposit rates – since spreads have gone quite unchecked in terms of justifiability of profits being earned – in the financial sector, pricing of labour in terms of incomes and wages in the labour sector, and pricing of services like those of education and health sectors so that prices reflect true value of underlying costs/efforts, and a reasonable level of profit margins.
Moreover, price rationalization will help burst the bubble of artificial price hike in areas and ways that basically serve elitist profit interest both directly, and also indirectly through people conniving with them, like using a portion of wealth of middle-men in raising election campaign finance, and on the other hand will reduce the cost of development expenditure, and welfare needs. This, together with overall reduction in inflation, will help lower policy rate, and with it domestic debt repayments and cost of capital, which in turn will help narrow down fiscal deficit without hurting the development expenditure needs. Such broad-based and purpose-driven price rationalization effort is not reflected in the current economic plan.
Hence, it is after rightsizing the role of government to give proper direction to organizations, and markets in the greater public interest, in terms of production and consumption decisions, and bringing in more equitable institutional environment through providing needed governance and incentive structures can the amount and needed efficiency of money being provided and being planned for in the current economic plan will bring any meaningful and sustainable gains in terms of bottoms-up approach.
Otherwise, growth even if is achieved, will only exacerbate the already ‘K’ shaped economic recovery – most for the already rich and moneyed people, and little for the majority. At the same time, greater exposure to bank finances – mortgage finance, all sorts of financial windows for farmers, youth in general, small and medium enterprise – will only run strong risk of not obtaining meaningful, long-term usability of such finance in the absence of needed institutional, organizational, and market environment; and in turn, would lead to difficulties for all these borrowers to generate continued income streams to allow them rise on the income ladder, and also service debt being taken.
On the other hand, the current plan in doing so could lead to a similar financial crisis as was seen in the West in the shape of GFC, which saw a large number of people defaulting on their loans, because the needed public sector leadership and institutional environment were missing for these loans to create sustained income streams. Currently, the people may lack resources, which they should not, but lack of institutional support will most likely not allow them to earn livelihood sustainably and service debt; so they run the risk of falling from any income ladder that this finance may initially create, and defaulting on debt repayment.
Tarin’s plan seems to be running with an over-riding thought of election cycle, and that is why focuses more on providing stimulus that may end up creating some economic growth over the next two years but without non-neoliberal institutional reform, and a mission-oriented approach spearheaded by the democratically elected public sector will not allow growth with equity, reducing income inequality, and poverty. Moreover, a much-needed focus in terms of improving the health sector during the pandemic and its main victim in the shape of education sector (after life itself that is), is also missing in the current economic plan. The plan reflects virtually no understanding of global acumen in dealing with the crisis of a neoliberal world (Pakistan is a part of it), one that is also facing as a result the existential threat of climate change crisis, and which does not make use of such concepts as ‘green new deal’, the ‘entrepreneurial state’, a ‘mission economy’, hybrid markets, and mutually-owned enterprises. In that sense, the plan reflects serious intellectual poverty, with likely important consequences as not allowing the stimulus being planned to work for most, and for their future environment, even when the existential threat of climate change crisis is fast approaching.
(Concluded)
(The writer holds PhD in Economics from the University of Barcelona; he previously worked at International Monetary Fund)
He tweets@omerjaved7
Copyright Business Recorder, 2021